The rapid rise of Layer 2 (L2) networks has transformed Ethereum’s scalability landscape, offering faster transactions and lower gas fees. But a growing debate questions whether these networks are truly benefiting Ethereum—or quietly extracting value from its foundational layer. As L2s like Base, Arbitrum, and Optimism capture billions in user activity, concerns are mounting: Is Ethereum being left behind financially?
At a blockchain conference hosted by Cornell Tech in late April 2025, experts voiced a provocative idea—Ethereum may have been too idealistic in its design, failing to secure a fair share of the revenue generated atop its own infrastructure.
“Ethereum Foundation folks will admit, ‘Yes, we made a mistake by being too idealistic,’” said David Hoffman, owner of Bankless, during a panel discussion on April 25. “I’ve heard that said multiple times.” Hoffman urged Ethereum to undergo a “strategic shift,” arguing that the crypto environment has evolved beyond a peaceful research phase—now, it’s a competitive arena where rivals are gaining ground.
This sentiment reflects a broader concern: while Ethereum secures and settles transactions for L2s, it receives minimal direct financial return. Instead, centralized, for-profit L2s collect lucrative transaction fees, particularly sequencer fees, while paying relatively low costs to post data on Ethereum.
The Post-Dencun Boom and the Fee Imbalance
The turning point came with Ethereum’s Dencun upgrade in March 2025. By introducing blob transactions, the network drastically reduced data-publishing costs for L2s, enabling them to scale efficiently and profitably.
Since then, demand for L2 services has exploded—especially on Base, Coinbase’s Ethereum Layer 2 launched in August 2023. According to Tanay Ved, research analyst at CoinMetrics, Base earned approximately $98,000 in user transaction fees while paying just $4,900 in Ethereum settlement costs—yielding an estimated $94,000 profit from that batch alone.
This imbalance raises a critical question: Are L2s net positive for Ethereum, or are they extracting value without giving back?
James Beck, Head of Growth at ENS Labs and also a speaker at the Cornell event, noted that millions in sequencer revenue are flowing to private entities rather than reinforcing the Ethereum ecosystem. “The culture of podcasters and researchers is asking: ETH’s price has lagged behind other tokens. How do we make Ethereum stronger?” Beck told Cointelegraph.
Ethereum remains a neutral settlement layer—yet it isn’t fairly compensated for the security and finality it provides.
Base Responds: Value Beyond Fees
In defense, a Base spokesperson emphasized that every transaction on Base pays Ethereum gas fees and that all activity is settled on-chain. “Since launch, Base has paid over $20 million in settlement fees to Ethereum—visible under ‘cost of revenue’ on platforms like Token Terminal,” they stated.
They also highlighted indirect benefits: “Base makes it faster and cheaper to go onchain, driving more users, developers, apps, and assets into the Ethereum ecosystem—all transacting in ETH and increasing demand.”
Yet financial analysis reveals a stark disparity. In April 2025 alone, Base collected $3.7 million in fees but paid only $305,000—about 8%—to Ethereum as settlement costs. In most months, L2 revenue is nearly tenfold what’s paid to the base layer.
Still, some argue this imbalance may be temporary. Upcoming upgrades like Pectra (launched May 7) and Fusaka (planned for late 2025) will increase blob throughput from 3 to up to 9 per block. “This means L2s can publish more data, potentially increasing total blob fees paid to Ethereum,” Ved explained.
Ethereum is already hitting its current blob limit consistently. With higher capacity, the base layer could capture more value organically—without needing forced taxation.
Could "On-Chain Rollups" Be the Answer?
A promising solution gaining traction is the concept of on-chain rollups, where transaction sequencing happens directly on Ethereum rather than on centralized L2 sequencers.
Today’s dominant L2s—Optimism, Arbitrum One, Base—rely on centralized sequencers. These pose risks: single points of failure, censorship potential, and vulnerability to attacks.
“If a centralized sequencer goes down, the entire rollup stops,” warned Jarrod Ward of Polygon. Tom Ngo, COO of Metis, echoed this: “L2 sequencers have become dangerously centralized.”
The 2024 $2.6 million hack of Linea underscored these dangers. A decentralized alternative could mitigate such risks.
Enter Taiko Alethia, the first major on-chain rollup L2, launched in May 2024. A year later, it holds $148.3 million in total value locked (TVL)—ranking 14th on L2Beat but far behind Base’s $12.06 billion.
Performance-wise, Taiko processes 20.3 user operations per second (UOPS), comparable to Arbitrum One (21.6 UOPS) and double that of Optimism (10.3 UOPS)—though still behind Base’s 86.3 UOPS.
While scalability lags, the model offers stronger decentralization and long-term security—a trade-off many believe is worth making.
Should Ethereum Tax Layer 2s?
Another controversial idea: taxing L2s through protocol-level fees or mandatory revenue sharing.
But Ved cautions against this. “It could reduce L2 competitiveness and risk pushing activity to rival L1s like Solana.” If Base had to pay more to Ethereum, users might migrate elsewhere.
There’s also a philosophical conflict. Taxation contradicts Ethereum’s ethos of decentralization and permissionless innovation. The community prefers market-driven solutions over top-down mandates.
Still, proposals like EIP-7762 aim to boost base blob fees during high demand—effectively increasing Ethereum’s income without explicit taxation. This market-aligned approach aligns better with Ethereum’s values.
The Power of Social Consensus
With no central authority, change in Ethereum relies on social coordination.
Beck suggests applying “social pressure” on dominant L2s to voluntarily share sequencer revenue or adopt more decentralized models. “Other L2 teams could say: Your centralized design has inherent risks—here’s a chance to move sequencing into decentralized Ethereum.”
In January 2025, ENS Labs hosted a three-day workshop in the UK with core teams from Linea, Status, OpenZeppelin, Titan, Spire Labs, and the Ethereum Foundation. Their goal? Build scalable infrastructure for Namechain, ENS’s L2 project—and foster collaboration on rollup interoperability.
“Ethereum is decentralized—you can’t force consensus overnight,” Beck admitted. “But these gatherings are a strong start.”
David Hoffman remains optimistic. He once criticized the Ethereum Foundation as too academic and insular—but recent leadership changes signal progress. The appointment of Tomasz Stańczak and Hsiao-Wei Wang as co-executive directors reflects a new era of accountability and cohesion.
“I’m optimistic,” Beck added. “Ethereum still holds the most DeFi assets. Most stablecoins are here. Even BlackRock has a fund settling on Ethereum.”
FAQ
Q: What are Layer 2 networks?
A: Layer 2s are scaling solutions built on top of Ethereum that process transactions off-chain and post data to the mainnet for security. They reduce congestion and lower gas fees.
Q: Why are sequencer fees controversial?
A: Sequencers order transactions on L2s and can earn significant fees. Since they’re often centralized and keep most revenue, critics argue Ethereum isn’t fairly compensated for its role.
Q: How did Dencun impact L2 economics?
A: Dencun introduced blob transactions, slashing data-publishing costs for L2s. This boosted their profitability but widened the gap between what they earn and what they pay Ethereum.
Q: What is an on-chain rollup?
A: An on-chain rollup performs transaction sequencing directly on Ethereum (Layer 1), enhancing decentralization and security compared to current off-chain sequencers.
Q: Can Ethereum fairly tax L2s?
A: Direct taxation is unlikely due to philosophical and competitive concerns. Instead, protocol upgrades like EIP-7762 may increase base fees during demand spikes—boosting revenue organically.
Q: Is Ethereum losing relevance?
A: No. Despite L2 debates, Ethereum leads in DeFi TVL, stablecoin usage, institutional adoption (e.g., BlackRock), and developer activity—maintaining its position as the core settlement layer.
Ethereum stands at a crossroads—not just technologically, but economically. While Layer 2 networks have unlocked massive scalability, they’ve also exposed structural imbalances in value distribution.
The path forward likely lies in hybrid solutions: protocol upgrades to capture more fees organically, social coordination to encourage fairer models, and technical innovation like on-chain rollups to restore decentralization.
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