Crypto Twitter (CT) today has been filled with lots of commentaries on recent launch reports of L1s by traditional companies. Just a while ago, a report surfaced of Stripe, a traditional payments giant, building a stablecoin payments L1 blockchain that is EVM-compatible.
Much of CT appears to be focused on debating why these companies are choosing to build an L1 rather than an Ethereum L2.
I think these sorts of debates are quite easy to settle.
An L1 has various factors of appeal over L2s including:
—Customizable consensus and governance
—Economic independence
—Technical flexibility
—One might say, even strategic positioning for branding
All of which are either limited or simply not possible when dealing with an L2. Of course, these companies have to be ready to deal with the associated costs such as: bootstraping security, liquidity fragmentation and slower network effect due to competing for users of established ecosystems with deep-rooted cultures.
I happen to come across some commentaries that suggests that Stripe may not be targeting current crypto-native users with its stablecoin launch, but could be focused on its own dominated market.
Certainly, it would make sense to start with its current user base. Given that we are effectively dealing with off-chain systems, migration would actually be frictionless for Stripe, to which point, it can slowing drew in liquidity from alternative networks through independently flowing payments.
That said, to get back on track with why companies may sometimes choose an L1 launch when the financial backing is available, the first three highlighted factors above are enough motivation.
For customizable consensus and governance, we are essentially looking at moving away from the reliance on Ethereum's consensus for settlement and it's governance participants for security and stable evolvement of developments.
When it comes to economic independence and technical flexibility, we are looking at eliminating the limitations associated with gas payments in alternative assets besides the transacted currencies.
With Arc, by Circle, for instance, USDC will be the gas payment token, making on-chain payments in USDC, frictionless.
Circle, a publicly traded US company and the issuer of USDC stablecoin, said it will launch a layer-1 (L1) blockchain compatible with the Ethereum Virtual Machine (EVM) later this year.
The company released its second-quarter results on Tuesday and announced the introduction of Arc, a new network designed to offer an “enterprise-grade foundation” for stablecoin payments, foreign exchange and capital markets applications.
Expected to launch in public testnet, Circle’s Arc will feature USDC as its native gas token, enabling users to pay transaction fees with the stablecoin.
In addition to featuring USDC as native gas, Arc will provide an integrated stablecoin foreign exchange engine, sub-second settlement finality and opt-in privacy controls, the announcement said, adding:
“Arc will be fully integrated across Circle’s platform and services, which will also remain fully available and interoperable with the dozens of other partner blockchains that Circle supports.” – Cointelegraph report
According to the report, Arc blockchain is “purpose-built for stablecoin finance,” marking a major milestone in the company’s mission to deliver a “full-stack platform for the internet financial system.
What this means is that Arc is for borderless USD payments that is not limited by flaws of multi-purpose L1s like Ethereum.
Contrary to want some may think of the situation, particularly in terms of adoption of these L1s, it might quite frankly be an easy transition and the reason for this is that we are dealing with a market that isn't exactly after belonging to network cults but mostly after usability. What is cheaper and faster?
This is what stablecoin users are after. This is easy to prove with the fact that Tron leads in USDT volumes. It was reported in July that Tron ended H1 controlling $80.26 billion of USDT supply, which was 20.92% more than supply on Ethereum, simply because Tron, despite its history, is faster and cheaper to move USDT around.
Evidently, when it comes to stablecoins, users will move fast to what's cheaper, faster and flexible. As a result, we are likely to see much launches of L1s focused on stablecoin payments. All of these chains will simply build for cross-chain compatible to ensure frictionless flow of liquidity from current ecosystems.