Ye Zhang, Scroll Co-Founder, Slams Proposals to Tax Layer-2 Networks as "Toxic"

Ye Zhang, co-founder of the Ethereum Layer-2 scaling solution Scroll, has strongly criticized proposals to impose fees on Layer-2 networks, calling the idea "toxic"

Ye "Charles" Zhang, co-founder of the Ethereum Layer-2 scaling solution Scroll, has slammed proposals to impose fees on Layer-2 networks, branding the idea as "toxic." In a series of posts on X, previously known as Twitter, Zhang argued that such tariffs prioritize short-term revenue over the ecosystem's foundational values and scalability. He also stated that such developments may be counterintuitive for Ethereum's future.

According to Zhang, taxing Layer-2 networks showcases a corporate behavior, which contradicts Ethereum's decentralized values. He cautions that such a move could propel developers toward alternative data availability layers, ultimately diminishing Ethereum's significance within the broader blockchain industry.

"People get paid to be pessimistic but siphon into new paradigms. E.g. if we were getting paid to suggest new revenue sources for ETH, I’d say it’s a terrible idea to tax L2s. It’s a band-aid for short-term thinking. We need to be 1000x more pessimistic to see the true problems," Zhang stated.

He further added, "Layer-2s are the future of ETH. But taxing them is a sure way to kill the golden goose. It shows a lack of understanding of the bigger picture. We need to be smarter and more strategic in our approach to scaling Ethereum."

In another post, Zhang compared Ethereum to Solana, highlighting how the latter is vertically integrated, with its native token, SOL, being the main asset in one system, rendering it easy to tax. He noted that Solana also has a tighter control over its ecosystem. However, Solana's scalability is more limited.

On the other hand, Zhang pointed out that Ethereum is already the dominant asset on Base, Arbitrum, Optimism, zkSync, Scroll, and even in cases where it's not the gas token, it’s still the major pair on DEX. According to him, this showcases how people prefer to use ETH even on other chains.

According to the Scroll co-founder, this new revenue stream will be quickly absorbed by existing creditors, and taxing these Layer-2s will only serve to diminish the community's enthusiasm for contributing to its growth. Instead, he suggests focusing on expanding the data availability layer.

"We need 1000x more blob capacity, shared tooling for cross-rollup bridges, and to integrate with Stellar for xchain. Those are the problems we should be working on, not how to tax L2s. They’ll get taxed anyway. It’s a zero-sum game. But we can cooperate to build something new and positive."

Ultimately, Zhang believes that Ethereum will succeed not by extracting value but by enabling it. He envisions a future where Ethereum is the trusted store of value and economic hub for thousands of flourishing rollups, with each rollup ecosystem having ETH as the major asset. This, he says, is the key to realizing large-scale adoption for Ethereum.

However, he warns that if people get paid to suggest new revenue sources for ETH, they'll be cutting off the very hand that feeds them. In his view, if we're thinking long-term about how to secure Ethereum's future, it's not by imposing tariffs on Layer-2s or suggesting new revenue streams for the blockchain. Instead, the focus should be on expanding the data availability layer.

"We need 1000x more blob capacity, shared tooling for cross-rollup bridges, and to integrate with Stellar for xchain. Those are the problems we should be working on, not how to tax L2s. They’ll get taxed anyway. It’s a zero-sum game. But we can cooperate to build something new and positive."

suggest merging the last paragraph with the previous one. It would read:

According to the Scroll co-founder, this new revenue stream will be quickly absorbed by existing creditors, and taxing these Layer-2s will only serve to diminish the community's enthusiasm for contributing to its growth. Instead, he suggests focusing on expanding the data availability layer. In his words, we need 1000x more blob capacity, shared tooling for cross-rollup bridges, and to integrate with Stellar for xchain. Those are the problems we should be working on, not how to tax L2s. They’ll get taxed anyway. It’s a zero-sum game. But we can cooperate to build something new and positive.

Ultimately, Zhang believes that Ethereum will succeed not by extracting value but by enabling it. He sees two possible futures for Ethereum. In one, he predicts that Ethereum will become a trusted store of value and a central hub for Layer-2 networks. “A thousand scalable rollups with ETH as the center > any monolithic chain,” he wrote.

However, he stated that imposing tariffs on these rollups could hinder Ethereum's own growth and drive developers away, weakening Ethereum's relevance/

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