Blast is a new L2 for Ethereum. It is still in Early Access, but has already reached a TVL of $620 million – significantly more than Base and almost as much as Solana and Avalanche. What makes base so attractive? And why is the project still questionable?
Ethereum scales via so-called “L2”, Layer 2, which is anchored in the main chain and processes transactions on another level. There is now consensus on this. The common L2s are “rollups”, such as Arbitrum, Optimism or Base.
And, as of November 21st: Blast. The Optimistic Rollup went live eight days ago and is growing rapidly. The usually most important key figure for rollups and Web3 blockchains is the TVL: the “Total Value Locked”, i.e. the value of the coins and tokens that are locked in smart contracts to bring liquidity to DeFi apps.
You don’t have to understand this in detail. But basically: Ethereum scales through L2, and the higher the TVL of an L2, the more important it is.
If that’s the case, Blast has made a sensational vertical start. In little more than a week, the rollup accumulated a TVL of $620 million. This is still significantly less than the rollups Arbitrum (2.1 billion) and Optimism (780 million) as well as the sidechain Polygon (830 million). But it is almost as much as the long-standing blockchains Solana (675 million) and Avalanche (656 million), and significantly more than Base, the rollup from Coinbase (293 million). There’s something about Blast that’s spot on – but what?
The explanation is given by Blast in the Announcement on Twitter: Blast is the only L2 that natively pays interest on Ether and stablecoins.
“There are different types of returns for assets,” explains Blast. “One type is risk-free interest rates. The most famous risk-free rates are in the US economy. The Fed controls inflation through interest rates and you can participate in this through T-Bills. If you don’t beat that rate, you lose money to inflation.”
Ethereum now has “its own version of risk-free interest through ETH staking. You earn 3-4 percent for your ETH through staking, and this alone sucks up $20 billion in liquidity.” On other L2s, such as Arbitrum and Polygon, the base interest rate is 0 percent. The assets here depreciate over time.
This is the thesis: In order to be successful and attract liquidity, a rollup must pay out interest just like the Ethereum mainchain. Only then will ETH not depreciate due to the inflation of Ethereum.
So Blast also introduced these “yields”. Anyone who puts their Ether on the blast rollup automatically stakes it and receives the interest. The same applies to stablecoins like USDC, USDT and DAI: They are deposited in “onchain T-Bill protocols like MakerDAO”, and the interest generated from them automatically flows into the stablecoins on Blast.
The success proves the model right. After a good week, Blast is still in Early Access; you can only use the rollup with an invitation code. Nevertheless, there are already 66,790 users who have collectively deposited around $620 million. With this rapid rise, Blast has already made it to the forefront of rollups and L2. Why should you use rollups that don’t have a base interest rate? Why voluntarily lose money to inflation?
One reason could be because you don’t trust the developers. “PacMan”, a 24-year-old developer whose real name is Tieshun Roquerre, actually enjoys a certain reputation. He and his co-founder founded Namebase, a decentralized registry for domains, and then Blur, a major NFT marketplace.
Yet, barely 24 years old, he runs an “unregulated hedge fund (i.e. Blast),” someone complained on Twitter, “accepting money from US citizens with pyramid scheme-like incentives.”
Trusting this 24 y. o. guy (PacMan, real name Tieshun Roquerre) with almost $500M now in an unregulated hedge fund (aka Blast) taking funds from US people with pyramid-like incentive schemes.
You are crazy people, even after yesterday’s manipulative twitter thread. Today we… pic.twitter.com/WJGyNMJcu9
— Lukas Kozak (@lukas_kozak_) November 25, 2023
Even Paradigm, the investor who financed Blast, is becoming skeptical. Blast’s announcement last week “crossed a red line, both in message and execution,” explains Paradigm analyst Dan Robinson. People don’t think much of the decision to launch the bridge to Blast before the rollup goes live and not allow withdrawals for the next three months. People appreciate it when founders have a mind of their own. But they also insist that they set examples of best practice and don’t take tactics like Blast’s lightly.
There are a lot of components of Blast that I’m excited about and would be interested in engaging with people on. That said, we at Paradigm think the announcement this week crossed lines in both messaging and execution. For example, we don’t agree with the decision to launch the…
— Dan Robinson (@danrobinson) November 26, 2023
Blast is not live yet. But if you can already use the bridge, that means that you transfer Ether or stablecoins to PacMan and his co-founders, who then try to pay the interest with it. An “unregulated hedge fund” isn’t the worst term for it – but it doesn’t have to stay that way. In the medium term, however, there will probably be no way around such base interest rates on rollups.