Why the Robinhood Chain Boom Has Not Led to Growth in the Ethereum Mainnet

Robinhood Logo. Source=Robinhood Blog

The growth of the Robinhood Chain shows that the success criteria for Ethereum Layer 2 (L2) are changing. Robinhood has moved its existing customers and financial products to its own chain while connecting tokenized stocks to DeFi (Decentralized Finance) and securing sequencer revenue. Given that it attracted large assets and transactions from the outset, the Robinhood Chain can be seen as a successful case.

However, whether the success of the Robinhood Chain equates to the success of Ethereum is a separate issue.

The reason Robinhood built its own L2 is relatively clear. By utilizing the technologies of Arbitrum and Ethereum, it can secure dedicated blockspace and design its own transaction processing methods, fee structures, and regulatory responses. Since transaction data is posted to Ethereum's blob and ETH is used as the gas asset, it can leverage Ethereum's data availability and integrity at a lower cost than building its own Layer 1 (L1) from scratch.

From a corporate perspective, L2 does not necessarily need to be a network that maximizes decentralization. It can approach an on-chain infrastructure that allows for the selection of the necessary level of security, control, and performance.

In reality, the structure of the Robinhood Chain is quite distant from Ethereum. Validators who can contest incorrect states are limited to Offchain Labs and Alchemy, and the centralized sequencer and security committee hold significant control. While Ethereum supports the publication of data posted by the Robinhood Chain and allows for the reconstruction of transaction histories, it does not directly prevent censorship or malicious upgrades by the operator. Source=L2bit

This structure is even more pronounced from an economic perspective. Since the end of April, the Robinhood Chain has processed over 600 million transactions, but the on-chain costs paid to Ethereum during the same period were about $49,000, averaging around $370 per day. According to separate on-chain analysis, on September 3, the Robinhood Chain collected about $4.5 million in fees while the costs paid to Ethereum were around $400.

The cheap provision of blobs is a result of Ethereum's L2-centric expansion strategy. The problem is that this may mean that the increase in transaction volume and revenue for L2 does not directly translate into an increase in Ethereum's economic value.

Transaction fees generated on L2 remain with the companies operating the sequencer, and the revenue generated from rollup technology goes to related infrastructure providers. In contrast, the direct revenue that Ethereum receives may be limited to the blob fees for data publication. If users remain within corporate L2s and transactions and fees occur there, even if the overall usage of the Ethereum ecosystem increases, the economic value accumulated in Ethereum L1 or ETH may be relatively limited.

Of course, indirect effects exist. The Robinhood Chain uses ETH as a gas asset, and the fact that large financial companies have chosen Ethereum's technology and brand itself expands the influence of the Ethereum ecosystem. However, if this relationship is not technically enforced, the connection may weaken if operators choose other data availability (DA) layers or other gas assets.

Therefore, the future challenge is not simply to increase the number of Ethereum L2s or their transaction volumes. It is important to create a structure where the growth of L2 can accumulate as value for Ethereum itself.

That said, it is not a realistic solution to bring all transactions back to Ethereum L1 or to uniformly demand a high level of decentralization from corporate L2s. Regulated financial companies may need control to respond to court orders, sanctions, and security incidents, and corporate L2s have emerged as models that meet these requirements while utilizing blockchain technology.

The area where Ethereum can differentiate itself is not in a transaction infrastructure controlled by a single company, but in a neutral foundation where companies, protocols, and users who do not trust each other can jointly issue assets and ultimately settle transactions. To achieve this, it is necessary to improve the processing capacity and user experience of L1 while ensuring that assets and liquidity between L2s are connected around Ethereum, and that users' withdrawal rights and final settlements are separated from the discretion of individual operators.

The unique characteristics of Ethereum, such as censorship resistance, privacy, and permissionless verification, must also evolve into functional advantages that actual users can feel, rather than remaining mere philosophical values. Source=L2bit

Ultimately, the success of the Robinhood Chain presents both an opportunity and a challenge for Ethereum. While it is significant that a large financial company has utilized Ethereum technology to bring existing financial assets and users on-chain, if transactions and revenues remain within corporate L2s and the connection to Ethereum is merely optional, that growth does not necessarily accumulate as economic growth for Ethereum.

What is important moving forward is not how many L2s are built on top of Ethereum. It is to ensure that companies and users choose Ethereum not just as a cheap data provider but as a necessary shared settlement and security foundation. Ethereum must be an open network that anyone can leave, while also being a network with clear values that must be sacrificed if one chooses to leave.

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