Source: Cointelegraph.com NewsLayer 2s have been a great blockchain success story. They\u2019ve reduced congestion on the Ethereum mainnet, driving down gas fees while preserving security.
\nBut maybe they\u2019ve become too successful, drawing chain activity and fee income from the parent that spawned them? At least that\u2019s what some are suggesting lately, most recently at Cornell Tech\u2019s blockchain conference in late April.
\nIndeed, some think Ethereum should be a little greedier, or at least fight harder for a bigger part of the revenue pie, particularly sequencing fees.\u00a0
\n\u201cPeople in the Ethereum Foundation [the nonprofit that supports the Ethereum ecosystem] will tell you that, \u2018Yes, we effed up by being too ivory tower.\u2019 I have heard that multiple times,\u201d said David Hoffman, an owner at Bankless, during a panel discussion at the Cornell Tech event in New York City on April 25.\u00a0
\nHoffman, left, at Cornell Tech\u2019s blockchain conference. Source: Andrew SingerElsewhere, Hoffman has urged Ethereum to make a \u201cstrategic pivot,\u201d noting that the crypto environment has changed in the last few years. Ethereum no longer has the \u201cluxury of being a peace-time research project\u2026. exploited by its competition.\u201d
\nL2s are reaping millions of dollars in transaction order fees (sometimes called sequencing fees), but none of these revenues are being passed on to Ethereum, according to James Beck, head of growth at ENS Labs and another speaker at the New York City conference. Beck told Cointelegraph:
\nSo, this cultural layer of podcasters and researchers are saying, \u2018Well, the price of ETH has been dropping compared to these other tokens. What do we do to make Ethereum more powerful?\u2019
\nIn short, Ethereum is a neutral verification layer, but the Ethereum mainnet is not being fairly compensated for the work that it is doing. Centralized for-profit L2s like Base, Optimism and Arbitrum are gathering the lucrative sequencing fees while enjoying the security and liveness guarantees of the Ethereum mainnet at relatively little economic cost.<\/p>\n
L2s soared after Dencun upgrade
\nL2 rollups are a recent innovation; they only emerged in 2023. The idea was to reduce chain congestion and gas fees by moving transaction processing from the main blockchain (layer 1) to separate chains that sit atop the mainnet (L2s). But transaction processing is arguably the most profitable part of the revenue game, especially when users opt to pay priority fees to get their orders processed faster.
\nFee-sharing was rarely much of an issue before Ethereum\u2019s March 2024 Dencun upgrade, which introduced blob transactions to help scale layer 2s. Blobs significantly reduced the cost for L2s to post data to Ethereum, allowing them to operate more profitably, CoinMetrics researcher analyst Tanay Ved told Cointelegraph this week.\u00a0
\nSince then, L2 user demand has soared, especially on Base, the L2 launched by Coinbase in August 2023 on the Ethereum mainnet.\u00a0
\nAs Ved noted in an April 8 blog, Base has earned a total of ~$98 million in revenues from user-transaction fees (including base and priority fees), \u201cwhile paying only ~$4.9M to the Ethereum base layer, resulting in a total estimated profit of $94M since the Dencun upgrade.\u201d\u00a0
\nVed added:
\nThis dynamic has led to many questioning whether Layer-2s are net positive for Ethereum, or whether they are \u2018extractive.<\/p>\n
Base\u2019s response
\nAsked about fees, a Base spokesperson told Cointelegraph, \u201cToday, Base already pays Ethereum fees for every transaction on Base. All transactions are settled on Ethereum, and so far, Base has paid Ethereum more than $20 million in settlement fees since Base\u2019s inception.\u201d One can see these fees on Token Terminal under \u201ccost of revenue,\u201d the spokesperson added.\u00a0
\n\u201cOverall, Base makes getting onchain more accessible with fast and cheap transactions and helps grow the Ethereum ecosystem by onboarding more users, builders, apps and assets, all of whom are transacting in ETH and driving demand,\u201d said the spokesperson.
\nRelated: Institutions break up with Ethereum but keep ETH on the hook
\nHowever, in many, if not most months, Base\u2019s overall fees are roughly 10 times the amount paid to Ethereum for settling trades, according to examination of the referenced Base financial statement. In April, for instance, the most recent full month, Base reaped $3.7 million in fees, but only $305,000 was delivered to Ethereum as settlement fees \u2014 about 8% of total fees.
\nStill, maybe things aren\u2019t quite so dire. Even if fees are out of kilter now, the imbalance may not last, others caution. Ethereum hard forks like Pectra, which went live yesterday (May 7), and Fusaka, scheduled for late 2025, will increase blob throughput. \u201cThis means L2s will be able to post more blobs, potentially driving higher total blob fees to mainnet,\u201d Ved told Cointelegraph.\u00a0
\nEthereum is already consistently hitting the current blob target of three per block, as the chart below shows. \u201cPectra will raise this to six blobs per block \u2014 with a max of nine \u2014 creating room for increased fee capture as L2 activity scales,\u201d added Ved.
\nAverage blobs per block and their total blob fees (USD) on Ethereum. Source: CoinMetrics
\nAre \u201cbased rollups\u201d the answer?
\nSome Ethereum researchers, podcasters \u2014 and even L2s \u2014 have been leaning into \u201cbased rollups\u201d as a more permanent way to fix the fee problem and provide better security in the bargain. Here, transaction ordering (i.e., sequencing) would be done on the mainnet, not on L2s.
\nThe sequencers used by Optimism, Arbitrum One, Base and others are more prone to attack or failure, given that they are centralized, with a single point of failure, some researchers say. Polygon\u2019s Jarrod Ward writes:
\nIf a centralized sequencer goes down, the rollup effectively stops doing its job entirely. It stops handling transactions from users on the L2 and also stops sending batch data back to Ethereum.
\n\u201cLayer-2 sequencers have become dangerously centralized,\u201d added Tom Ngo, executive lead at Metis \u2014 an Ethereum layer-2 blockchain.\u00a0
\nLast June\u2019s $2.6-million hack of Ethereum layer-2 blockchain Linea drove home to Ngo and others the importance of decentralization and the perils of centralized sequencers.\u00a0
\nRelated: \u2018Vitalik: An Ethereum Story\u2019 is less about crypto and more about being human
\nSeveral based-rollup L2s have launched this past year. Taiko Alethia, the first and largest, went live in May 2024. A year later, it had $148.3 million in total value secured \u2014 ranking 14th on L2Beat\u2019s list of L2s, though far behind leader Base\u2019s $12.06 billion.\u00a0<\/p>\n
Top Ethereum layer 2s ranked by total value secured. Source: L2BeatSpeedwise, Taiko was averaging a respectable 20.3 user operations per second (UOPS) on May 7, a far cry from Base\u2019s 86.3 UOPS, but on par with Arbitrum One\u2019s (21.6 UOPS) and significantly better than Optimism\u2019s (10.3 UOPS).<\/p>\n
A tax on L2s? Source: Cointelegraph.com NewsLayer 2s have been a great blockchain success story. They\u2019ve reduced congestion on the Ethereum mainnet, driving down gas fees while preserving security. But maybe they\u2019ve become too… <\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[],"_links":{"self":[{"href":"http:\/\/cryptospotters.net\/index.php?rest_route=\/wp\/v2\/posts\/128853"}],"collection":[{"href":"http:\/\/cryptospotters.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/cryptospotters.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"http:\/\/cryptospotters.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=128853"}],"version-history":[{"count":0,"href":"http:\/\/cryptospotters.net\/index.php?rest_route=\/wp\/v2\/posts\/128853\/revisions"}],"wp:attachment":[{"href":"http:\/\/cryptospotters.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=128853"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/cryptospotters.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=128853"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/cryptospotters.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=128853"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nAnother idea floated in the Ethereum community is imposing a sort of tax on L2s. But doing this could have some unintended consequences, according to Ved. It could make L2s less competitive. It also risks \u201cleakage of activity to competing layer 1s outside the Ethereum ecosystem.\u201d Activity that flows to Base today could flow instead to Solana or other L1s, Ved said.
\nThere could be philosophical issues, too, were Ethereum to lay a surcharge on its L2s. Ved noted:
\nA tax could be seen as contrary to Ethereum\u2019s ethos of decentralization, which would opt for market-driven forces rather than enforcing a tax.
\n\u00a0Generally speaking, the Ethereum Foundation seems to be prioritizing long-term growth over short-term revenue, Ved explained. Proposals like EIP-7762, though, which raises the minimum blob base fee to speed up price discovery during demand surges, could drive more fee income to Ethereum mainnet, having an effect like a tax.\u00a0
\nSocial pressure?
\nAccording to ENS Labs\u2019 Beck, it may take some social pressure to get the leading centralized L2s to voluntarily give up their sequencing fees. Other L2s like Linea may need to step in and say to centralized L2s something along the lines of: \u201cLook, you guys have these risks inherent in a more centralized design, and here\u2019s the chance to bake [the order processing] into Ethereum, which is more decentralized.\u201d
\nAlong these lines, ENS took part in a three-day workshop in the UK in January with leading researchers and developers from entities like Linea, Status, OpenZeppelin, Titan, Spire Labs and the Ethereum Foundation. The immediate task was how to create scalable, decentralized infrastructure for ENS Labs\u2019 Namechain, but also to bring together various Ethereum ecosystem teams to collaboratively solve L2 interoperability challenges with based rollups.\u00a0
\nIt\u2019s not always easy to get things done in a flat (non-hierarchical), multi-voice entity like Ethereum, Beck acknowledges. \u201cEthereum is a decentralized ecosystem. You can\u2019t get everyone on the same page all at once.\u201d But a collaboration like the recent one that took place in the UK is a start.\u00a0
\nCornell Tech conference panelist Hoffman expressed some confidence that Ethereum could pivot and \u201cturn the layer 1 into a rollup\u201d with processing speeds comparable to today\u2019s L2s.\u00a0
\nAs noted, Hoffman has criticized the Ethereum Foundation for being too insular and academic, but he sees signs that things may be changing now, writing recently:
\nThe appointment of co-executive directors Tomasz Sta\u0144czak and Hsiao-Wei Wang marks a new era of accountability, direction, and internal cohesion.
\n\u201cI\u2019m feeling optimistic,\u201d added Beck. \u201cEthereum still has the most assets locked for DeFi; the most stablecoins are on Ethereum. BlackRock has a fund that\u2019s settling on Ethereum.\u201d\u00a0
\nPut another way, Ethereum is still well-positioned to provide the infrastructure for the \u201cnetwork of networks\u201d \u2014 i.e., the smoothly interacting network of multitudinous private and public blockchains that many hope will be the technology\u2019s future.
\nMagazine: 12 minutes of nail-biting tension when Ethereum\u2019s Pectra fork goes liveRead More<\/a><\/p>","protected":false},"excerpt":{"rendered":"