Why Rollups should not use the protocol's native token as the currency for paying gas fees?

Why do most Rollups currently not use the protocol's native token as on-chain gas fees? Andrew Huang, founder of the Rollups infrastructure team Conduit, outlined four reasons why using ETH is better for the ecosystem.

Design Differences in Layer2 Fuel Fee Payment

The Ethereum ecosystem's Rollups continue to diversify, with each team launching its own network infrastructure, most of which use ETH as the token for network fuel fee payment, such as Arbitrum or zkSync.

However, a few projects plan to use their own issued tokens as the payment token for fuel fees, such as FXS from Fraxchain or STRK from Starknet.

How will Starknet's token issuance of STRK next year impact the industry?

What are the differences between these approaches? What are the pros and cons of each?

Not Recommended to Use Native Tokens as Rollups Fuel Fees

When Andrew discussed the initiation of Rollups design with hundreds of teams and protocols, the most common question he received was, "Can users be allowed to pay Gas fees with their native tokens?" Andrew's answer was not recommended, with the following reasons:

• Users do not have new demand for native tokens
• Harder to earn MEV income
• Decreased network ecosystem interoperability
• Reduced user experience

Users do not have new demand for native tokens

If the token flow is traced, it will be found that there is no net demand for native tokens.

Users buy native tokens cross-chain to Rollup, and when users spend fuel fees, the Sequencer will sell these tokens to pay for the Data Availability (DA) cost, which is only priced in ETH.

Worse still, if the income from native tokens cannot cover the DA cost, then the protocol will pay the remaining cost to subsidize Rollup's usage, and ETH is still needed to pay the DA cost, with no value accumulation for native tokens.

Harder to earn MEV income

From a long-term perspective of project team interests, using native token sequencers makes it harder to earn MEV income. Holding new tokens makes the token stock strategy very complex for searchers or builders, and these stakeholders tend to prefer fewer new tokens.

Of course, this is a different matter when it comes to user experience and benefits.

Decreased network ecosystem interoperability

In fact, for some ecosystems, having their own tokens in Optimism's superchain will make their network incompatible, thereby dispersing other participants' interactions with their network, losing the advantages in the superchain ecosystem, and gradually isolating themselves in the ecosystem.

Reduced user experience

Having their own tokens undoubtedly adds more steps for users to enter the ecosystem. All users have ETH because it is Ethereum's native token; requiring users to first purchase their own tokens to use Rollup will reduce many opportunities due to this barrier.

Based on the above, it is highly not recommended to use native tokens as the currency for paying fuel fees.

Can Native Tokens Really Not Be Used as Fuel Fees?

However, not all projects are like this, and if there are other special reasons, using their own tokens can still be considered.

Special Positioning

Some projects still use their own tokens as Gas. If network interoperability is not important, and the token itself has net demand, such as stablecoins, then using it as the fuel fee token may be effective.

An example is Eco, where its core users are not native cryptocurrency users, and its token itself serves as a stablecoin, so users who have a need for it will naturally hold it. However, this is a rare case compared to most seen in the crypto scene.

Long-term Value of Operating Tokens

Perhaps using their own tokens as fuel fee payment tokens can indeed accumulate value in the long run, bringing sustainable demand for tokens as Rollup's transaction volume increases.

Other Solutions

Of course, Meta-Transaction, relays, or Account Abstraction can also be used to create scenarios where users pay ETH in protocol tokens.

Rollups Product Design is a Discipline

With the continuous release of major project network construction frameworks such as Optimism's OP Stack, Layer2's construction and design are gradually developing into a complete industry chain. In addition to consulting services, there are also many experiential knowledge for product design that can be inherited and referenced.

For developers, product design will affect various transitions in the usage process. Unless there are special usage scenarios, it is usually recommended to use ETH as the token for fuel fee payment, which is a more convenient choice for both users and projects.

Capturing token value is indeed an important issue, but if the protocol users are active and the projects are diverse, the governance value of native tokens will also increase, as seen in the results of Arbitrum and Optimism.