Why not use protocol tokens as gas tokens for Rollup?

Author: Andrew Huang, Source: Author’s Twitter @KAndrewHuang; Translation: Huohuo/Baihua Blockchain

Why you shouldn’t use the native token of your protocol as the gas token for Rollup?

At @conduitxyz, we have been fortunate to discuss with hundreds of teams and protocols on how to launch their own Rollup. The most common question we get is, “Can we allow our users to pay gas fees with our native token?”

Our answer: It’s not suitable if there is no net demand for the token.

If you draw the token flow, there will be no net demand. Users purchase your token to connect to your Rollup. When they pay gas fees, the sequencing server will sell these tokens in an attempt to cover data availability (DA) costs, which are priced only in ETH.

If your token gas fees cannot cover data availability (DA) costs, then your protocol will cover the remaining DA costs. Essentially, you are subsidizing usage on your Rollup, but still need to pay DA costs in ETH.

In the long run, cross-domain interoperability and MEV may become the main revenue model for Rollup sequencing servers. By requiring your Rollup users to obtain your token, you make it more difficult for those builders/searchers to extract MEV on your chain.

Unlike holding only one token (ETH), they need to hold N kinds of tokens on N Rollups, greatly complicating their token inventory strategy.

In fact, for some systems, such as Optimism’s Superchain, using your own token as a gas token may make you incompatible, undermining access to your chain and isolating your Rollup from the wider ecosystem.

Finally, this adds a cumbersome user experience burden. All users hold ETH because it is the native token of Ethereum. Requiring them to first purchase your token in order to use your Rollup adds another barrier to using your application.

It may be reasonable in the following cases:

If interoperability is not important to you and your token has net demand (or is a stablecoin), then it may be feasible. An example may be @eco, whose core users are not native crypto users.

Requiring their users to obtain Ether in addition to @ecostablecoin would add additional user experience burden. Essentially, this is the opposite of the experience for native crypto users.

Perhaps a more sustainable approach is to use surplus sequencing server revenue obtained from your Rollup to repurchase the protocol’s token, thus creating a more sustainable demand for the protocol token from trading volume on the Rollup and helping to achieve stronger consistency in incentives between users and the protocol.

Of course, you can also use meta-transactions, relayers, or account abstractions to mimic the way users pay gas fees with the protocol token.

    At @conduitxyz, we have helped solve the problems of launching mainnet for projects like @ourZora, @pgn_eth, etc., so we can see what works and what doesn’t.

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