We will fundamentally change Ethereum 's economic model through Based Rollups.
By Adam Cochran
Compiled by: Pzai, Foresight News
Based Rollups will directly impact the monetization of ETH by making fundamental changes to the incentive structure - which could easily increase the long-term demand for ETH by 100x.
Here’s how it works:
While different Based Rollups will have different models (such as random selection, auctions, pre-configured slashing, etc.), the core idea remains the same: L2 is no longer just paying for DA, but leveraging existing L1 validators for processing.
One thing we are learning about blockchain economics is that processing is by far the most profitable part of the process.
While I think ETH's DA is undervalued (a lot), I can't deny that this processing flow is more profitable.
Validators who choose to help validate and process these Based Rollups will earn rewards from them in addition to general network inflation benefits.
Two important things are done here:
1) It increases the value of the stake in a way that is independent of the amount of ETH staked .
If there are a lot of Based Rollups, validators may be able to earn a 15% yield even if a large amount of ETH is locked up, causing a supply shock.
2) It opens up new avenues for the monetization and value capture of ETH.
For example, the MEV auction requires validators to bid in ETH to become the validator of the block and obtain a one-time profit.
We do not see any competitive measures in current L2 DA solutions.
Other models may include:
Pre-confirmation staking : The ETH staked by the validator must be more than the value of the transaction they pre-confirmed for the pre-confirmation to be valid.
Proof of Burn : ETH burn is required to elect new L2 validation.
In addition, since Based Rollup can interoperate across Rollups, it increases liquidity access and the number of cross-market settlement transactions, thereby increasing total Gas demand.
Therefore, Based Rollups help increase the value of ETH in two core ways:
They make regular ETH staking more valuable, thereby increasing demand for ETH.
They allow for competitive bidding for idle processes that exist in the Ethereum network without increasing L1 Gas.
When we combine this with Ethereum’s deflationary mechanism, we get a very interesting picture.
Ethereum’s minimum viable issuance could reach 0%, while the yield as a validator could still be 4%-8% due to value capture from Based Rollups and MEV.
If the rate on new issuance is 0%, but you still earn more on staking ETH than on US Treasuries, how do you think Ultrasound Money will perform?
Not only are we improving the Ethereum UX, L2 modularity, and eliminating liquidity fractures with Based Rollups - but we are also fundamentally changing Ethereum’s economic model without any issuance updates as we align incentives between L2 and L1 validators.
This will be the first time that the “incentive” for staking Ethereum will be driven by overall EVM usage rather than by the ETH issuance rate.
This fundamental separation will make $100k ETH a reality within the next decade.
While there is a critical economic problem to solve in terms of value capture, we are already halfway there by simply improving usability in a way that aligns with the goals of every ecosystem participant.
