The Programmable Economy Will Be Built on Layer-2

Transcript

Today I'm going to talk about particularly Arbitrum and why I believe the programmable economy, which is the influx of institutional finance that we're finding happening on chain today, is going to happen number one on layer two and number two on Arbitrum specifically. The question today isn't whether finance is going to move on chain. We're seeing that happen rapidly. The question though is where, which ecosystem is this going to happen in? And we're seeing that institutions predominantly want to build their own chains. And this is often a starting point for institutions. If you look at recently at Robinhood, built Robinhood chain, Coinbase built Base, Circle built Arc, Stripe built Tempo. And these

institutions are typically faced with one of two choices. Either they're going to build on Ethereum layer two or they're going to build an alternative layer one. Those are the choices that the largest institutions are having today. Do I build on Ethereum or do I build my own layer one? And by the way, that's an incredible place for Ethereum to be because it basically knocks out every other blockchain. They're not saying, "Hey, do I want to build a layer two on some other chain?" It's, "Do I want to build on Ethereum or do I want to do I want to build my own thing?" And by the way, Vitalik actually called this exactly in his 2020 post. He In 2020, Vitalik published the well-known roll-up centric roadmap for Ethereum in which he basically said, you know, "People get this wrong a lot. People

often think that roll-ups are only for scaling." But what Vitalik said, and you can read the post, I have it up on screen here, is another reason that people are going to want to build on layer two is because people are going to want to be the king of their own little island. Right? Institutions are not going to want to be a little player on a large public network, but they're often going to be a want to be a large player on their own little island. And that's something that's not well understood. Today, people often misquote this history and they say, "Hey, look, Ethereum uh uh just build everything on layer one. We don't need all twos anymore. We have scale." But again, part of the original motivation for layer twos was actually exactly what we were seeing today from the world's largest institutions, that

they want to have their own chains. They want to have their own little island. So, if you're one of the institutions, you basically have one of two choices. Do I build my own layer one, or do I build an Ethereum layer two? So, let's break that down. Let's see, what are the uh pros and cons of building a layer one or layer two, and why I believe the large institutions are choosing a layer two today. So, the first question is economics. People don't like to talk about this, but L1s have a bit of an issue on the economic side, and that is they're really, really expensive to run, and really expensive to bootstrap. If you want to properly build a layer one with uh a distributed validator set and real security, you have to pay for that security, and that often has a very, very high cost. In fact, all of the

fees, if you take any layer one, all the fees from that network get passed right through to their validators. The layer ones retain $0 of their economic activity, and they have to pass that those dollars through to their validators. And that's true, by the way, if you're an institution thinking, "Hey, do I want to launch a layer one or layer two?" That's true whether or not you have any success. If you're running a blockchain that has assets on it, you need to pay for its security. If there's only one transaction an hour, you still need to pay for the security, and that cost is often in the hundreds of millions of dollars per year just to keep the chain up, regardless of whether you have any commercial success.

And people often flip this on its head. They say, "Oh, the layer one tokens are great cuz they give me yield." That yield is actually just the cost of security. It's the cost of inflation. If you look at some of the most popular alternative layer ones, they're inflating their token supply year over year over 5% just to pay for the security of the chain. So, what's happening is every dollar of these fees generated are going to the validators, but that's not enough to actually pay for validation, So, instead they're inflating their token supply to pay for the cost of security. And people sometimes get this wrong. They say, "Oh, no, no, I'm getting yield. I'm staking getting yield." No, you're you're getting yield as you just basically keeping your pro rata share and not getting burned by the inflation because the cost to run a

layer one is so so expensive. Layer twos though are built differently. If you're a layer two, you know what your cost of security is? You pay a very low fixed cost that's per transaction. Arbitrum and other and Robin and chain and other and other Ethereum layer twos pay about 3 to 5% of their transaction cost to Ethereum. That's it. The chains run with 97% margin. So, whereas in layer one world, all transaction fees go to the validators. And then you have to inflate the token supply to pay for security. And layer two world actually, you don't have to inflate at all, but actually even the token of the transaction fees, 97 or so percent are retained by the protocol. And that's where you have Arbitrum and other layer

twos, the ability for them to build treasuries and actually retain their growth and compound their growth and invest in other ecosystem initiatives. And Arbitrum in particular among layer twos is unique because most layer twos that have this, they funnel those transaction fees to to a some foundation or some entity that doesn't have exact transparency. In Arbitrum, all the transaction fees actually go directly on chain to the token holder controlled wallet. So, layer ones don't have the ability to retain revenue. Layer ones need to inflate their token supply. Whereas layer twos, you can actually retain 97% of your revenue. So, if you're an institution today thinking about building a layer one or layer two, and you're not sure how successful your chain will be, a layer two is a much

safer choice because your fees are capped by just a few percentage points of your success. So, if you have a lot of transactions, you'll pay about 3% of that. If you have zero transactions, the chain security will scale down with you and you'll still cost you almost nothing to secure your chain. Whereas in a layer one you'll actually have to, no matter how many transactions you have, you have one transaction per day, you need to continue to pay often 10 to hundreds of millions of dollars a year just to keep the chain alive. A second uh area where I'd like to focus on a layer one versus layer two debate is in the architecture, the technical architecture.

And um a layer design actually just makes sense. The most successful protocol of all time, you may have heard of it, it's called the internet, is actually built in layers. And if you imagine uh building a website, and every time you wanted to build a website, you actually have to rebuild the entire network stack. So, you can't tap into uh TCP or UDP, you actually have to rebuild the entire network stack network stack. Obviously, that's ridiculous. One of the nice things about the layered internet stack is that you can just build an application and automatically tap into everything underneath you and not have to worry about it. It's the exact same things for layer one versus layer two. If you're building a layer two, you can innovate at the chain layer, don't have to worry about bootstrapping your own consensus, don't have to worry about finding your own

validators, don't have to worry about paying your own validators. You can use Ethereum for that. And just like you wouldn't rebuild your entire network stack just to create an application layer website, similarly, it doesn't make sense in 2026 when we have L2s L2s like Arbitrum built on strong and secure L1s like Ethereum to rebuild that stack every time. And that's why both from an economic perspective and a technical perspective, layer twos are just a better design for most institutions today. So, I believe very firmly, convince me that I'm wrong, change my mind, that layer twos are the much much better choice for just about any builder today that wants to build their own chain.

And in particular, if you're looking to build a layer two, Arbitrum stands out and is the best and most unique layer two experience to build, and that's what I will focus on for the next few minutes. So, what do we know all know about Arbitrum? Arbitrum has a reputation to have excellent technology. It has the fastest block times in all of crypto. It has extremely low transaction fees. It has high throughput. We recently saw Robinhood chain built on the Arbitrum platform doing record transaction fees which record transaction volume more than any EVM chain has ever done. Arbitrum also has, besides for its technology technological advances, deep liquidity. You can immediately launch a DeFi app into Arbitrum's thriving DeFi ecosystem with deep liquidity into

vibrant markets and and many many assets also across the ecosystem. In fact, Arbitrum at 7,000 plus RWAs has more RWAs than any other ecosystem in the entire crypto. So, Arbitrum is a fantastic place, particularly among layer twos, one of the most vibrant layer twos, with its focus on DeFi and trading to build your application. And in particular, we at Offchain and we in the Arbitrum ecosystem are aligned on one thing. We want to architect our chain. We want to architect both the technology and the ecosystem to make Arbitrum builders win. And that's why you have a low blockchains that are optimized, for example, for both launching assets, but also trading those assets for having those assets enter contentious

state. And everything that we do at our the Arbitrum ecosystem is focused on trading, finance, and contentious state. Another great example, we just announced yesterday a historic partnership with USDG, the global dollar network from Paxos. And the reason why this is so important, it gives the Arbitrum builders yet another way to win. So, Arbitrum has, over the course of its lifetime, generated billions and tens and hundreds of billions of dollars in stable coin demand and stable coin volume. But up until yesterday, the ecosystem captured exactly zero dollars of that. So, Arbitrum has all these stable coins on the platform. It's generating all this volume, but other third parties are actually taking all the yield and, you know, often it's hundreds of millions of

dollars a year of yield generated from Arbitrum stablecoins alone that's not being actually consumed and not benefiting the ecosystem. That changes yesterday and from now on Arbitrum actually has joined USDG. Arbitrum has its own now native stablecoin play. So if you are on Arbitrum, the rewards for these USDG stablecoins in Arbitrum are going back to the Arbitrum ecosystem, back to the Arbitrum token holder controlled treasury, and back to Arbitrum protocol. So yet another way for Arbitrum winner Arbitrum protocols to compound their success.

This will have a massive opportunity because Arbitrum has so many protocols that are thriving across TradFi and DeFi. You know, I've liked to say said this for a very long time, although it's becoming a bit more popular now. We like our adjectives a lot in crypto. We have TradFi, we have DeFi. Here we see Arbitrum has both of them. But if you zoom out here and you really, really zoom out and don't see two circles, there's really just one circle that's converging and that circle is called Fi, that circle is called finance. And that's happening on Arbitrum. And Arbitrum protocols, financial protocols, whether they're DeFi or TradFi, are working together, have more opportunities both to attract users, create yield, and you know, to have builders and users alike win in the Arbitrum ecosystem.

Here are some examples of some of the great businesses that are doing well in the Arbitrum ecosystem. On the top here we have Variational. Variational is the newest and up and coming perp protocol that's native to Arbitrum. If you look at perp's history, you know, Arbitrum was doing perps well before they were cool. Of course starting with GMX and Gains Network, Hyperliquid of course historically sourced all their liquidity from Arbitrum. Lyra initially launched on Arbitrum. Today we have protocols like Austerium and Variational that are absolutely killing it on the Arbitrum network. And DeFi and perps have really have been native to the Arbitrum DNA from day one and that continues to be what makes Arbitrum stand apart.

Spiceworks of course doing incredible, incredible volumes at Arbitrum. You have Bitget wallet which just launched a tokenized stocks alongside Robinhood stocks in the Arbitrum platform making Arbitrum the leading play player for tokenized equities, tokenized stocks, and RWAs generally. And USDAI is another fantastic example of an innovator protocol that's killing it in Arbitrum. And the takeaway here that great businesses use Arbitrum and we in the Arbitrum ecosystem continue to add more and more compounding opportunities such as native yield sharing with USDG to make sure that Arbitrum is the absolute best place to build a business in 2026 and beyond.

So, I focused until now and said if you want to build an own chain your own chain which increasingly institutions like Coinbase, institutions like Robinhood, institutions like Circle, institutions like Stripe are doing today, the absolute best decision you can make is to build a layer two. And within the layer two space, the absolute best decision you can make is to build an Arbitrum. But, does everyone need their own chain? And this is a place where Arbitrum actually stands out where we can say no, not everyone needs their own chain. My competitors typically fall into one of two buckets. There are those that say everybody needs their own chain, everyone. Doesn't matter who you are, doesn't matter what scale you are, everyone needs to launch their own blockchain. And there are those that say no, no, no, public networks, no one needs their own chain. These chains are

ridiculous, everyone should just launch on the public network. But, the real the answer is actually somewhat nuanced in between that. Some of the more successful protocols like Robinhood chain significantly benefit from their from their own chain, but other protocols including DeFi protocols earlier in their life cycle actually benefit from being on public networks with public liquidity where you can get started off very quickly. The problem is if you look at other networks and you know, our competitors both on the chain side and the chain stock side, they're going to push you into that decision on day zero. You have to decide today at launch, do I want to optimize for launching my own chain or do I want to launch on a public network? And those paths diverge, but in Arbitrum, it's unique cuz we have both of those paths and those paths actually converge. You

can start off on Arbitrum One, one of the most liquid and best place to build a DeFi protocol today, and at the right time, at the right point of success, you can mark migrate to your own Arbitrum chain. You don't have to make that decision on day zero. Everyone thinks they're going to get to the point where they need their own chain. Some will, some won't. On Arbitrum, we can serve you across the life cycle, and that's unique. There is no other ecosystem out there that has a top, credibly neutral, top net net top blockchain like Arbitrum One, but also the app the top blockchain stack to launch your own chain, and you can seamlessly move between them. And by the way, that's well precedented. Robinhood did this. Everyone talks about Robinhood chain today and its success as a chain on the Arbitrum platform, but a year earlier, so not in July of

2026, but in June of 2025, Arbitrum first launched at Arbitrum One, and they launched over the course of the past year over 2,000 tokenized stocks on Arbitrum One, and then eventually moved to their own chain. And Arbitrum is the only ecosystem that gives you that optionality to launch both a top ecosystem uh your own chain to launch to launch on a top ecosystem chain like Arbitrum One, and at the right time, using the exact same technology that you can actually customize, go and build your own chain. Offchain, of course, is here to support you every step of the way. One of the biggest complaints we've had in the Ethereum ecosystem is that there just haven't been People don't know where to go. In other ecosystems, you know there's only one company. The Ethereum ecosystem is distributed. People often don't know, "Hey, where do I go

uh to uh to build to actually build the Ethereum ecosystem?" And I'm telling you today you can come to Offchain as an institution, and we can walk you through every step of the process from the chain infrastructure to running the chain infrastructure to customizing the chain infrastructure to the ecosystem support to wallet level support on our zero dev platform. The takeaway that I'd like to leave you with today is, if you're building a blockchain protocol or a blockchain itself in 2026, L2s are the absolute best choice for you both economically and technologically, and among L2 L2s, Arbitrum is the absolute best place to build your business. And Arbitrum itself, for those participating in the ecosystem, is itself a thriving business with incredibly diversified revenue streams from the chain fees itself all going directly to the

Arbitrum token holder controlled DAO, the Arbitrum token holder wallet on chain, to the fees from uh chains like Robinhood going to the Arbitrum token holder DAO wallet as well, to new revenue lines like the USDG yield announced yesterday, all compounding to make Arbitrum uh one of the best businesses in 2026 to build your blockchain application on. Thank you very much. I appreciate your time