Original author: Kydo
Original translation: Luffy, Foresight News
Last week, something big happened in the crypto space, but only a few people fully understood its significance.
Celo announced its transition from an independent L1 blockchain to Ethereum’s L2 blockchain.
It’s easy to interpret this as just another technological migration, but in reality, it’s a sign of a broader shift that Ethereum has been quietly driving, one that’s reshaping how we think about how projects are built in crypto.
Let’s dissect this a little deeper.
1. The industry begins to take cost and revenue issues seriously
We are in the midst of a long overdue correction. Crypto markets are beginning to refocus on fundamentals. Narratives still matter, but now people are asking:
What is the actual revenue of this chain?
How much does it cost to operate?
Where does value accumulate?
A host of new metrics, like market cap to revenue (REV), are beginning to gain importance, revealing stark differences between seemingly similar blockchains.
This may be why Celo decided to switch to Ethereum L2.
2. L1 cannot generate revenue, but L2 can
This is often overlooked: L1 chains are not actually able to generate revenue in a sustainable way.
Why? Because all value goes directly to stakers or miners. L1 collects fees, which are immediately distributed as block rewards or staking returns. There is no retained profit margin, no surplus, and no funds left to fund innovation or protocol development.
This creates a strange situation where L1s can be extremely valuable platforms but still operate like public infrastructure, with no built-in funding mechanisms to enable their development and evolution.
Contrast this with L2, which is able to retain and redeploy revenue. Collator fees, maximum extractable value (MEV), or even custom charges for block space can be retained and reinvested in RD, developer funding, growth promotion activities, or public goods. This is a model that can achieve true sustainability and align incentives over time.
This is why so many new ecosystems choose to prioritize building L2. It’s not just about technical architecture, it’s also about economic design.
3. L1 is the mainframe in the Web3 era
Here’s a simple mental model: L1 blockchains are like mainframes for crypto.
In the early days of the Internet, if you wanted to run a serious application, you had to buy a mainframe. You had to maintain the hardware, write your own network stack, and be responsible for every aspect of the systems uptime, security, performance, etc. It was powerful, but expensive.
Running an L1 blockchain today faces a similar situation. You need your own consensus mechanism, your own set of validators, and your own token incentives to secure the network. It costs you millions of dollars every year to keep the system running and secure.
Taking Celo as an example, they spend 4% to 6% of the total token issuance each year, about 15 to 25 million US dollars per year, just to maintain basic security and normal operation of the system.
This is not uncommon. It’s true for Ethereum and it’s true for Solana. Every independent L1 has to bear this cost. But the key is: this cost does not decrease with scale. If you are a smaller L1 chain, the cost you bear may be overwhelming.
4. L2 is like a hosted server: just as powerful, but cheaper
Now imagine that instead of running a mainframe, you switch to a managed server.
You still have control over your environment, you can customize how your blockchain runs, and you still have autonomy over execution, but you don’t have to secure the physical equipment yourself, which is what L2 on Ethereum does.
Celo, as L2, will still provide the same user experience. But now, the heavy lifting 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 dropped significantly.
Instead of $20 million per year in security costs, the costs are now just state storage fees and data availability costs, which can be further reduced through data compression and the use of alternative data availability layers (Celo chose EigenDA).
5. Why this is a strategic masterstroke for Ethereum
This isn’t just about Celo; it also means that Ethereum’s long-term strategy is finally starting to fall into place.
Ethereum no longer seeks to be 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, and now Web3.
Instead, Ethereum is becoming a base layer on which other chains can be built, providing security, decentralization, and interoperability as a service.
Yes, at first glance this looks like cannibalization. Ethereum is reducing the “premium” of its L1 chain. But in reality, it is capturing a much broader market by becoming the foundation upon which other chains rely.
You can insist that there will be only one server, or you can choose to help build the next billions.
Just like no one runs their own mainframes anymore, in the future, very few projects will run their own L1 chains. They will run hosting servers, they will be L2, and they will do it all on Ethereum.
Moving towards efficiency is an inevitable trend
As projects face market pressure to reduce costs and increase revenue, they will come to the same conclusion as Celo:
Why spend tens of millions of dollars to build a new L1 when Ethereum can provide stronger security at a lower cost?
It may not happen overnight, but it will happen eventually because the laws of economics are infallible.
