Why can the L2 war disruptor Blast make L2s so anxious?

Author: Kaori, BlockBeats
Editor: Jack, BlockBeats

Once regarded as treasures by crypto VCs, L2s are now facing backlash from their own "PUA behavior."

Since Blur founder Pacman launched his new L2 project Blast this week, the L2 sector, which has been left far behind by the Bitcoin ecosystem's mini bull market, has regained significant market attention. However, this time, no one is a winner.

With Blast's TVL skyrocketing past $10 million in just one day, people have begun to reflect on the past "industry rules" of the L2 sector. The "L2 tech aristocrats," who have refused or delayed rewarding the airdrop-hungry crowd, seem to be facing unprecedented challenges in the face of absolute market trends.

L2s Are Extremely Anxious

Blur founder Pacman's new L2 project Blast has captured attention these days through social virality and airdrop expectations.

Blast claims that the current benchmark interest rate for existing Layer 2s is 0%. By default, users' asset values will depreciate over time, while on Blast, users' balances will automatically compound and earn additional Blast rewards.

When users deposit funds into Blast, it will immediately lock the corresponding ETH on the Layer 1 network for native staking and automatically return the ETH staking rewards to users on Blast. Additionally, Blast supports passive income from stablecoins.

For users, besides the passive income from staking, Blast has also introduced a points system similar to Blur's gameplay. Currently, the official description of the points reveals that Blast plans to launch its mainnet and develop withdrawals on February 24 next year, with "redemption" of Blast Points opening on May 24.

On November 22, Blast announced on its social platform that its TVL had reached $81.2656 million on its first day, with 23,368 users. As of the time of writing, Blast's TVL has reached $260 million, with nearly 40,000 addresses having crossed funds into the network.

Compared to the past growth rate of L2 TVL, this sector has never seen a growth curve like that of Blast. In contrast, the current mainstream L2 leaders have gained almost nothing from this wave of growth. As of the time of writing, according to L2BEAT data, the 7-day settlement increase of ETH TVL on Ethereum L2 is only 2.82%.

The left image is from Dune Analytics; the right image is from L2BEATS.

The rapid rise of Blast's TVL has visibly caused anxiety among some L2 aristocrats. Steven Goldfeder, CEO of OffChain Labs, the parent company of Arbitrum, bluntly stated in a tweet this morning that Blast is a "monster."

Playing PUA Will Also Backfire

Since the L2 bull market brought on by Arbitrum's "generous giving" at the beginning of the year, market expectations for the L2 sector have been rising. However, as the crypto market enters a deep bear phase, the competition and games between L2 projects and retail investors, as well as among themselves, have become increasingly fierce.

In this context, "PUA" has become the default unspoken rule among players in the sector, whether it's competing on RaaS or repeatedly delaying airdrop distributions, both of which are manifestations of this issue.

With Blast emerging as a disruptor in the L2 war, it inevitably brings to mind Pacman's other project, Blur, and its devastating impact on the NFT sector. Of course, there is also the BRC-20 inscription market, which is referred to as the "victory of retail investors."

Lessons from Opensea and BRC-20

Blur was launched on October 19, 2022, and by November 27 of the same year, it surpassed Opensea in trading volume with 5,500 ETH compared to Opensea's 5,300 ETH. As of November 2023, Blur has captured 61.7% of the market share with $43.17 million in sales, becoming the leader in the NFT market.

NFT market trading volume; Source: Dune

Looking back at the clash between Blur and OpenSea in the NFT market, OpenSea's indecisive stance on airdrops may be the main reason for its defeat.

During the testnet phase, Blur attracted a large number of fans in a short time through a referral waitlist, requiring users to invite 5 people to gain access. After the project officially launched, Blur planned three airdrops for different types of users, with each airdrop being larger than the last, keeping users eagerly anticipating.

In contrast, OpenSea struggled. Initially, OpenSea dominated the market, earning revenue through high royalties and fees. However, issues such as slow transaction speeds, high gas fees, and crashes due to a surge in users led to significant user dissatisfaction.

As traffic began to shift to Blur, OpenSea initiated passive defenses. On February 18, OpenSea announced a temporary reduction of trading fees to 0% and introduced optional royalty services. OpenSea admitted, "Since last October, effective trading volume and users have shifted to NFT markets that do not fully enforce creator revenue. Despite our best efforts, this shift is still accelerating rapidly."

On November 4, OpenSea laid off about 50% of its staff, with a spokesperson stating that OpenSea is undergoing significant organizational and operational changes to focus on building a more flexible and better version. In response, OpenSea co-founder and CEO Devin Finzer stated, "Sometimes, OpenSea feels like a follower rather than a leader, which is not what we want to be."

The most important reason for the current situation is that OpenSea did not provide airdrop incentives and did not reward users' contributions in ways that are well-received in the crypto world, leading to rising user dissatisfaction. Blur has capitalized on users' profit-seeking mentality, squeezing market share from the first mover OpenSea through points and airdrop expectations.

Bringing the timeline back to the present, amidst the bustling Bitcoin ecosystem, Ethereum and various L2s seem somewhat at a loss.

The Ordinals protocol has enabled effects similar to issuing ERC-20s on the Bitcoin network, and the emergence of BRC-20 has allowed retail investors, who had been silent during the bear market of 2023, to find their narrative, significantly increasing Bitcoin's trading volume and fees, benefiting multiple parties.

According to The Block's data dashboard, Bitcoin's 7-day average transaction fees have now exceeded those of Ethereum. Bitcoin's average transaction fees have also risen sharply, from $8.59 on November 12 to $12.75 on November 19, an increase of over 48%.

7-day average fees for Bitcoin and Ethereum; Source: The Block

Although the Bitcoin network lacks the mature ERC20 standards and smart contract protocols of Ethereum, as well as AMM protocols and other native on-chain asset operation protocols, and Bitcoin is not even Turing complete, the star inscriptions born from this mini bull market, such as ordi, eths, and sats, have allowed retail investors to make real profits.

"If you still cling to past thinking and stubbornly hold onto Ethereum or L2 assets, you will likely miss this bull market," as the saying goes, the tech + VC model of Ethereum and various L2s can no longer satisfy the large number of ordinary users seeking wealth effects in the market.

The Game of Technology and Airdrops, L2s Being Backfired by PUA

Airdrops were originally a strategy used by Uniswap to counter the vampire attack from SushiSwap, but have now become the biggest shortcut for ordinary people in the crypto space to gain wealth effects, though this path is not easy to walk.

On August 9, the Ethereum Layer 2 solution Scroll announced that there would be no token airdrop activities, which brought tears of disappointment to many airdrop hunters eagerly awaiting airdrops from established L2 projects like ZkSync Era.

However, under this wealth effect, projects that issue tokens and earn fees are the biggest winners in this airdrop game. For instance, the fees earned from transactions and "bridge fees" during cross-chain operations have made project teams very profitable, and whether or not to issue airdrops or provide economic incentives to airdrop hunters is not their primary concern.

What they consider is how high-end technology can empower Ethereum, or how to use "PUA" to harvest the first wave of users.

On November 14, Vitalik Buterin brought the previously abandoned scaling solution Plasma back into the public eye during a speech in Istanbul. In the past, Ethereum's Layer 2 scaling included various solutions such as Plasma, Rollup, Validium, and Parallel, but currently, Optimistic Rollup dominates the Layer 2 market, with Arbitrum, the representative project of Optimistic Rollup, holding 60.05% of the Layer 2 market, and Optimism holding 22.02%.

L2 TVL share; Source: DeFiLlama

The dominance of Rollup in market share has not stalled the L2 landscape; on the contrary, many L2 solutions have gained traction through technological innovation to capture market share.

In October 2022, Optimism introduced the OP Stack, described as "highly scalable, highly interoperable various types of modular open-source blueprints." As a standardized open-source module, developers can assemble a customized chain using OP Stack to serve any specific blockchain use case.

After nearly half a year of development, zkSync also announced the launch of the modular open-source framework ZK Stack for building custom zkRollups, granting developers complete autonomy, from choosing data availability models to using their own tokens for decentralized ordering.

With numerous star projects, the fierce competition in the L2 sector has become a well-known fact in the entire crypto industry. In addition to the OP Stack and ZK Stack launched by Optimism and zkSync, the competition in the RaaS field between the OP Rollup camp and the ZK Rollup camp includes Arbitrum's Orbit and Starknet's Appchain. Moreover, the tense relationship between the two "domestic shining stars," Scroll and Taiko, in the zkEVM field has also become an open secret in the industry.

However, many L2 projects seem to realize that with the technological internal competition reaching this point, they are being ambushed by Blast. The anxious remarks from Steven Goldfeder, head of the leading L2 project Arbitrum, illustrate this:

"Our friends and some of the most trusted brands have remained silent while promoting single-node chains as Ethereum Layer 2 platforms, and we have created a trend that has now become larger. It is not too late to fix this, but it requires a very open and honest community dialogue to discuss what Layer 2 is and which chains are actually protected by Ethereum."

iPhone or Bad Blood?

The launch of L2 Blast by Blur's founder has undoubtedly escalated the L2 war to a fever pitch, but Ethereum L2 data analytics provider L2BEAT has not listed Blast under Active projects. The reason is that while Blast claims to be a LaunchBridge, it is not a Rollup Bridge; it is merely a simple custodial contract protected by a 3/5 multi-signature, containing all relevant EOAs.

For an L2 project to be listed on the L2BEAT page, the system needs to publish L2 data (tx data or state differences) and the L2 state root to L1. Additionally, the L2 state root must be accompanied by validity proofs or must have a fraud proof mechanism, but according to L2BEAT, Blast currently lacks such functionality.

Mindao, founder of dForce, also expressed doubts about whether there is truly technological innovation behind Blast, believing that Blast completely deconstructs the L2 narrative, reducing it "from infrastructure to JPEG/APP." Tech OGs disdainfully claim that those using Blast have "zero requirements for security, decentralization, etc.," but do users really have such high demands for technology?

Clearly, Blast's staking data provides an answer. Lido DeFi expansion lead @MacroMate8 mentioned in a tweet that Blast added 91,000 stETH to Lido last night, stating, "At this rate, Blast will push Lido above 33%."

He also noted that a year ago, L2 competition was not as fierce, but now with Blast, the situation has changed. It is evident that to compete, L2 projects need to provide yields above risk-free staking rates, and not just rely on airdrops. He even predicts that within one to two years, most L2s will lock ETH in their bridging contracts and may even use these ETH for liquidity mining.

In this new wave of L2 competition, whether Blast can create the "iPhone moment" in the L2 field as expected, or fall into the bad blood of Silicon Valley like Theranos, remains to be seen.