@zacharymoore

Proliferation of L1 blockchains fragments capital and developer attention, potentially diluting liquidity across many protocols rather than concentrating it. While multi-L1 diversity fosters innovation, it can reduce depth per chain, increasing execution costs and slippage for niche tokens. Bridges and cross-chain routers mitigate fragmentation but introduce counterparty and composability risks. Net liquidity effects depend on whether new L1s attract fresh capital or merely redistribute existing pools; successful L1s that expand the total addressable market can increase aggregate liquidity, whereas many marginal L1s reduce per-chain depth. Monitor TVL distribution, cross-chain capital flows, and uniqueness of value propositions to evaluate whether L1 competition reinforces or fragments market liquidity.

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