Perspective: Why L1 Will Eventually Transition to L2?

L1 is the large host of the Web3 era, while L2 is the accomplice server.

Written by: Kydo

Compiled by: Luffy, Foresight News

Last week, a significant event occurred in the crypto space, but only a few people fully understand its importance.

Celo announced its transition from an independent L1 blockchain to an L2 blockchain on Ethereum.

People can easily interpret this as yet another technological migration. But in reality, this marks a broader transformation that Ethereum has been quietly driving, reshaping our understanding of project building in the crypto space.

Let’s take a deep dive into it.

1. The industry starts to take cost and revenue issues seriously.

We are in a delayed adjustment. The crypto market is beginning to revalue the fundamentals, the narrative is still important, but now people will ask:

1. What is the actual revenue of this chain?
2. What are its operating costs?
3. Where does value accumulate?

New metrics like the market cap to revenue ratio (REV) are becoming increasingly important, revealing significant differences between blockchain networks that may seem similar on the surface.

This may be the reason why Celo has decided to turn to Ethereum L2.

2. L1 cannot generate revenue, L2 can

People often overlook this point: L1 chains cannot actually generate revenue in a sustainable manner.

Why is that? Because all value flows directly to the stakers or miners. L1 collects fees, and these fees are immediately distributed as block rewards or staking returns. There is no retained profit margin, no surplus, and therefore no remaining funds to support innovation or protocol development.

This has created a strange phenomenon: L1 can be a highly valuable platform, yet it operates like public infrastructure, lacking a built-in funding mechanism for development and evolution.

In contrast, L2 can retain and redistribute revenue. Fees for sorters, Maximum Extractable Value (MEV), and even customized charges for block space can be retained and then reinvested into research and development, developer funding, growth promotion activities, or public goods. Over time, this is a model that can achieve genuine sustainability and keep incentives aligned.

This is why so many new ecosystems choose to prioritize building L2. It's not just about the technical architecture, but also about economic design.

3. L1 is the large host of the Web3 era

Here is a simple thinking model: L1 blockchain is like a large mainframe in the field of cryptocurrency.

In the early days of the internet, if you wanted to run an important application, you had to purchase a large mainframe. You needed to maintain the hardware, write your own network stack, and be responsible for various aspects such as system uptime, security, and performance. This was powerful, but costly.

Running an L1 blockchain today faces similar situations. You need to have your own consensus mechanism, your own set of validators, and your own token incentives to ensure network security. To keep the system running and secure, you need to spend millions of dollars each year.

Taking Celo as an example, they spend about 4% to 6% of the total token issuance each year, approximately 15 to 25 million USD annually, just to maintain basic security and the normal operation of the system.

This is not uncommon. Ethereum is like this, and Solana is too. Every independent L1 has to bear such costs. But the key is: this cost does not decrease with scale. If you are a smaller L1 chain, the costs you bear may be overwhelming.

4. L2 is like an accomplice server: equally powerful, but at a lower cost.

Now imagine that you are no longer running a large mainframe, but instead switching to a managed server.

You can still control your environment and customize the way your blockchain operates, while retaining autonomy in execution. However, you do not need to ensure the security of physical devices yourself; L2 on Ethereum works this way.

As an L2, Celo will still provide the same user experience. However, now the heavy lifting in terms of security, such as fraud proofs, consensus mechanisms, and finality of the base layer, is handled by Ethereum. The cost of maintaining this chain has significantly decreased.

No longer is it an annual security cost of 20 million dollars; now the cost is merely related to state storage fees and data availability costs, and it can be further reduced through data compression and the use of alternative data availability layers (Celo chose EigenDA).

5. Why This is a Strategic Move for Ethereum

It's not just about Celo, it's about Ethereum's long-term strategy finally starting to take place.

Ethereum is no longer trying to become "the one server to rule them all." That vision of a single dominant chain has been proven wrong in every era of computing, whether it's Web1, Web2, or now Web3.

On the contrary, Ethereum is becoming the foundational layer upon which other chains can build, offering security, decentralization, and interoperability as a service.

Exactly, at first glance this looks like self-cannibalization. Ethereum is reducing the "premium" of its L1 chain. But in reality, by becoming the foundation that other chains rely on, it is capturing a much broader market.

You can insist that there will only be one server, or you can choose to help build the next billions of servers.

Just like today, when no one runs their own large mainframes anymore, in the future, very few projects will run their own L1 chains. They will run on managed servers, they will become L2, and they will achieve all of this based on Ethereum.

The alignment towards efficiency is an inevitable trend.

As various projects face market pressure to reduce costs and increase revenue, they will reach the same conclusion as Celo:

Why spend tens of millions of dollars building a new L1 when Ethereum can provide stronger security at a lower cost?

This may not happen overnight, but it will eventually come, because economic laws do not go wrong.