Avalanche Co-founder Emin Gün Sirer Highlights Perils Of L2 Projects

Emin Gün Sirer, a co-founder of the Avalanche blockchain, warned about risky layer-2 solutions. On Mar 23, the Ava Labs leader posted on X (formerly Twitter). He cautioned users about certain “trash” layer-2 projects. Sirer educated people on common traits of these concerning solutions.

Hey y'all,

We all ignored the huge red flags associated with SBF because "he looked smart" and "he made a lot of money." Then it turned out that he was dumb as rocks, was a sociopath, and was just stealing our money.

The next cycle is going to be even more noisy, with even…
— Emin Gün Sirer🔺 (@el33th4xor) March 23, 2024

Warning Signs to Monitor in Level 2 Projects – Insights From Avalanche Co-founder

Emin Gün Sirer, a prominent crypto figure, warns that substandard Layer 2 (L2) projects pose the next significant risk to the cryptocurrency ecosystem following the crypto exchange scandal involving former FTX CEO Sam Bankman-Fried (SBF). Sirer argues that the process for launching an L2 solution lacks rigour, allowing bad actors to create projects without real value.

Sirer lists several red flags associated with risky L2 solutions to promote investor security. First, he points out a disconnect between a project’s marketing narrative and technology implementation. Examples include centralized sequencers without fraud protection, which contradict the principles of decentralization and security.

Sirer also highlights L2 projects that conduct token sales to raise funds rather than for a specific, practical purpose on the network, indicating a dubious investment opportunity.

Furthermore, Sirer raises concerns about L2 projects where founders sell their native tokens before launch. He considers a large volume of pre-launch native token sales by founders as a massive red flag, regardless of the motive.

Another issue Sirer emphasizes is projects with low-float tokens, which can lead to artificial inflation of token value through manipulation tactics similar to those employed by SBF.

Evaluating Authenticity: Emin Gün Sirer’s Approach

Emin Gün Sirer proposed a simple test to help investors find authentic and profitable layer 2 (L2) projects amidst the numerous daily launches.

First, he suggested identifying the main issues or “blockers” in the crypto space at any time. For instance, scalability and performance were significant issues until blockchains like Avalanche and Solana emerged with solutions.

Sirer believes that supporting multiple use cases on the same platform and integrating with traditional finance (TradFi) are critical challenges facing the crypto ecosystem. Before investing in an L2 solution, he advises users to assess whether the project offers a genuine solution to these challenges.

Furthermore, the author’s views are for reference only and shall not constitute investment advice. Before purchasing, please ensure you fully understand and assess the products and associated risk.