Viewpoint: Why L1 Will Eventually Shift to L2?
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Viewpoint: Why L1 Will Eventually Shift to L2?
L1 is the mainframe of the Web3 era, while L2 is the hosting server.
Navigating Web3 tides with focused insightsAuthor: Kydo
Translation: Luffy, Foresight News
Last week, something major happened in crypto—but only a few fully grasped its significance.
Celo announced it’s transitioning from an independent Layer 1 blockchain to becoming a Layer 2 on Ethereum.
It's easy to interpret this as just another technical migration. In reality, it marks a broader shift that Ethereum has been quietly driving—one that’s reshaping how we think about building in crypto.
Let’s break it down.
1. The industry is finally taking cost and revenue seriously
We’re in the midst of a long-overdue adjustment. The crypto market is refocusing on fundamentals. Narratives still matter, but now people are asking:
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How much actual revenue does this chain generate?
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What are its operating costs?
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Where does value accumulate?
New metrics like market cap to revenue (REV) are gaining importance, revealing significant differences between blockchains that appear similar on the surface.
This may well be why Celo decided to move to an Ethereum L2.
2. L1s can’t capture revenue—L2s can
Here’s something often overlooked: L1 chains cannot sustainably capture revenue.
Why? Because all value flows directly to stakers or miners. L1s collect fees, but those fees are immediately distributed as block rewards or staking yields. There’s no retained profit, no surplus—no leftover funds to reinvest into innovation or protocol development.
This creates a strange situation: An L1 can be a highly valuable platform, yet still operate like public infrastructure, lacking built-in mechanisms for self-evolution.
In contrast, L2s can retain and reallocate revenue. Fees from sequencers, maximum extractable value (MEV), and even customized pricing for block space can be kept and then reinvested into R&D, developer grants, growth initiatives, or public goods. Over time, this becomes a truly sustainable model with aligned incentives.
This is why so many new ecosystems are choosing to build as L2s first. It’s not just about technical architecture—it’s about economic design.
3. L1s are mainframes in the Web3 era
Here’s a simple mental model: L1 blockchains are like mainframes in crypto.
In the early days of the internet, if you wanted to run a serious application, you had to buy a mainframe. You managed the hardware, wrote your own networking stack, and were responsible for uptime, security, performance—the whole stack. It was powerful, but expensive.
Running an L1 today is similar. You need your own consensus mechanism, your own set of validators, and your own token incentives to secure the network. Just to keep the system running and secure, you're spending millions per year.
Take Celo: they were spending 4% to 6% of their total token supply annually—roughly $15–25 million per year—just to maintain basic security and uptime.
And this isn’t unusual. Ethereum does it. Solana does it. Every independent L1 bears this cost. But here’s the catch: this cost doesn’t scale down. If you’re a smaller L1, this burden can become overwhelming.
4. L2s are like hosted servers: just as powerful, far cheaper
Now imagine switching from running a mainframe to using a hosted server.
You still control your environment. You can customize how your blockchain runs and retain execution sovereignty. But you no longer have to manage physical infrastructure. That’s what Ethereum L2s offer.
As an L2, Celo will deliver the same user experience. But the heavy lifting—fraud proofs, consensus, finality at the base layer—is handled by Ethereum. The cost of maintaining the chain drops dramatically.
Instead of $20 million per year in security costs, you’re now paying only for state storage and data availability—and those costs can be further reduced via data compression and alternative data availability layers (Celo chose EigenDA).
5. Why this is a strategic masterstroke for Ethereum
This isn’t just about Celo. It means Ethereum’s long-term strategy is finally coming into focus.
Ethereum is no longer trying to be the “one server to rule them all.” That vision of a single dominant chain has proven flawed in every computing era—from Web1 to Web2, and now Web3.
Instead, Ethereum is becoming the foundational layer upon which others build, offering security, decentralization, and interoperability as a service.
Yes, it looks like self-cannibalization at first glance. Ethereum is reducing the “premium” of its own L1. But in reality, by becoming the foundation others rely on, it’s capturing a much larger market.
You can insist there will be only one server—or you can enable the next billion servers.
Just as no one runs their own mainframe anymore, few projects will run their own L1 in the future. They’ll use hosted servers. They’ll become L2s. And they’ll do it on Ethereum.
Moving toward efficiency is inevitable
As projects face market pressure to reduce costs and increase revenue, they’ll reach the same conclusion as Celo:
When Ethereum can provide stronger security at a fraction of the cost, why spend tens of millions building a new L1?
This won’t happen overnight—but it will happen, because economic laws don’t lie.
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