Syndicate Labs exits as smaller Ethereum layer 2s lose traction

Syndicate Labs has announced plans to shut down its operations after saying the market for Ethereum rollups has deteriorated to a point where the business is no longer viable.

In a statement posted on X on Thursday, Syndicate Labs said the “rollup market has fundamentally shifted,” adding that the number of new rollups entering the ecosystem no longer offsets the growing list of projects quietly shutting down.

The company said custom chains are increasingly being built internally by consulting teams rather than relying on reusable infrastructure platforms like Syndicate’s smart sequencer technology.

Founded to support customizable Ethereum appchains and application-specific rollups, Syndicate Labs raised $20 million in a Series A round led by Andreessen Horowitz in 2021. Over the past year, however, activity across smaller Ethereum scaling networks has weakened as liquidity and users concentrated around dominant layer-2 ecosystems.

According to L2Beat data, the total value secured across the rollup ecosystem has dropped about 36% from its October peak of more than $50 billion. Arbitrum One, Base and OP Mainnet now account for roughly 75% of the market, leaving smaller networks competing for a shrinking share of users and capital.

Separate research published by 21Shares in December said layer-2 activity had fallen 61% since June, with many smaller chains operating with minimal usage. The asset manager described several of those networks as “zombie chains” as transaction activity continued to slow.

Closure follows bridge exploit and token collapse

While announcing the shutdown, Syndicate Labs said the decision was unrelated to the Syndicate Commons Bridge exploit that hit the project in late April. The company stated that governance for the Syndicate Network Collective and the SYND token remains independent from Syndicate Labs itself.

Earlier this year, Syndicate Labs confirmed that a leaked private key allowed an attacker to upgrade bridge contracts on two networks and drain around 18.5 million SYND tokens, worth about $330,000 at the time, along with roughly $50,000 in user assets. In its post-incident report, the company admitted the upgrade key had been stored in a password management tool without an added encryption layer and that the bridge lacked multisignature approval systems or automated circuit breakers for contract upgrades.

Security firms, including CertiK, later traced portions of the stolen funds after the attacker bridged proceeds into Ethereum. Syndicate Labs said at the time that the exploit involved “multi-stage reconnaissance, infrastructure mapping, and careful execution,” while also ruling out insider involvement.

Following the attack, the company pledged to fully compensate affected users and said it had enough reserves to cover the losses. Syndicate Labs also outlined plans to tighten key management practices, introduce hardware or multisignature protections, and improve real-time monitoring around contract upgrades.

Pressure on the SYND token has continued since the exploit. CoinGecko data shows the token fell another 21% within hours of Thursday’s closure announcement, hitting a record low near $0.012. The asset has now lost about 99.5% of its value since reaching a peak of $2.61 in September 2025.

Elsewhere in the crypto sector, several DeFi projects have also shut operations this year amid weak activity and funding challenges. Mobile DeFi superapp Legend said on May 13 that it was winding down because of scaling difficulties, while projects including Step Finance, Polynomial, Balancer Labs, and Seamless Protocol have also announced shutdowns or operational cutbacks in recent months.