Layer 2 blockchains (L2s) have been hailed as the solution to Ethereum’s scalability issues, but not all L2s are built to last. Declan Fox recently shared a crucial insight:
It’s less about infrastructure and more about L2s being economies — network states where the economics work.
This perspective shifts the focus from pure technology to economic sustainability. According to Fox, the real challenge for L2s isn’t just handling transactions faster or cheaper—it’s about creating a self-sustaining ecosystem that generates real, long-term income. L2s are not simply extensions of Ethereum; they are miniature economic networks with their own dynamics, incentives, and governance.
The Economics of Survival: Fox emphasizes that the L2s most likely to survive are those that think strategically about economics. Generating transaction fees is not enough. Successful L2s focus on building models that create real value for users and developers, from tokenomics to governance structures, ensuring that the network can fund itself and grow organically. Temporary hype, such as airdrops or marketing campaigns, may attract short-term attention, but they cannot sustain a network without underlying economic mechanisms.
Network-State Thinking: The concept of L2s as network states is central to Fox’s argument. A network state integrates users, developers, and resources into a cohesive ecosystem. It prioritizes long-term growth over short-term gains and emphasizes mechanisms like token burning, public goods funding, and sustainable incentives. Fox highlights projects like Linea, which align closely with Ethereum and implement models that support both network health and community growth. Governance plays a key role here: streamlined DAOs or decision-making structures allow networks to allocate resources efficiently and maintain agility as they scale.
Fox’s analysis is a warning and a roadmap. L2s that focus solely on infrastructure without addressing economics risk becoming obsolete. The ones that embrace the network-state model, prioritize real income, and create sustainable ecosystems will likely thrive for decades rather than just months. For investors, developers, and users, this is a crucial lens to evaluate which L2s are worth supporting in the rapidly evolving blockchain landscape.
