In a recent analysis, prominent crypto analyst Adam Cochran presented a compelling case for how Based Rollups could revolutionize the Ethereum network and significantly enhance the long-term demand for Ether (ETH). According to Cochran, the introduction of Based Rollups could fundamentally shift incentive structures, potentially leading to a staggering 100x increase in ETH’s demand.
The concept of Based Rollups hinges on their innovative economic model, which allows layer 2 (L2) solutions to access the processing power of existing layer 1 (L1) validators instead of merely paying for data availability (DA).
This change could fundamentally reshape the blockchain economy, as processing transactions are often the most lucrative aspect of blockchain operations. Cochran notes that while ETH has historically underpriced its DA value, validators can earn additional rewards by participating in Based Rollups, which could create significant new revenue streams.
For validators, this means enhanced staking yields that are less correlated with the total amount of ETH locked up in the network. In scenarios where numerous Based Rollups emerge, its validators could achieve yields of 15% or more, potentially leading to supply shocks in the market.
Mechanisms for Monetizing Ethereum
Additionally, the monetization of ETH could be expanded through mechanisms like miner extractable value (MEV) auctions, where validators bid in ETH for the chance to process transactions, thereby enabling them to realize one-time profits.
Cochran outlined several possible models for these Based Rollups, including preconfirmation staking, which requires validators to stake more ETH than the value of transactions they confirm, and proof of burn, which mandates that validators burn ETH to gain access to L2 validation opportunities. These mechanisms could significantly increase liquidity access and drive up gas demand through a greater volume of cross-market settlement transactions.
Ultimately, Based Rollups promises to enhance the value accrual of ETH in two primary ways: by making regular ETH staking more lucrative and facilitating competitive bidding for idle processing resources on the Ethereum network without inflating L1 gas fees.
This alignment of incentives between L1 validators and L2 solutions may lead to Ethereum’s minimum viable issuance approaching 0%, while validator yields could remain robust at 4% to 8%.
Nevertheless, the potential for Based Rollups to drive substantial economic changes is significant. By aligning the interests of various stakeholders, Cochran believes that Ethereum could see transformative growth, positioning ETH as a potentially high-value asset in the coming decade.
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