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Based Rollups are being proposed as a potential solution to address the current challenges around Ethereum’s layer-2 networks and their impact on the base layer’s revenue and liquidity. As layer-2 networks like Optimism and Arbitrum pull transactions away from the Ethereum mainnet, the reduction in gas fees has affected the overall usage of ETH and its deflationary mechanisms, which include the burning of ETH fees.
Based Rollups differ from other layer-2 solutions by utilizing Ethereum’s layer-1 validators instead of their own sequencers to process transactions. This alignment of incentives between Ethereum’s base layer and layer-2 rollups could significantly alter the economic model for Ethereum. Cinneamhain Ventures partner Adam Cochran emphasized that by allowing validators to process Based Rollups, Ethereum staking yields could increase, making staking more valuable. He also suggested that this approach could increase Ethereum’s long-term demand, potentially leading to a dramatic rise in its price over the next decade.
Moreover, the interoperability of Based Rollups across different networks could enhance liquidity, cross-chain transactions, and demand for Ethereum’s gas fees, thereby increasing the revenue generated by the network and boosting staking rewards without inflating ETH issuance. This would support Ethereum’s deflationary model by driving more usage of the Ethereum Virtual Machine (EVM) and burning more fees.
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Ethereum issuance turned inflationary following the Dencun upgrade, which lowered layer-2 fees and reduced gas usage. As a result, fewer ETH tokens were burned, and inflation increased. However, some community members, like Ryan Berckmans, believe this is a positive development, as lower fees could encourage mass adoption of Ethereum for everyday transactions.
Despite concerns about Ethereum’s current economic model, many developers and community members argue that Ethereum remains in a strong position to grow as a decentralized financial settlement layer. According to Ethereum developer Eric Connor, while market sentiment may be low, the long-term vision of making Ethereum a global financial layer with ETH gaining monetary premium remains intact.
Based Rollups, by aligning incentives and driving higher staking yields, represent a significant innovation that could reinforce Ethereum’s economic model, ensuring sustainable growth and adoption while supporting ETH’s deflationary mechanisms.
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