Economics in the Sometimes Strange World of Web3
Blockchains are databases application developers use to build novel user experiences. Just as hundreds of different databases exist in web2, different blockchains have evolved in web3.
In September, I published the State of Web3 in Data. I’ve been watching one of those charts very closely : slide 25 which tracked L2s & L1s.
Layer 2s (or L2s) like Arbitrum & Optimism, sit atop Ethereum (an L1). They provide faster & less expensive transactions for application developers.
The average Ethereum transaction costs about $2.60 as of this writing, whereas on Arbitrum it costs $0.07, a 97% savings.
For an individual transaction, the difference may not matter, but for application developers & frequent traders, those dollars accumulate over time. In the long-term, lower prices will drive more activity, essential for broader adoption of web3 technologies.
In September, L2s processed about 30% of Ethereum transactions. Six months later, that figure is 67% according to Dune. Within the Ethereum ecosystem, this number should asymptote to 90-95%.
Economics works - even in the sometimes strange world of web3.
As web3 evolves, we will see more instances of economics driving behavior :
- the evolution of token drops to more efficient marketing strategies because airdrops are uneconomical compared to classic venture rounds.
- developers choosing particular blockchains for applications based on workload including more expensive, more secure databases called zero-knowledge (zk) in web3 or less expensive faster databases like L2s
- revenue as a core driver of valuation in web3 startups & publics