Opinion Participating in L2 network Blast is a short-term speculative behavior with insufficient long-term appeal.

Participation in L2 Network Blast is a Short-Term Speculative Behavior with Limited Long-Term Appeal

Author: DeFi Cheetah, Crypto KOL

Translation: Felix, LianGuaiNews

According to DeFi Cheetah, a prominent Crypto KOL, participating in L2 network Blast is a speculative behavior that may work in the short term but is not worth long-term investment. The core reasons include:

• Heavy reliance on MakerDAO and Lido Finance poses risks
• Future staking rewards may decrease, which could further impact Lido
• The ways of generating native revenue on L2 can be easily imitated by the current leaders in the L2 market

L2 network Blast, launched by Blur founder LianGuaicman, has received a $20 million funding. Several angel investors, including LianGuairadigm, Standard Crypto, eGirl Capital, Mechanism Capital co-founder Andrew Kang, Lido strategic advisor Hasu, and The Block CEO Larry Cermak, have participated. Blast aims to create native revenue for L2.

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When users deposit tokens into L2s, the equivalent tokens are held in smart contracts on the corresponding L1. These tokens remain idle and do not generate returns. L2 network Blast suggests converting ETH and stablecoins held there into stETH and DAI, respectively, to earn from staking rewards and government bonds.

Sounds more capital-efficient, right? It is expected that some short-term speculations driven by FOMO and leverage activities will occur. However, in the long run, Blast’s heavy reliance on Lido Finance and MakerDAO makes it susceptible to single point failures.

As Matty, former engineer of Bitcoin L2 network Stacks, pointed out, having an excessive number of validation sets leads to centralization rather than decentralization because each additional set means an additional signature every epoch. With an increasing number of validation sets, operators need more advanced hardware, higher bandwidth, and faster internet speed for validation.

It is well known that this is not the desired direction for Ethereum’s future development. Eventually, there will be incentives to promote the growth of decentralized LSD, such as frxETH v2 from Frax Finance and Rocket Pool. Additionally, when the number of validators exceeds a certain threshold, staking rewards are likely to be restricted.

Furthermore, most L2s are converging (application chains are a different topic), as reflected in the declining activity on the Base network. Especially after EIP-4844 comes into effect, L2s can have a flywheel that L1 cannot achieve: the cost of publishing data is at least 10 times lower, and the maximum variable cost borne by L2 users disappears, leaving only a fixed L2 transaction sequencing cost.

This implies the emergence of economies of scale. More active users in the network can share the costs to attract more users and, subsequently, more dapp development. Therefore, L2 networks with larger TVL will have a certain advantage in this aspect compared to new L2 networks.

Therefore, the attractiveness of new L2 networks, even with innovative native revenue features, is still unknown after being imitated by the established L2 networks like Arbitrum and Optimism.

Related Readings: How to Play the New L2 Blast Launched by Blur Founder with Money and Interest?

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