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

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

Furthermore, the Polygon ecosystem lately announced the launch of its beta version Zero-Information Ethereum Digital Machine. In consequence, Polygon’s native token, Polygon (MATIC), maintains a bullish narrative.

Whereas notable, some imagine layer-2 networks providing token incentive fashions could quickly develop into out of date.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

“We take into consideration tokens as a robust incentive device that may change person and developer habits. On the similar time, we now have 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.”

In line with Pollak, Base is a layer-2 answer that permits builders to simply construct functions with out requiring an incentive mechanism. “Our product will stand by itself. It is going to be very simple for builders to make use of to construct functions and distribute these to actual human beings,” he mentioned.

Shifting focus from token fashions to person expertise

Specializing in ease of use and distribution are essential factors, as Pollak identified that lots of right now’s decentralized functions have been used solely for buying and selling cryptocurrencies. “Buying and selling just isn’t 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 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 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 contributors have already expressed curiosity in constructing on Base.

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For instance, Konstantin Richter, chief working officer and founding father of Blockdaemon — a blockchain infrastructure supplier — advised 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 mentioned.

Richter additional defined that Blockdaemon plans to make use of the Base community to find out how you can enable community contributors to run nodes whereas probably incomes a hard and fast U.S. greenback price. “This will lead to a special kind of PoS mechanism, probably round dedication of compute somewhat than a staked share of tokens that won’t serve the community nicely,” he mentioned. Richter added that such a mannequin may lead to a greater person expertise. He mentioned:

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

But it stays questionable how precisely Base will entice 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 assume this needs to be a problem: “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 with out a native token. This has actually not stopped customers from interacting with the Arbitrum community. In line with 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 increasingly or not be the case, it demonstrates Arbitrum’s capability to find out product market match earlier than launching a token. Gil Rosen, president of the Stanford Blockchain Accelerator, advised Cointelegraph at ETHDenver 2023 that discovering product market match is about making certain initiatives purchase the appropriate clients whose worth is accretive to the ecosystem, which frequently isn’t the case with tokens. “Early initiatives that launch tokens are sometimes locked into tokenomics fashions earlier than discovering product market match after which are unable to pivot dynamically,” Rosen mentioned.

“DeFi Dad,” a associate at digital asset funding agency Fourth Revolution Capital, advised 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 needed for constructing the decentralized future,” he mentioned.

Due to our group and the complete 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 might be profitable if customers are prepared to sacrifice decentralization and censorship resistance within the quick time period. 

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He mentioned, “Base might be profitable as a community for transacting with a person’s crypto. Nonetheless, make no mistake; Base will probably 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 initiatives with massive developer and person communities, however these will launch later. “A challenge could launch a token when the networks themselves are extra mature and have discovered product market match.”