Woofun AI reports that Ethereum layer-2 networks have seen their total value locked collapse to approximately $5 billion, a contraction attributed to broader DeFi cooling and reduced speculative inflows. This valuation marks a return to levels not witnessed in roughly three years, according to recent data.

The current $5 billion figure represents a roughly 50% drawdown from the sector’s 2024 highs, which had surged past $10 billion. This peak was driven by aggressive incentives, airdrop farming, and the launch of new projects across Arbitrum, Optimism, and zkSync. The subsequent decline has returned the ecosystem to valuations seen in early 2022, erasing gains accumulated over the last three years.

Structurally, the outflows reflect shifting market conditions rather than user abandonment, as transaction volumes on some networks have remained stable or grown.

Woofun AI data shows that while Arbitrum remains the largest layer-2 by TVL, it has experienced significant outflows alongside Optimism and zkSync. The primary driver appears to be improved capital efficiency, as lower yields on DeFi protocols and reduced speculative activity have diminished the need for excessive liquidity in lending, trading, and yield generation.

The return to $5 billion signals a maturing market where capital flows more cautiously than during the 2024 bull cycle. For investors and developers, the critical question is whether this level represents a floor or if further declines are imminent as the crypto market navigates uncertain macroeconomic conditions.