Ethereum layer-2 options could focus much less on token incentives sooner or later

Layer-2 networks proceed to realize momentum because the Ethereum ecosystem advances. For instance, information from analytics supplier Token Terminal discovered that layer-2 scaling resolution Polygon had 313,457 each day energetic customers as of Jan. 17, 2023 — a 30% improve in exercise since October 2022. 

Furthermore, the Polygon ecosystem just lately introduced the launch of its beta model Zero-Information Ethereum Digital Machine. Consequently, Polygon’s native token, Polygon (MATIC), maintains a bullish narrative.

Whereas notable, some consider layer-2 networks providing token incentive fashions could quickly grow to be out of date. As an example, Jesse Pollak — head of protocols and Base core contributor at American crypto change Coinbase — informed Cointelegraph at ETHDenver 2023 that there are at present no plans to affiliate a token with Base, the Ethereum layer-2 community just lately launched by Coinbase. He stated:

“We take into consideration tokens as a robust incentive instrument that may change consumer and developer habits. On the similar time, we have now seen conditions unfold over the previous few years the place tokens have been used as an incentive mechanism with a scarcity of product match for the underlying chain. Tokens have additionally resulted in nefarious or dangerous conditions prior to now.”

In response to Pollak, Base is a layer-2 resolution that permits builders to simply construct purposes with out requiring an incentive mechanism. “Our product will stand by itself. Will probably be very straightforward for builders to make use of to construct purposes and distribute these to actual human beings,” he stated.

Shifting focus from token fashions to consumer expertise

Specializing in ease of use and distribution are essential factors, as Pollak identified that a lot of right now’s decentralized purposes have been used solely for buying and selling cryptocurrencies. “Buying and selling shouldn’t be sufficient to make cryptocurrency the way forward for the financial system. At Base, we’re making it straightforward for builders to construct helpful purposes that individuals really wish to use,” he added.

Pollak defined that Base is investing in core infrastructure, equivalent to Ethereum Enchancment Proposal 4844, which is able to make the community safe and low-cost in contrast with different layer-2 networks. “It prices about 10–15 cents to conduct transactions on layer-2s. We goal to convey that down,” he talked about.

Whereas Base launched its testnet in February, Pollak shared that the Base mainnet launch will happen within the coming months. Furthermore, whereas no plans exist for Base to supply a local token, a number of ecosystem individuals have already expressed curiosity in constructing on Base.

Current: Subsequent cease Shanghai — Ethereum’s newest milestone approaches

For instance, Konstantin Richter, chief working officer and founding father of Blockdaemon — a blockchain infrastructure supplier — informed Cointelegraph at ETHDenver 2023 that Blockdaemon will function an official infrastructure associate for Base. Richter shared that he thinks Base shouldn’t have a token related to the community, as he believes proof-of-stake (PoS) is a completely damaged system. “Blockdaemon runs extra PoS nodes than anybody else, and I can let you know that proof-of-stake solely works when token costs go up,” he stated.

Richter additional defined that Blockdaemon plans to make use of the Base community to find out the best way to permit community individuals to run nodes whereas presumably incomes a hard and fast U.S. greenback charge. “This will lead to a distinct kind of PoS mechanism, presumably round dedication of compute moderately than a staked proportion of tokens that will not serve the community nicely,” he stated. Richter added that such a mannequin may lead to a greater consumer expertise. He stated:

“This might be the largest paradigm shift throughout the cryptocurrency ecosystem because the invention of PoS. We’re transferring away from incentive fashions that reward customers for utilizing a product. We are actually targeted on ease of performance and low charges.”

But it stays questionable how precisely Base will appeal to customers and builders to the platform and not using a token incentive mannequin. Given Coinbase’s huge understanding of establishments and decentralized finance (DeFi), Richter doesn’t assume this ought to be a difficulty: “I favor to work with Base given Coinbase’s understanding of establishments and DeFi. It’s outstanding {that a} public Fortune 500 firm is dedicated to placing transactions transparently on Base.”

Whereas it’s too quickly to foretell future outcomes, it’s essential to notice that Arbitrum, one other Ethereum layer-2 community, additionally features and not using a native token. This has definitely not stopped customers from interacting with the Arbitrum community. In response to information from the analytics web site, Arbitrum has about $3.35 billion whole worth locked, making up about 54% of the market share on Ethereum.

Nevertheless, rumors have been circulating that Arbitrum could provoke a token airdrop sooner or later. Whereas this will likely or not be the case, it demonstrates Arbitrum’s skill to find out product market match earlier than launching a token. Gil Rosen, president of the Stanford Blockchain Accelerator, informed Cointelegraph at ETHDenver 2023 that discovering product market match is about making certain tasks purchase the precise clients whose worth is accretive to the ecosystem, which frequently isn’t the case with tokens. “Early tasks that launch tokens are sometimes locked into tokenomics fashions earlier than discovering product market match after which are unable to pivot dynamically,” Rosen stated.

“DeFi Dad,” a associate at digital asset funding agency Fourth Revolution Capital, informed Cointelegraph that he believes the principle driver behind layer-2 tokens is to make sure decentralized management over layer-2 networks.

For instance, he defined that the upcoming launch of zkSync’s Zero-Information Ethereum Digital Machine would use a PoS mechanism to permit zkSync tokenholders to behave as stakers. “Layer-2 tokens are obligatory for constructing the decentralized future,” he stated.

DeFi Dad thinks a layer-2 community with out plans to implement a local token might be profitable if customers are prepared to sacrifice decentralization and censorship resistance within the brief time period. 

Current: Banks with crypto companies require new Anti-Cash Laundering capabilities

He stated, “Base might be profitable as a community for transacting with a consumer’s crypto. Nevertheless, make no mistake; Base will likely be a layer-2 (at the least for the foreseeable future) that makes trade-offs. As DeFi customers, we are likely to deprioritize safety and censorship resistance till we actually want it.”

With this level in thoughts, Rosen talked about that he believes token fashions will stay for a lot of decentralized tasks with giant developer and consumer communities, however these will launch later. “A venture could launch a token when the networks themselves are extra mature and have discovered product market match.”