Avalanche Foundation Tackles L1 Economics Imbalance with New Research
The issue of Layer 1 (L1) blockchains capturing a disproportionately small share of value flowing through them has been gaining attention. The Avalanche Foundation is working on rethinking L1 economics to address this imbalance.
Matias Antonio, CIO at the Avalanche Foundation, and Eric Lu, Lead Economist at the foundation, are tackling the challenge of aligning economic incentives with network growth. They believe that capturing more value at the L1 level is crucial for the long-term security and credibility of proof-of-stake networks.
The team's research focuses on redesigning mechanisms for measuring, capturing, and distributing on-chain value. This includes developing alternative sources of validator revenue to reduce dilution and inflationary pressures. The goal is to create a sustainable model that rewards validators for security, applications for generating activity, and ensures some value accrues to the native token.
The Avalanche Foundation's efforts are not without precedent. Ethereum researchers have filed an EIP aimed at rebalancing staking economics through a tapered burn mechanism. However, this proposal has sparked debate among network participants, including ETH treasury firms who could see their revenue drop significantly under the new system.