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Layer 3 Race Heats up as Optimism Rolls Out Custom Gas Tokens to Weaken ETH Monopoly

Published May 30, 2024 11:00 AM
James Morales
Published May 30, 2024 11:00 AM

Key Takeaways

  • Optimism has entered the Layer 3 game with a new solution to enable custom gas fees.
  • OP Stack developers can now build L3s that don’t require ETH as their native gas currency.
  • Although there have been experiments with L2 custom gas fees, the idea holds the most potential for L3s.

Having announced  its Layer 3 expansion earlier this month, on Wednesday, May 29, Optimism beta launched custom gas token capabilities for OP Stack.

The announcement brings Optimism in line with Arbitrum and Starknet and points to one of the main appeals of L3s in general: their ability to reduce the need for ETH to fund transactions.

Custom Gas Tokens in the Ethereum Ecosystem

Because Layer 2 and Layer 3 transactions aren’t inscribed directly on Ethereum, gas fees don’t necessarily have to be paid in ETH. As long as L2 sequencers are sufficiently funded to post rolled-up transactions to the base layer, it is ultimately irrelevant which currency is used to pay for gas. 

Layer 2 chains built using the Polygon CDK have the option to use alternative tokens for gas. For example, Ryoshi Chain uses Shiba Inu.

But overall, most L2s still rely on Ether to fund transactions so as to maintain liquidity and avoid the risk of the sequencer running out of funds. (As happened with Arbitrum last year when a bug  affecting the sequencer funding mechanism brought the network down.)

While L2s have a strong incentive to preserve ETH as their gas currency, custom gas tokens hold significant potential for L3s.

Advantages of Custom Gas Tokens

In Ethereum’s emerging L3 ecosystem, custom gas tokens have gained traction thanks to the significant efficiency gains they offer.

For instance, Degen Chain has managed to bring the cost of transactions down to a tiny fraction of the cost of L2 transactions by implementing DEGEN as its native gas token. 

As Optimism recognized in a recent blog post , custom gas tokens are especially compelling for existing L2 projects, incentivizing them to move activity up to the third layer:

“Projects that have built communities around their existing L2 native token can now evolve their community into a thriving L3 ecosystem utilizing their token as the gas token. This also lowers onboarding costs for new users – rather than needing to onramp by performing an expensive L1 transaction depositing gas tokens into the L2, on-ramping to an L3 can be as simple as performing a cheap L2 deposit transaction into the L3.”

Greater L3 Flexibility

The flexibility custom gas fees provide for L3s means they can dynamically adjust tokenomics over time and tailor design the rules for different participants. 

Exciting prospects include using targeted gas subsidies to encourage specific types of users, developers, contracts and applications.  

Layer 3s could even make transactions free for certain users, for example, by rewarding Web3 gamers with dedicated gas tokens, or by diverting fees from one category of transactions to subsidize another.

This greater degree of flexibility could help L3s realize their true potential as dedicated rollups for Web3 communities that are cheap to spin up and use.

Although Starknet and Arbitrum have a headstart, the sizable base of OP Stack developers could quickly close the gap now that Optimism has entered the L3 game too.

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