United States of Ethereum: E Pluribus Unum

This post does not compete in the Kiwi x t2 x Lens writing contest because I'm one of the organizers. You can read other submissions on Kiwi.

You might have heard that Ethereum is like the United States.

That Ethereum Mainnet is the lightweight federal government that:

• sets the rules (how EVM works),

• ensures security (how the code won’t be changed unless there’s social & economic consensus),

• and enforces the laws of the system (through a decentralized network of validators and nodes).

And L2s here are like independent states.

They have to follow the Mainnet rules to ensure everything works well. They have to use federal currency (ETH) for transactions. And their users have to pay federal (Mainnet) taxes, which are collected by L2 and sent to the Mainnet.

This analogy to the United States, of course, has its limitations. Ethereum doesn’t have a President, general elections, or army. But thinking through this lens can help us generate ideas on how we could solve the most pressing L2 dilemmas.

Let’s start with understanding this analogy a bit better.

The United States AD 1789 was a very pluralistic country.

Americans, a little over a decade before, gained independence from Great Britain. They didn’t want another monarch or a strong, centralized government that could take away their newly acquired freedom.

They also had a big, diverse country to manage, from snowy Massachusetts to subtropical Georgia. Some states made money on whale hunting, others were selling fur, and some were focused on metalworking.

“One size fits all’, centralized strategy could limit the potential of a newly minted country. So, they created a federal government for diplomacy, defense, and interstate commerce and left states a lot of freedom.

Giving each state a lot of independence was like building a portfolio of 13 startups. Each had a different economy, governance, and culture, and they could learn from each others’ successes and mistakes.

And if one state faced problems, the others could carry the portfolio.

In the XVIII century, Virginia was the darling, generating about 20% of the US economic output thanks to its vast tobacco fields.

In the XIX century, it was New York, with its financial centers, shipping, and manufacturing.

In the XX century, California - which didn’t even exist until 1850 - carried the country with its Hollywood, aerospace industry, Silicon Valley, and oil.

While some states had their ups and downs - like Michigan, which was big in the 1950s but went down with the fall of Detroit’s General Motors, Ford & Chrysler - they were balanced by the rise of other states.

This pluralism wasn’t limited to states. The US was open to immigrants from all walks of life and became a magnet for people who wanted a new beginning.

Some nations, like the Irish, came because they starved in their own country. Some nations, like the Dutch, came looking for religious freedom. The English came because they wanted to find new business and farming opportunities.

Embracing pluralism and giving both the states and citizens freedom to pursue their goals in their own way was the code that helped to build today’s power of the United States.

And this design is similar to Ethereum.

Ethereum AD 2024 is also a very pluralistic project.

Ethereum community, just after gaining independence from centralized Big Finance, Government, and Tech entities, didn’t want another strong, centralized governance.

Just like the US was diverse because of its geography, so is Ethereum because of its people. Since 2015, we have brought cryptography experts, distributed systems engineers, economists, TradFi traders, philosophers, web2 consumer apps veterans, artists and many many more.

Because these people have different backgrounds and priorities, they have different perspectives on how to scale Ethereum. And thanks to L2s, everyone can create their own “state” because the digital land is not limited like the physical one.

This is why L2s differ in how they work (are they optimistic or zk rollups?), what kind of users they’re after (are they after artists like ZORA or after DeFi like Arbitrum?), and what kind of laws they want to have (token-weighted governance or some other forms consensus?).

As Vitalik puts it in the L2s as a cultural extension of Ethereum:
"for a subculture, a layer 2 is the ultimate playing field for action"

And there's more to that.

Just like with states, having many independent L2s is like building a portfolio of dozens of startups. Each L2 has a different tech, economy, governance, and culture, and they could learn from each others’ rises and falls.

Remember when, in 2021-2022, Polygon was the place where most projects were looking for scalability? Most L2s weren’t fully fledged yet, so Polymarket, the Starbucks loyalty program, and Reddit NFTs found their home on an Ethereum sidechain.

Today, Base is leading the adoption, and in 3 years from now, it could be ZkSync or even some L2 that is not established yet.

One good thing about this design is that it limits the downside. Even if one of the L2s makes a fatal mistake, the damage would be limited to only this one project, contrary to more monolithic designs.

And just like the United States, Ethereum’s decentralized design was the promised land for many people.

We didn’t have starving Irishmen, but LATAM & African users, experiencing high inflation in their countries, came for stablecoins that gave them a more stable financial life.

We didn't have Dutchmen escaping religious oppression, but we had journalists from authoritarian countries such as Russia and China, who could use crypto to finance their operations.

We didn’t have trading Englishmen, but many startup founders were drawn by the decentralized network design that opened a window to compete with the web2 Big Tech.

In other words, we all live in the United States of Ethereum.

How do the main concerns about L2s appear when you examine the ecosystem through the lens of the U.S. analogy?

#1: Are L2s part of Ethereum?

Are states part of the United States? Of course, they are. But it’s not unconditional.

If Texas decided to ignore all federal taxes, it would be hard to consider them part of the US. Taking aside all possible civil war scenarios, they’d probably leave the United States and won’t be secured by its military power. The US would probably also limit its free trade laws with Texas.

Same with L2s.

They are a part of Ethereum because they use Ethereum’s security (DA), count on its laws (EVM & proofs), and even use the same currency (ETH). But it’s not unconditional.

Let’s say the L2 decides to keep the laws (EVM) but uses its own gas token and settles on another blockchain. Would we call it a part of Ethereum? I don’t think so because their transactions wouldn’t be secured by Ethereum’s technical and financial power.

Such blockchain could be a close Ethereum ally and a part of the broader Ethereum ecosystem, just like Gnosis is (which is technically not L2). But it would be to Ethereum what the UK is to the US - a strong but primarily independent friend.

This could be a feature, not a bug, as these EVM allies could run experiments that Ethereum can learn from - for example, Gnosis did a Dencun hard fork before Ethereum, and if something went wrong, the EF could learn about it before they forked the Mainnet.

So yes, nothing is set in stone. L2s could stop settling on Ethereum, especially since it’s easier for L2 to leave Ethereum than for Texas to leave the United States. It’s fair to say it’s a real risk for the network. But until L2s settle on Ethereum, they are a part of Ethereum. And it’s true until - if ever - they decide to leave.

#2: Are L2s parasitic to Ethereum?

Is California parasitic to the United States? Of course, it’s not.

People living in California have to pay a state tax, but it is about 3X lower than the federal tax, so most money goes to the federal government.

When it comes to the L1 x L2 relationship, it’s a lot different now because most of the money is captured by L2s. So it’s as if we had high state L2 taxes and very low federal L1 taxes. That’s primarily because of the blobs, which helped scale the network.

But it can change very fast because the blobs price is based on the network’s usage. So if we manage to get more Ethereum citizens to tax, or they start generating more activity, a lot of money will flow to L1.

And we are pretty close to that point.

There’s going to be a lot of experimentation here. The Rome United States wasn't built in a day and their tax system evolved multiple times.

The same probably would happen with Ethereum—we have a lot of things to figure out, and there are always going to be some trade-offs involved. Sometimes—like at this moment in time—most money will flow to L2s. But that doesn’t mean that it won’t change as we continue onboarding new users. It will change, and this is a part of the plan.

#3: How do we make L2s work together?

It’s true that the number of Ethereum users is limited, and it’s painfully obvious in the current ‘pre new retail’ bull market. This could make L2s focus on competitive zero-sum games.

So how does the United States deal with that?

The number of American taxpayers is limited, just like the Ethereum ones. States indeed compete for tax revenue by offering lower costs, better quality of life, and tax breaks. That’s why Oracle's HQ is in Texas, and Palantir’s HQ is in Colorado.

But when you zoom out, you can notice that Americans only make up about 4% of the world's population, and they used to make much less. So, the way they grew was by promoting the country and making other smart people come to the US to build, work, and pay taxes.

This is why onboarding new users to Ethereum is so important for L2s. Millions of people use Tron, Solana, and BSC, and they could - just like the US immigrants - join the Ethereum community. I believe this could be a big project ran by an alliance of L2s, with support from the Ethereum Foundation.

And it’s only the tip of the iceberg - there are billions of people who don’t even use crypto that we could onboard, and this could be the goal shared by all L2s.

Another way to increase cooperation between L2s would be to make them interconnected, just like the states are.

Ohio sells coals to Michigan, and there’s no need (or even an option) for every state to run its own coal mines. At the moment, although most L2s want to ruthlessly copy the successful projects from other chains, we can see some early examples of L2 specialization, like Synthetix on Optimism and GMX on Arbitrum.

I think this L2 specialization will continue as both liquidity and users’ & devs’ attention is limited. So why would someone build a sophisticated DeFi perps market on ZORA L2, where users come to mint an NFT?

As we said at the beginning, the L2 diversity comes from its user base and devs. So, just like New York imports high tech from California, so can OP Stack ‘import’ privacy-centric solutions from zkSync and Starknet.

And if we build the equivalent of the interstate highways and make the communication between these L2s smooth and almost invisible to users, then I think we can achieve the best ROI on a rollup-centric roadmap.

In the end, most users probably won’t even know with what L2 they interact, just like they don’t know in which state the company that produced their favorite beer is based.

So, to sum up, looking at Ethereum through the lens of the United States analogy can be a useful exercise. Although this analogy has some limitations, it helps us understand why we follow the rollup-centric roadmap and what the potential paths forward are.

There’s also one thing I haven’t mentioned in this essay.

Whenever I speak with my American friends and ask where they live, they say things such as:
“I was born in Colorado, lived for a few years in Florida, then in California, and now I moved to NYC.”

They are a very mobile nation, looking for the best opportunities they can find. Onchain, being mobile is even easier as moving between L2s is much easier than moving between states. Since L2s will be developed and follow different paths, I think we can expect a lot of mobility from Ethereum users in the upcoming years, and the L2Beat charts AD 2028 will look much different from now.

And if Ethereum is the United States, what are monolithic blockchains in that analogy? I will leave that exercise to the reader :)

PS: The cover photo of this article uses the first design for the Great Seal. It has an interesting story and you can dig in here.