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

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

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

Moreover, the Polygon ecosystem lately introduced the launch of its beta model Zero-Knowledge Ethereum Virtual Machine. As a outcome, Polygon’s native token, Polygon (MATIC), maintains a bullish narrative.

While notable, some imagine layer-2 networks providing token incentive fashions may quickly develop into out of date. For occasion, Jesse Pollak — head of protocols and Base core contributor at American crypto alternate Coinbase — informed Cointelegraph at ETHDenver 2023 that there are at the moment no plans to affiliate a token with Base, the Ethereum layer-2 community lately launched by Coinbase. He stated:

“We think about tokens as a powerful incentive tool that can change user and developer behavior. At the same time, we have seen situations unfold over the last few years where tokens have been used as an incentive mechanism with a lack of product fit for the underlying chain. Tokens have also resulted in nefarious or risky situations in the past.”

According to Pollak, Base is a layer-2 answer that permits builders to simply construct functions with out requiring an incentive mechanism. “Our product will stand on its own. It will be very easy for developers to use to build applications and distribute those to real human beings,” he stated.


Shifting focus from token fashions to consumer expertise

Focusing on ease of use and distribution are vital factors, as Pollak identified that lots of as we speak’s decentralized functions have been used solely for buying and selling cryptocurrencies. “Trading is not enough to make cryptocurrency the future of the economy. At Base, we are making it easy for developers to build useful applications that people actually want to use,” he added.

Pollak defined that Base is investing in core infrastructure, similar to Ethereum Improvement Proposal 4844, which can make the community safe and low-cost in contrast with different layer-2 networks. “It costs about 10–15 cents to conduct transactions on layer-2s. We aim to bring that down,” he talked about.

While Base launched its testnet in February, Pollak shared that the Base mainnet launch will happen in the coming months. Moreover, 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 — 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 wholly damaged system. “Blockdaemon runs more PoS nodes than anyone else, and I can tell you that proof-of-stake only works when token prices go up,” he stated.

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 may result in a different type of PoS mechanism, possibly around commitment of compute rather than a staked percentage of tokens that may not serve the network well,” he stated. Richter added that such a mannequin may outcome in a greater consumer expertise. He stated:

“This could be the biggest paradigm shift within the cryptocurrency ecosystem since the invention of PoS. We are moving away from incentive models that reward users for using a product. We are now focused on ease of functionality and low fees.”

Yet it stays questionable how precisely Base will entice 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 suppose this must be a problem: “I prefer to work with Base given Coinbase’s understanding of institutions and DeFi. It’s remarkable that a public Fortune 500 company is committed to putting transactions transparently on Base.”

While it’s too quickly to foretell future outcomes, it’s vital to notice that Arbitrum, one other Ethereum layer-2 community, additionally capabilities and not using a native token. This has definitely not stopped customers from interacting with the Arbitrum community. According 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.

However, rumors have been circulating that Arbitrum may provoke a token airdrop in the future. While this may or not be the case, it demonstrates Arbitrum’s means 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 initiatives purchase the proper clients whose worth is accretive to the ecosystem, which frequently isn’t the case with tokens. “Early projects that launch tokens are often locked into tokenomics models before finding product market fit and then 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 principal 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-Knowledge Ethereum Virtual Machine would use a PoS mechanism to permit zkSync tokenholders to behave as stakers. “Layer-2 tokens are necessary for building the decentralized future,” he stated.

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

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He stated, “Base could be successful as a network for transacting with a user’s crypto. However, make no mistake; Base will be a layer-2 (at least for the foreseeable future) that makes trade-offs. As DeFi users, we tend to deprioritize security and censorship resistance until we really need 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 consumer communities, however these will launch later. “A project may launch a token when the networks themselves are more mature and have found product market fit.”

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