Author: Doug Colkitt, Source: Author’s Twitter @0xdoug; Translated by: Wuzhu, Golden Finance
This is a great analysis and the most plausible bullish case for DA. But I think there is no way DA will ever get close to 50% of L2 fees.
For structural economic reasons, sorting will always generate greater value than DA…
Blockchains are basically in the business of selling block space. Since block space is not easily interchangeable between chains, they have almost created a monopoly.
But not all monopolies can earn excess profits. The key lies in the ability of consumers to differentiate between prices.
Without price differentiation, monopoly profits can hardly be higher than commodity profits.
Think of how airlines differentiate price-insensitive business travelers from bargain-hunting consumers. Or how the same SUV model can be sold at wildly different prices under the Volkswagen, Audi, and Lamborghini brands.
Priority fees are an incredible price discrimination mechanism in blockchains. The highest priority transactions pay fees that are literally orders of magnitude higher than the median.
Both L2s and Solana achieve high throughput and high revenue by using sequence priority as a form of price differentiation.
Marginal transactions pay very low fees, allowing for huge TPS, but price-insensitive transactions receive commissions and pay for the majority of network revenue.
Below is the distribution of 5 randomly drawn blocks from Base L2. This is a clear Pareto distribution, which makes price differentiation very effective.
The top 10% of transactions pay 30% of revenue. The bottom 10% pay less than 1%.
The problem is that while the sorters are making a ton of money from this, the DA layer is not participating because it doesn’t have any price differentiation capabilities.
That super high value arbitrage pays the same fee for Ethereum DA as the 1 wei spam transactions because they are settled in one batch.
Since marginal transactions are so low value, you can only get high TPS if intermediate transactions can be on-chain at near zero cost. But with DA, essentially every transaction pays the same.
A DA layer can have high throughput or it can have high revenue. But it cannot have both.
This makes it essentially impossible for rollups to scale without collapsing Ethereum network revenue.
The rollup-centric roadmap is fundamentally flawed because it abandons the valuable part of the network (ordering) in the belief that it will return to the worthless part (DA).
I was initially optimistic about the Rollup-centric roadmap because I thought any rational person would recognize the price discrimination economics and that it would operate in parallel with the expansion of L1.
High-value, price-insensitive users will use L1 for its reliability, secure finality, and provenance. L2, on the other hand, focuses on marginal, low-income users who are priced out of L1 fees. As a result, Ethereum will still receive significant sorter rent.
But Ethereum leadership has repeatedly stressed that L1 as an application layer is effectively dead and will never scale. As a result, users and developers have reacted very rationally, and the L1 application ecosystem is now dying, and Ethereum network revenue is dying with it.
If you believe that the long-term valuation proposition for ETH is as a monetary asset, then this might still be OK. Getting more people to own ETH makes it a form of money. And subsidizing L2s so that the value of the base layer accrues to zero should help achieve this.
But if you think the long-term valuation proposition for ETH is network equity in a widely used protocol (which *I* think is more likely than ETH as money), then you need value accrual.
Clearly, we really screwed this up because of faulty economic assumptions.
