Warning to builders: L2s are leaking value, L1 appchains are the smarter bet

Layer-2 chains have been alleged to be the subsequent evolution of blockchain scalability, and in some methods, they delivered. They made transactions sooner and cheaper, helped initiatives scale quickly, and gave Ethereum (ETH) room to breathe amid a surge in community exercise. However because the mud settles, one uncomfortable fact has turn into exhausting to disregard: L2s don’t retain the worth they generate. As a substitute, they leak it again to the guardian chain, again to the liquidity hubs, and again to governance buildings that have been by no means actually theirs to start with.

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This may not have been an issue in 2021, when initiatives raced to attain velocity and scale above all else. However we’re in a special cycle now, and the variety of initiatives competing for customers has elevated exponentially. Initiatives now need to assume long-term. They’re optimizing for sustainability, sovereignty, and alignment. And more and more, they’re turning to app-specific “appchain” layer 1s—not as a novelty, however as a necessity.

L2s: Quick, low-cost—and economically hole

Let’s name it like it’s: L2s are downstream environments. They inherit safety, settle transactions, and depend on Ethereum (or one other L1) to finalize every thing that issues. That dependency has financial penalties.

Each time a transaction is processed on an L2, it will definitely will get rolled up and settled on the L1. The consequence? Charges stream again to Ethereum. Knowledge availability charges stream again to Ethereum. MEV worth—additionally upstream. It’s a one-way switch of worth, from the L2’s financial system again to the L1 that secures it. When you’re constructing a undertaking on an L2, you’re not compounding worth in your individual ecosystem—you’re subsidizing another person’s.

Whereas these costs could seem trivial—in spite of everything, they’re only a tiny % of the community’s income—they add up shortly, endlessly sapping away liquidity. For any undertaking making an attempt to scale, these persistent overheads can severely restrict development and long-term sustainability.

Whereas these charges might seem minor—only a small fraction of total income—they accumulate quick, quietly draining liquidity from the ecosystem. Over time, prices from the information availability and restaking layers turn into substantial. For any undertaking approaching scale, these persistent overheads can severely restrict development and long-term sustainability.

And it doesn’t cease with charges. Liquidity and governance are additionally rooted within the guardian chain. Most DeFi protocols nonetheless depend on liquidity swimming pools and bridges based mostly on the Ethereum mainnet. Token holders usually stake or vote utilizing techniques constructed upstream. Even when L2s have their very own tokens, they’re usually structurally tied to Ethereum’s financial and political dynamics.

Put otherwise: L2s offer you velocity, however they take away your independence and slowly drain your token financial system of assets.

Appchain L1s: Preserving the worth you create

Appchains, in distinction, are constructed to retain the worth they generate. Whenever you launch your individual sovereign chain, you’re not settling elsewhere. You’re not leaking charges or relying on one other community’s validator set. The financial exercise you generate—transaction charges, staking rewards, MEV, governance energy—all of it stays native.

That creates a basically completely different development mannequin. As a substitute of worth flowing out of your ecosystem, it compounds internally. Your token captures extra utility. Your group has a direct stake in your chain’s success. Your infrastructure turns into an engine for development, not a price middle feeding one other chain’s financial system.

You additionally get full-stack management, not sure by a guardian chain’s limitations. Need to set customized validator incentives? Go for it. Need to experiment with gasless transactions or dynamic tokenomics? Do it. L1s allow you to construct infrastructure that matches your utility’s wants, not the opposite approach round.

However what about fragmentation?

For years, the most important knock towards appchains was that they’d create remoted ecosystems. That criticism used to carry weight, however not anymore.

Due to interoperability options like LayerZero, Avalanche Warp Messaging, and IBC, we now have dependable methods to maneuver knowledge and property throughout chains. Appchains can plug into broader ecosystems whereas nonetheless maintaining their sovereignty. They are often each related and impartial—not compelled to decide on between integration and management.

The fragmentation argument is outdated. In apply, appchains have gotten a pure extension of the multichain world, and the tooling round them is bettering quick.

The market is catching on

Increasingly more initiatives are selecting to go the appchain route, and the pattern will proceed to achieve steam. Builders need autonomy, they need financial sustainability, they usually need the liberty to design their infrastructure round their customers, not round Ethereum’s bottlenecks.

That’s to not say L2s are going away. For a lot of early-stage initiatives, they’re an honest place to begin. However they’re not constructed for scale. They’re not designed to retain worth. And so they’re undoubtedly not constructed for initiatives that need sovereignty over their infrastructure and their financial system.

When you’re making an attempt to construct one thing enduring—one thing that’s not simply quick and low-cost, however aligned, sovereign, and sustainable—you shouldn’t be settling for a Layer 2. Try to be considering like an ecosystem supervisor. Try to be proudly owning your stack. You must decide to constructing a series that meets your individual customized wants, with out siphoning assets.

Spinning up an L2 might look like the only go-to-market technique, offloading tasks so you will get to market sooner, however investing in L1 infrastructure is a essential step to long-term success. Earlier than lengthy, each undertaking can be racing to construct its personal appchain.

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Steven Gates

Steven Gates is the Founding father of Hypha, a complete platform for launching blockchains that makes it straightforward to configure a validator license sale.