SFA

When Speed Is No Longer an Advantage, How Do Layer 1s Compete? This text is based on remarks by @MitchellDemeter, CEO of the @SonicLabs, in a recent interview, where he explains how the core axis of competition among Layer 1 blockchains has shifted. In previous years, L1s differentiated themselves through higher speed and lower transaction fees. However, with the growing number of fast and inexpensive chains, block space has effectively become commoditized. Under these conditions, the central question is no longer “Who is faster?” but rather: Which network can attract and retain devs, users, and capital? Demeter frames this challenge as one of retention, and defines Sonic’s response as the construction of a moat a defensive barrier that makes leaving costly and staying rational. This strategy is being pursued across two stakeholder-level dimensions: Developer Retention and Holders Retention 🔹Developer Retention Dev retention at Sonic is pursued through two primary paths: 1) Differentiation at the Protocol Level Through: •Rapid implementation of EIPs •Improved developer experience •Increased infrastructure migration costs Sonic’s advantage relative to Ethereum and Layer 2s lies here: as an independent and smaller ecosystem, it enables faster decision-making and quicker experimentation with protocol-level changes. 2) Financial Ecosystem Building Through VC Partnerships Rather than acting as a VC itself, Sonic seeks partnerships with venture capital funds to enable long-term capital formation for sustainable, real businesses within its ecosystem. One concrete implementation: Collaboration with @CMCC_Global, leading to the launch of the $25 million @ResonanceFund for investing in the Sonic ecosystem The ultimate goal is to create an environment that is difficult to exit both technically and economically. 🔹Token Holder Retention As the market exits a predominantly speculative phase, investor focus has shifted to a key question: How does network usage translate into value return for token holders? Demeter addresses this issue at Sonic through two parallel approaches: Tokenomics reform and Off-chain revenue 1) Tokenomics Reform: Previous Fee Model: •90% of fees allocated to developers •10% allocated to validators This model created a very simple UX; •Allowed applications to pay gas fees on behalf of users •Hid the blockchain from the user’s perspective •Produced a Web2-like (Venmo-style) experience However, on-chain usage did not necessarily return value to token holders. Solution: FeeM Reform Under the new model: •Approximately 15% allocated to builders •Approximately 10% allocated to validators •The majority of fees are burned Result: Conversion of activity into scarcity. Usage → Fees → Burning → Scarcity → Value for holders 2) Off-Chain Revenue: In addition to fees: •Licensing Sonic’s technology to banks, exchanges, and governments seeking their own private blockchains •Using this off-chain revenue for buybacks and burns 🔹Organizational Transformation at Sonic (Execution Layer) One of the clearest points in Demeter’s remarks is the emphasis on cultural transformation at Sonic: the shift from a purely tech-focused organization to a complete business. Sonic spent years operating as a highly technical organization, but today: •Technology alone is no longer sufficient •The market has matured •Capital is seeking real business models Accordingly, Sonic is strengthening: •Marketing and communications •Business development •Institutional sales and strategic partnerships This transformation provides the foundation for executing the network’s technical and economic strategies. 🔹Conclusion L1s will not win through speed. They will win through protocol level retention and sustainable economic design.