Should @Plasma be an L2?
AJ argues that Plasma should be an L2 in order to save on validator costs - $550m per year in savings.
I think this is long-term correct however the market structure has to fundamentally change to make it long-term correct.
The L1 Premium ROI
Right now there's an L1 premium even for assets that aren't competing as a store of value.
Should this be the case?
I can't see why - not in the long-term. But the market currently disagrees.
Let's look at FDV comps:
Arbitrum (L2) - $4.3 billion
Optimism (L2) - $2.9 billion
ZKSync (L2) - $1.1 billion
Compare these to EVM L1 chains that could be L2s:
Tron (L1) - $32 billion
Plasma (L1) - $9.6 billion
There's clearly an L1 Premium.
Say $5 billion of Plasma's current FDV is due to L1 premium. That's worth 10 years of $500m (5% of FDV) per year in validator costs. Add to this: Plasma can throttle issuance at any time - why not decrease validator rewards to 1-2% as the network grows?
If you think you can be a deca-billion network it's market rational to launch an L1 instead of an L2 because of the L1 Premium.
That's why Stripe's Tempo, Circle's Arc, Tether's Plasma are all launching as L1s instead of Ethereum L2s. The technical reasons they give are ex post facto rationalizations for the real reason: L1s are higher ROI because of the L1 Premium.
Look at it from their perspective. Worst case - the L1 Premium evaporates in the years ahead. Fine, they just pivot to an L2 - they've lost nothing.
Will the L1 Premium persist?
Truthfully, I don't know.
Maybe as the market matures we'll move from a Dumb L1 Premium to a Smart L1 Premium - only the assets truly competing as a nation-state grade censorship resistant store of value (SoV) will get the L1 premium and all other L1/L2 assets will be valued based on revenue and supply sinks. To me, BTC and ETH pass the SoV bar and it's very much TBD on everything else.
But I'm not the market. The market says XRP is worth $300 billion and that the L1 Premium is real.
So that's the takeaway for L2 lovers.
Until the L1 Premium disappears expect to see more L1s.
I think the incredible early success of Plasma is ironically the best case study for why L2 architectures are superior.
I know this seems awfully counterintuitive (and self-serving) so let me explain.
Plasma has done a historic job in go-to-market and launch work. I don’t think any chain has attracted more TVL in its first week in history. Its users are comfortable with using the product and building alongside them and Tether.
Yet, as the Plasma team notes in their docs, today they are the only ones that are currently running validators and there are no validator rewards live today.
As part of their progressive decentralization, they will be onboarding external validators and the inflation rate rewarding those validators will be 5% annually to start.
In other words, in order to secure and decentralize the system, Plasma (at today’s prices) is committing to spending more than $550 million, when their users and developers have signaled already it’s not really a conditional priority to deploying capital.
Had Plasma launched an L2, they could have progressively decentralized (like most chains do) without having to commit to spending over a half a billion dollars a year.
The L2 superpower is having security costs be variable as a % of transactions, not significant constant fixed costs.
I don’t think that the experience of using Plasma would be any worse had the chain been an L2. It’s EVM, users are largely using the same apps that exist on rollups. It’s just a more cost effective way to get security.
Congrats again to the Plasma team; but I think this shows the power of rollup architecture from a business operations perspective.
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