Ethereum's Layer 2 (L2) solutions represent one of the blockchain world's most significant success stories. By processing transactions off-chain while leveraging Ethereum's security, they have effectively reduced congestion and gas fees on the mainnet. However, their rapid growth has sparked a critical debate: are these L2s diverting too much value away from Ethereum itself?
Understanding the Layer 2 Fee Dilemma
Layer 2 rollups, which gained prominence in 2023, were designed to address Ethereum's scalability challenges. They process transactions on separate chains before bundling and settling them on the mainnet. While this approach has undoubtedly improved user experience through lower costs and faster transactions, it has created an economic imbalance.
The core issue revolves around sequencing fees—revenue generated from transaction ordering that largely remains with L2 operators rather than flowing back to Ethereum's base layer. This has led to concerns about whether Ethereum is receiving fair compensation for providing security and finality to these L2 networks.
The Post-Dencun Upgrade Landscape
Ethereum's Dencun upgrade in March 2024 introduced blob transactions, significantly reducing the cost for L2s to send data to the mainnet. This enhancement triggered a surge in L2 activity, particularly on Base, the L2 solution launched by Coinbase in August 2023.
According to blockchain analytics, Base generated approximately $98 million in user transaction fees while paying only $4.9 million to Ethereum for data settlement post-Dencun—resulting in an estimated $94 million in profit retention. This substantial gap has prompted serious discussions about the economic relationship between L2s and the mainnet.
The Case for Based Rollups
Some Ethereum researchers and developers advocate for "based rollups" as a more sustainable alternative. In this model, transaction sequencing would occur directly on Ethereum's mainnet rather than on separate L2 chains.
Proponents argue that current L2 sequencers represent centralization risks and single points of failure. As one developer noted, "If a centralized sequencer fails, the rollup essentially stops working completely—it ceases processing user transactions and stops sending batch data back to Ethereum."
Several based rollup projects have already launched, with Taiko emerging as the largest implementation. While its total value locked remains modest compared to major L2s, its performance metrics demonstrate the viability of this approach.
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Potential Solutions and Their Implications
Increasing Fees on Layer 2s
One proposed solution involves implementing higher fees on L2 transactions to ensure better revenue sharing with Ethereum's mainnet. However, this approach carries significant risks:
- Reduced competitiveness against alternative Layer 1 blockchains
- Potential migration of activity to ecosystems like Solana
- Philosophical conflicts with Ethereum's decentralized, market-driven ethos
Rather than direct taxation, some researchers suggest mechanisms like EIP-7762, which would accelerate price discovery during demand surges through higher minimum blob base fees, indirectly increasing mainnet revenue.
The Role of Social Pressure and Collaboration
Some experts believe social pressure might encourage major L2s to voluntarily redistribute more value to Ethereum. As one industry leader noted, "Ethereum is a decentralized ecosystem. You can't get everyone to agree simultaneously." However, collaborative efforts among developers and researchers are beginning to address these challenges.
Recent workshops bringing together entities like Linea, Status, OpenZeppelin, and the Ethereum Foundation have focused on creating scalable decentralized infrastructure and improving L1-rollup interoperability.
The Path Forward: Ethereum's Strategic Position
Despite these challenges, Ethereum maintains several strategic advantages:
- The largest DeFi total value locked among all blockchains
- Dominance in stablecoin settlement
- Growing institutional adoption, including BlackRock's Ethereum-based fund
The Ethereum Foundation appears to prioritize long-term ecosystem growth over short-term revenue maximization. Upcoming upgrades like Pectra (activated May 7, 2024) and future hard forks will increase blob throughput capacity, potentially creating more fee opportunities as L2 activity expands.
Industry observers note positive developments in Ethereum's governance, citing recent leadership appointments that signal increased accountability and internal cohesion. As one commentator noted, "I feel optimistic. Ethereum still has the most DeFi locked; the most stablecoins are on Ethereum."
The ultimate goal remains creating a seamless "network of networks"—an interconnected ecosystem of multiple chains that can interact smoothly while properly valuing Ethereum's foundational security layer.
Frequently Asked Questions
What are Layer 2 solutions on Ethereum?
Layer 2 solutions are secondary frameworks built on top of Ethereum that process transactions off-chain before settling them on the mainnet. They reduce congestion and gas fees while maintaining Ethereum's security guarantees.
Why are there concerns about L2s and Ethereum's revenue?
Many L2s retain significant sequencing fees that critics argue should be more substantially shared with Ethereum's mainnet, which provides the underlying security and finality for these networks.
What are based rollups?
Based rollups are L2 solutions that perform transaction sequencing directly on Ethereum's mainnet rather than on separate chains, potentially offering better security and economic alignment with Ethereum.
How did the Dencun upgrade affect L2 economics?
The Dencun upgrade introduced blob transactions, dramatically reducing data costs for L2s. While this improved user experience through lower fees, it widened the gap between L2 revenue and their payments to Ethereum.
Could Ethereum implement taxes on L2 transactions?
While technically possible, such measures might drive activity to competing blockchains and conflict with Ethereum's decentralized philosophy. Most researchers favor market-driven solutions over mandatory taxation.
What is the future outlook for Ethereum and L2 collaboration?
Upcoming upgrades will increase Ethereum's capacity, while ongoing discussions among developers aim to create more sustainable economic models that properly value Ethereum's security provision.