Ethereum layer-2 solutions may focus less on token incentives in the future

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

Furthermore, the Polygon ecosystem not too long ago announced the launch of its beta version Zero-Data Ethereum Digital Machine. Consequently, Polygon’s native token, Polygon (MATIC), maintains a bullish narrative.

Whereas notable, some imagine layer-2 networks providing token incentive fashions could quickly change into out of date.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

“We take into consideration tokens as a strong incentive software that may change person and developer habits. On the identical time, we’ve seen conditions unfold over the previous couple of 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 up to now.”

Based on Pollak, Base is a layer-2 resolution that enables builders to simply construct functions with out requiring an incentive mechanism. “Our product will stand by itself. It will likely be very simple for builders to make use of to construct functions and distribute these to actual human beings,” he stated.

Shifting focus from token fashions to person expertise

Specializing in ease of use and distribution are essential factors, as Pollak identified that a lot of at the moment’s decentralized functions have been used solely for buying and selling cryptocurrencies. “Buying and selling will not be sufficient to make cryptocurrency the way forward for the financial system. At Base, we’re making it simple for builders to construct helpful functions that individuals truly need to use,” he added.

Pollak defined that Base is investing in core infrastructure, equivalent to Ethereum Improvement Proposal 4844, which can 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 intention to carry 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.

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For instance, Konstantin Richter, chief government 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 inform you 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 find out how to enable community individuals to run nodes whereas presumably incomes a set U.S. greenback charge. “This will lead to a distinct kind of PoS mechanism, presumably round dedication of compute somewhat than a staked share of tokens that won’t serve the community effectively,” he stated. Richter added that such a mannequin might lead to a greater person expertise. He stated:

“This may very well be the largest paradigm shift inside the cryptocurrency ecosystem for the reason that invention of PoS. We’re shifting 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 with out a token incentive mannequin. Given Coinbase’s huge understanding of establishments and decentralized finance (DeFi), Richter doesn’t suppose this needs to be a problem: “I desire 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 with out a native token. This has actually not stopped customers from interacting with the Arbitrum community. Based on knowledge from the analytics web site L2Beat.com, Arbitrum has about $3.35 billion whole worth locked, making up about 54% of the market share on Ethereum.

Nonetheless, rumors have been circulating that Arbitrum may initiate a token airdrop in the future. Whereas this may occasionally 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 primary 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-Data Ethereum Digital Machine would use a PoS mechanism to permit zkSync tokenholders to behave as stakers. “Layer-2 tokens are essential for constructing the decentralized future,” he stated.

Because of our group and your entire ecosystem for an energizing ETHDenver 2023. For the rest of the week, we’ll share highlights from ETHDenver round ZK scaling and constructing a future-proof zkEVM. First matter, hyperscalability.

1/7 pic.twitter.com/qOVSQ475a2

— zkSync ∎ (@zksync) March 8, 2023

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

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He stated, “Base may very well be profitable as a community for transacting with a person’s crypto. Nonetheless, make no mistake; Base will likely be a layer-2 (not less than for the foreseeable future) that makes trade-offs. As DeFi customers, we are inclined 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 person communities, however these will launch later. “A undertaking could launch a token when the networks themselves are extra mature and have discovered product market match.”