The significance of Blast in the Layer 2 space
It's been about a month since the launch of Blast L2. Despite often finding airdrops tedious and being hesitant to deposit assets into new L2 solutions, I immediately started using Blast, depositing assets and exploring its various applications. This decision was influenced by my previous positive impressions of Blur, created by the same team behind Blast. Having admired Blur's structure, I was curious about how Blast differed from other L2 solutions and what unique features it offered. Direct experience is often the only way to fully grasp such innovations.
The phrase "L2 competition" has been in use for years, and only now can we truly say we're in the era of L2 competition, with a plethora of L2 solutions emerging. However, it's challenging to distinguish unique features among them. Most L2 revenue structures are derived from sequencers, which earn a profit from the difference between L2 and L1 gas fees. The native tokens of these platforms derive their utility from this revenue model. With similar structures across the board, each L2 typically hosts a version of Uniswap or its forks, as well as Aave or Compound forks, serving as the main distinction. The transition from expensive L1 fees to cheaper L2 fees seems the only significant shift, as there would be little reason to move assets from L1 to L2 if L1 gas fees were lower. Surviving the L2 competition requires offering functionalities not available on L1, especially considering only a few out of the many L2 solutions will prevail.
This curiosity about how the Blast team would navigate these challenges led me to actively engage with their platform for a month, noting several positive and negative aspects. On the downside, Blast still exhibits a high degree of centralization, with many assets managed by a few multi-signature wallets and a 14-day withdrawal period. This was demonstrated when 57,000 ETH were recovered following a hack in the NFT game Munchables, by freezing the hacker's accounts. While the recovery was fortunate, it highlighted Blast's centralized aspects. Normally, L2 development progresses from centralization towards decentralization, suggesting this aspect should evolve swiftly.
On the positive side, Blast innovatively increases Ethereum and stablecoin holdings automatically. Specifically, converting Ethereum to stETH within Blast yields a 3-4% interest, with automatic rebalancing increasing the amount of Ethereum. Similarly, stablecoins leverage on-chain T-Bills by DaoMaker for rebalancing. This setup not only provides a 3-4% annual return without needing to convert ETH to stETH but also avoids opportunity costs when using DApps. Normally, liquidity provision or lending ETH doesn't inherently increase holdings, necessitating conversions to stETH. Blast's native rebalancing allows for liquidity provision while simultaneously earning a 3-4% return on ETH, a novel utility in the L2 space. Moreover, with no intention to profit from sequencers and exploring other business models, Blast maintains low gas fees. The platform might switch from stETH to other restaking tokens, potentially offering even higher rebalancing percentages.
It's too early to conclude whether Blast will dominate the competition or its usability is exceptionally high. The business model and token utility remain unclear, making it difficult to make a definitive judgment. However, just as Blur overtook OpenSea by introducing a completely different structure, Blast's unique structure and usability could mark a significant shift in the L2 landscape, a prospect I find very encouraging. Despite unmentioned pros and cons, I'm more than willing to continue exploring Blast for several more months.
