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Layer 3 Scaling Solutions: As Degen Chain Grows, How Prone Are They To Scams?

Last Updated April 2, 2024 11:53 AM
James Morales
Last Updated April 2, 2024 11:53 AM
By James Morales
Verified by Peter Henn

Key Takeaways

  • Since its launch, Degen Chain has bridged around $50 million.
  • The memecoin-focused Layer 3 already hosts over 8,500 different tokens.
  • Many Degen Chain tokens are rug-pulls waiting to happen.
  • However, the increasingly diverse L3 ecosystem supports all kinds of different use cases.

Since launching on Thursday, March 28, the value of assets bridged to Degen Chain has climbed to nearly $50 million , emerging as one of the most successful Ethereum Layer 3 blockchains to date.

But is a memecoin-focused Layer 3 really a good idea? As the name suggests, the new chain is fundamentally based on speculative trading in low-cap tokens. This, therefore, makes it an ideal breeding ground for pump-and-dump schemes, rug pulls and scams. 

A Dedicated Chain For Degens

Athough many crypto traders wear the degen moniker as a badge of honor, the word should ring alarm bells for investors. 

Short for degenerate, degen is derived from a derogatory term for gambling addicts. Self-proclaimed degens rarely hold the countless obscure memecoins they trade for a prolonged period, preferring to ride volatile markets for short-term profit.

In a world where tokens can pump thousands of percent overnight, only to crash back down just as quickly, the degen moto “get rich or get rekt” isn’t for the faint-hearted. 

Before Degen Chain, there was Degen Token – a community coin that was popularized as a tipping mechanism on Farcaster. 

Degen token itself has a highly volatile price history. But as the native token of a popular L3, could its price settle down? Perhaps. However, the same can’t be said for the rest of the coins found on the platform.

Embracing the Degen Mentality

In less than a week, over 8,500  token contracts have been deployed on Degen Chain. These contracts represent a diverse array of NFTs and memecoins.

Given the sheer volume of tokens, it is safe to assume most of them are trash, but degens inevitably hope some of them will moon.

At the time of writing, the Degen Chain token with the highest market capitalization is Exit Ape. This is a memecoin that promises  “no roadmap, no world-changing talk,” just a “thrilling crypto adventure.”

Anticipating the inevitable moment when traders cash out their position, leaving anyone who wasn’t paying attention with millions or ERC-20 tokens that couldn’t even buy a banana, the project’s  website sums up the degen mentality: “we ape in and ape out, no monkey business.”

Is New Layer 3 a Scam?

To outsiders, a token project that promises massive gains, only for early investors to cash out and disappear once liquidity reaches a certain threshold sounds a lot like a scam. But to degens, it’s all part of the fun. 

Of course, given the nature of the game, there is always the risk Degen Chain itself will lose its liquidity. 

Without a single stablecoin in circulation on the L3, traders will no doubt be in a rush to bridge any profits back to the underlying Layer 2 – Base – where they trade them for a more secure store of value. 

However, not all L3s share the same risks.

Assessing L3 Risk

Ultimately, the beauty of L3s is that they significantly lower technical and financial barriers to building a new chain.

As the concept gathers steam, developers are exploring a diverse array of L3 use cases. These range from generalist scaling solutions to more niche applications.

For example, the Public StarkNet L2 supports custom L3 platforms for the likes of dYdX, SoRare and Immutable.

Each instance comes with its own risks for users. It is also important to remember that a Layer 3 is only as secure as the Layer 2 upon which it is built. Indeed, a Layer 2 is, in many cases, only as secure as the blockchain it itself is built on. 

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