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Layer 2s have been a great blockchain success story. They&#8217;ve reduced 
congestion on the Ethereum mainnet, driving down gas fees while preserving 
security.
But maybe they&#8217;ve become too successful, drawing chain activity and fee income 
from the parent that spawned them? At least that&#8217;s what some are suggesting 
lately, most recently at Cornell Tech&#8217;s blockchain conference in late April.
Indeed, some think Ethereum should be a little greedier, or at least fight 
harder for a bigger part of the revenue pie, particularly sequencing fees.
&#8220;People in the Ethereum Foundation [the nonprofit that supports the Ethereum 
ecosystem] will tell you that, &#8216;Yes, we effed up by being too ivory tower.&#8217; I 
have heard that multiple times,&#8221; said David Hoffman, an owner at Bankless, 
during a panel discussion at the Cornell Tech event in New York City on April 
25.
_Hoffman, left, at Cornell Tech &#8216;s blockchain conference. Source: Andrew 
Singer_
Elsewhere, Hoffman has urged Ethereum to make a &#8220;strategic pivot,&#8221; noting that 
the crypto environment has changed in the last few years. Ethereum no longer 
has the &#8220;luxury of being a peace-time research project…. exploited by its 
competition.&#8221;
L2s are reaping millions of dollars in transaction order fees (sometimes 
called sequencing fees), but none of these revenues are being passed on to 
Ethereum, according to James Beck, head of growth at ENS Labs and another 
speaker at the New York City conference. Beck told Cointelegraph:
&gt; So, this cultural layer of podcasters and researchers are saying, &#8216;Well, the 
&gt; price of ETH has been dropping compared to these other tokens. What do we do 
&gt; to make Ethereum more powerful?&#8217;
In short, Ethereum is a neutral verification layer, but the Ethereum mainnet 
is not being fairly compensated for the work that it is doing. Centralized 
for-profit L2s like Base, Optimism and Arbitrum are gathering the lucrative 
sequencing fees while enjoying the security and liveness guarantees of the 
Ethereum mainnet at relatively little economic cost.
## L2s soared after Dencun upgrade
L2 rollups are a recent innovation; they only emerged in 2023. The idea was to 
reduce chain congestion and gas fees by moving transaction processing from the 
main blockchain (layer 1) to separate chains that sit atop the mainnet (L2s). 
But transaction processing is arguably the most profitable part of the revenue 
game, especially when users opt to pay priority fees to get their orders 
processed faster.
Fee-sharing was rarely much of an issue before Ethereum&#8217;s March 2024 Dencun 
upgrade, which introduced blob transactions to help scale layer 2s. Blobs 
significantly reduced the cost for L2s to post data to Ethereum, allowing them 
to operate more profitably, CoinMetrics researcher analyst Tanay Ved told 
Cointelegraph this week.
Since then, L2 user demand has soared, especially on Base, the L2 launched by 
Coinbase in August 2023 on the Ethereum mainnet.
As Ved noted in an April 8 blog, Base has earned a total of ~$98 million in 
revenues from user-transaction fees (including base and priority fees), &#8220;while 
paying only ~$4.9M to the Ethereum base layer, resulting in a total estimated 
profit of $94M since the Dencun upgrade.&#8221;
Ved added:
&gt; This dynamic has led to many questioning whether Layer-2s are net positive 
&gt; for Ethereum, or whether they are &#8216;extractive.
## Base&#8217;s response
Asked about fees, a Base spokesperson told Cointelegraph, &#8220;Today, Base already 
pays Ethereum fees for every transaction on Base. All transactions are settled 
on Ethereum, and so far, Base has paid Ethereum more than $20 million in 
settlement fees since Base&#8217;s inception.&#8221; One can see these fees on Token 
Terminal under &#8220;cost of revenue,&#8221; the spokesperson added.
&#8220;Overall, Base makes getting onchain more accessible with fast and cheap 
transactions and helps grow the Ethereum ecosystem by onboarding more users, 
builders, apps and assets, all of whom are transacting in ETH and driving 
demand,&#8221; said the spokesperson.
_**Related:**__**Institutions break up with Ethereum but keep ETH on the 
hook**_
However, in many, if not most months, Base&#8217;s overall fees are roughly 10 times 
the amount paid to Ethereum for _settling_ trades, according to examination of 
the referenced Base financial statement. In April, for instance, the most 
recent full month, Base reaped $3.7 million in fees, but only $305,000 was 
delivered to Ethereum as settlement fees &#8212; about 8% of total fees.
Still, maybe things aren&#8217;t quite so dire. Even if fees are out of kilter now, 
the imbalance may not last, others caution. Ethereum hard forks like Pectra, 
which went live yesterday (May 7), and Fusaka, scheduled for late 2025, will 
increase blob throughput. &#8220;This means L2s will be able to post more blobs, 
potentially driving higher total blob fees to mainnet,&#8221; Ved told 
Cointelegraph.
Ethereum is already consistently hitting the current blob target of three per 
block, as the chart below shows. &#8220;Pectra will raise this to six blobs per 
block &#8212; with a max of nine &#8212; creating room for increased fee capture as L2 
activity scales,&#8221; added Ved.
_Average blobs per block and their total blob fees (USD) on Ethereum. 
Source:__CoinMetrics_
## 
Are &#8220;based rollups&#8221; the answer?
Some Ethereum researchers, podcasters &#8212; and even L2s &#8212; have been leaning 
into &#8220;based rollups&#8221; as a more permanent way to fix the fee problem and 
provide better security in the bargain. Here, transaction ordering (i.e., 
sequencing) would be done on the mainnet, not on L2s.
The sequencers used by Optimism, Arbitrum One, Base and others are more prone 
to attack or failure, given that they are centralized, with a single point of 
failure, some researchers say. Polygon&#8217;s Jarrod Ward writes:
&gt; If a centralized sequencer goes down, the rollup effectively stops doing its 
&gt; job entirely. It stops handling transactions from users on the L2 and also 
&gt; stops sending batch data back to Ethereum.
&#8220;Layer-2 sequencers have become dangerously centralized,&#8221; added Tom Ngo, 
executive lead at Metis &#8212; an Ethereum layer-2 blockchain.
Last June&#8217;s $2.6-million hack of Ethereum layer-2 blockchain Linea drove home 
to Ngo and others the importance of decentralization and the perils of 
centralized sequencers.
_**Related:**__**&#8217; Vitalik: An Ethereum Story&#8217; is less about crypto and more 
about being human**_
Several based-rollup L2s have launched this past year. Taiko Alethia, the 
first and largest, went live in May 2024. A year later, it had $148.3 million 
in total value secured &#8212; ranking 14th on L2Beat&#8217;s list of L2s, though far 
behind leader Base&#8217;s $12.06 billion.
_Top Ethereum layer 2s ranked by total value secured. Source:__L2Beat_
Speedwise, Taiko was averaging a respectable 20.3 user operations per second 
(UOPS) on May 7, a far cry from Base&#8217;s 86.3 UOPS, but on par with Arbitrum 
One&#8217;s (21.6 UOPS) and significantly better than Optimism&#8217;s (10.3 UOPS).
## A tax on L2s?
Another idea floated in the Ethereum community is imposing a sort of tax on 
L2s. But doing this could have some unintended consequences, according to Ved. 
It could make L2s less competitive. It also risks &#8220;leakage of activity to 
competing layer 1s outside the Ethereum ecosystem.&#8221; Activity that flows to 
Base today could flow instead to Solana or other L1s, Ved said.
There could be philosophical issues, too, were Ethereum to lay a surcharge on 
its L2s. Ved noted:
&gt; A tax could be seen as contrary to Ethereum&#8217;s ethos of decentralization, 
&gt; which would opt for market-driven forces rather than enforcing a tax.
 Generally speaking, the Ethereum Foundation seems to be prioritizing long- 
term growth over short-term revenue, Ved explained. Proposals like EIP-7762, 
though, which raises the minimum blob base fee to speed up price discovery 
during demand surges, could drive more fee income to Ethereum mainnet, having 
an effect like a tax.
## Social pressure?
According to ENS Labs&#8217; Beck, it may take some social pressure to get the 
leading centralized L2s to voluntarily give up their sequencing fees. Other 
L2s like Linea may need to step in and say to centralized L2s something along 
the lines of: &#8220;Look, you guys have these risks inherent in a more centralized 
design, and here&#8217;s the chance to bake [the order processing] into Ethereum, 
which is more decentralized.&#8221;
Along these lines, ENS took part in a three-day workshop in the UK in January 
with leading researchers and developers from entities like Linea, Status, 
OpenZeppelin, Titan, Spire Labs and the Ethereum Foundation. The immediate 
task was how to create scalable, decentralized infrastructure for ENS Labs&#8217; 
Namechain, but also to bring together various Ethereum ecosystem teams to 
collaboratively solve L2 interoperability challenges with based rollups.
It&#8217;s not always easy to get things done in a flat (non-hierarchical), multi- 
voice entity like Ethereum, Beck acknowledges. &#8220;Ethereum is a decentralized 
ecosystem. You can&#8217;t get everyone on the same page all at once.&#8221; But a 
collaboration like the recent one that took place in the UK is a start.
Cornell Tech conference panelist Hoffman expressed some confidence that 
Ethereum could pivot and &#8220;turn the layer 1 into a rollup&#8221; with processing 
speeds comparable to today&#8217;s L2s.
As noted, Hoffman has criticized the Ethereum Foundation for being too insular 
and academic, but he sees signs that things may be changing now, writing 
recently:
&gt; The appointment of co-executive directors Tomasz Stańczak and Hsiao-Wei Wang 
&gt; marks a new era of accountability, direction, and internal cohesion.
&#8220;I&#8217;m feeling optimistic,&#8221; added Beck. &#8220;Ethereum still has the most assets 
locked for DeFi; the most stablecoins are on Ethereum. BlackRock has a fund 
that&#8217;s settling on Ethereum.&#8221;
Put another way, Ethereum is still well-positioned to provide the 
infrastructure for the &#8220;network of networks&#8221; &#8212; i.e., the smoothly interacting 
network of multitudinous private and public blockchains that many hope will be 
the technology&#8217;s future.
_**Magazine:**__**12 minutes of nail-biting tension when Ethereum &#8216;s Pectra 
fork goes live**_

Are layer 2s good for Ethereum, or are they ‘extractive?’

Missouri House Bill 594, a bill that would eliminate capital gains tax in the 
US state, has passed a vote in the state House of Representatives and now 
heads to Missouri Governor Mike Kehoe&#8217;s desk for signature.
According to attorney Aaron Brogan, the bill stipulates a 100% income tax 
deduction for any capital gains income because the Missouri tax code does not 
explicitly distinguish between capital gains and income tax.
_Missouri House Bill 594 proposes exempting capital gains from income taxes. 
Source:__Missouri House of Representatives_
Brogan told Cointelegraph that the specific mechanism to exempt capital gains 
taxes outlined in HB 594 is unique and compared it to a similar income tax 
deduction in the federal tax code. The attorney explained:
&gt; &#8220;The most natural comparison is the state and local tax (SALT) deduction 
&gt; that the federal government offers &#8212; where the Internal Revenue Code (IRC) 
&gt; permits individuals to deduct a certain amount of tax paid in state and 
&gt; local taxes. This is the inverse, which I have never seen before.&#8221;
The bill&#8217;s timing is significant in that it follows proposals from US 
President Donald Trump to overhaul the country&#8217;s income tax system through 
comprehensive reform.
_**Related:**__**US lawmaker targets crypto investors using Puerto Rico as a 
tax haven**_
## Trump proposes eliminating federal income tax in the United States
Trump has proposed offsetting federal income taxes or eliminating the income 
tax and replacing the federal tax revenue with money raised through import 
tariffs.
&#8220;When Tariffs cut in, many people&#8217;s income taxes will be substantially 
reduced, maybe even completely eliminated. The focus will be on people making 
less than $200,000 a year,&#8221; the president wrote in an April 27 Truth Social 
post.
Trump added the plan will create more jobs in the United States as factories 
return to avoid import duties on their finished products.
Despite this, the market reaction to the tariffs has been overwhelmingly 
negative, with the stock market recording trillions of dollars in losses in 
response to tariff headlines and crypto markets shedding hundreds of billions 
in value.
Additionally, bond yields spiked following the tariff announcements &#8212; a sign 
that investors were rejecting US bonds, which are traditionally seen as a 
flight to safety.
_**Magazine:**__**Financial nihilism in crypto is over &#8212; It&#8217;s time to dream 
big again**_