L1 is the mainframe of the Web3 era, while L2 is the hosted server.
Written by: Kydo
Compiled by: Luffy, Foresight News
Last week, a significant event occurred in the crypto space, but only a few fully understood its true importance.
Celo announced its transformation from an independent L1 blockchain to an Ethereum L2 blockchain.
People might easily interpret this as another technical migration. However, in reality, this marks a broader transformation that Ethereum has been quietly pushing forward, reshaping our understanding of how crypto projects are built.
Let's dive deeper.
I. Industry Begins to Take Cost and Revenue Seriously
We are in a long-overdue adjustment period. The crypto market is starting to refocus on fundamentals, with narratives still important, but now people are asking:
- What is the actual revenue of this chain?
- What are its operational costs?
- Where is value being accumulated?
A series of new metrics like market cap to revenue (REV) ratio are becoming increasingly important, revealing significant differences between seemingly similar blockchains.
This might be the reason why Celo decided to pivot to Ethereum L2.
II. L1 Cannot Generate Revenue, L2 Can
People often overlook this point: L1 chains actually cannot generate revenue sustainably.
Why? Because all value flows directly to stakers or miners. L1 collects fees, which are immediately distributed as block rewards or staking yields. There's no retained profit margin, no surplus, and thus no funds left to support innovation or protocol development.
This creates a strange phenomenon: L1 can be an extremely valuable platform but still operates like public infrastructure, without a built-in funding mechanism for evolution.
In contrast, L2 can retain and reallocate revenue. Sequencer fees, Maximum Extractable Value (MEV), and even customized block space charges can be retained and then reinvested in R&D, developer grants, growth initiatives, or public goods. Over time, this is a model that can achieve true sustainability and keep incentives aligned.
This is why so many new ecosystems prioritize building L2. It's not just about technical architecture, but economic design.
III. L1 is the Mainframe of the Web3 Era
Here's a simple mental model: L1 blockchains are like mainframes in the crypto world.
In the early days of the internet, if you wanted to run an important application, you had to buy a mainframe. You had to maintain hardware, write your own network stack, and be responsible for uptime, security, performance, and more. It was powerful but costly.
Running an L1 blockchain today faces similar challenges. You need your own consensus mechanism, your own validator set, and your own token incentives to secure the network. To keep the system running and secure, you might spend millions of dollars annually.
Take Celo as an example: they spend 4% to 6% of their total token issuance, approximately $15-25 million per year, just to maintain basic security and system operation.
This is not uncommon. Ethereum is like this, Solana is like this. Every independent L1 bears such costs. The key is that these costs don't decrease with scale. If you're a smaller L1 chain, these costs can be unbearable.
IV. L2 is Like a Hosted Server: Equally Powerful, Lower Cost
Now imagine switching from a mainframe to a hosted server.
You can still control your environment, customize how your blockchain runs, and maintain execution autonomy. But you no longer need to secure physical devices yourself - this is what L2 on Ethereum does.
As an L2, Celo will still provide the same user experience. But now, the heavy lifting of security, such as fraud proofs, consensus mechanisms, and base layer finality, is handled by Ethereum. The cost of maintaining the chain drops dramatically.
Instead of $20 million in annual security costs, now the costs are merely for state storage and data availability, which can be further reduced through data compression and alternative data availability layers (Celo chose EigenDA).
V. Why This is a Strategic Masterstroke by Ethereum
This is not just about Celo, but also signals that Ethereum's long-term strategy is gradually being implemented.
Ethereum is no longer trying to be the "only server ruling everything". The vision of a single dominant chain has been proven wrong in every computing era, whether Web1, Web2, or now Web3.
Instead, Ethereum is becoming the base layer on which other chains can be built, providing security, decentralization, and interoperability as a service.
Yes, at first glance, this looks like self-cannibalization. Ethereum is reducing the "premium" of its L1 chain. But in reality, by becoming the foundation that other chains depend on, it's capturing a much broader market.
You can insist there will only be one server, or you can choose to help build the next billions of servers.
Just as no one runs their own mainframe today, in the future, few projects will run their own L1 chain. They will run hosted servers, they will be L2s, and they will achieve all this based on Ethereum.
Moving Towards Efficiency is an Inevitable Trend
As projects face market pressure to reduce costs and increase revenue, they will reach the same conclusion as Celo:
When Ethereum can provide stronger security at a lower cost, why spend millions to build a new L1?
This won't happen overnight, but it will come, because economic laws don't lie.
