Zilliqa, Gnosis, and Ronin Join the Ethereum Ecosystem: Is the Era of Layer 1 Over?

Security and cost are pushing smaller public chains towards Ethereum.

Written by: Christina Comben

Compiled by: Chopper, Foresight News

Running an independent blockchain has always come with a special promise: control.

An independent Layer 1 architecture allows projects to dictate their own fate, set consensus rules, maintain their own validators, and build infrastructure around their users without relying on any other network.

But with great power comes great responsibility, and greater costs.

Blockchains need a sufficient number of users, developers, and economic activity to support the infrastructure that protects them. For some smaller networks, maintaining an entire ecosystem has become economically unfeasible.

Zilliqa is the latest project to face this reality. Last week, it announced plans to abandon its L1 architecture in favor of an Ethereum-based Layer 2 (L2): "We know this isn’t great. For nine years, we have built and operated our own Layer 1, but we have not succeeded."

"Usage has never reached the level required for an independent chain," the post explained, "The funding and liquidity for independent L1 have dried up. Recent attacks illustrate how much it costs to secure a chain on your own. The data is on-chain, and everyone can see it."

Zilliqa is not alone.

Gnosis also announced that it will transform the Gnosis Chain into an Ethereum-based network through its "Ethereum Economic Zone" (EEZ) plan. Its RollupX testnet aims to demonstrate how participating chains can act as native rollups, sharing Ethereum's settlement and composability.

Additionally, the gaming-focused blockchain Ronin also announced its return to Ethereum as an L2 in May.

As interest in competitive L1s wanes along with funding, will we see more chains converge towards the Ethereum ecosystem?

The Cost of Going Solo

Independent L1s typically must maintain several core functions, including execution, consensus, data availability, and settlement; they also need to fund incentives for tokens used to secure the network through staking.

"Ultimately, it depends on the profitability of a chain," said Max Shannon, a senior research analyst at Bitwise, to Magazine.

"L2s only need to maintain execution and don’t necessarily require tokens, making them more financially and operationally attractive," he said.

Shannon noted that the ten largest projects are financially more sustainable. Coinbase and Robinhood's L2 networks generated $48 million and $52 million in fees, respectively, over the past 365 days. The next eight largest chains each have annual revenues exceeding $1 million.

However, from the 11th place onwards, the total annual fees amount to less than $1 million. Thus, a network can have ambitious technology and a loyal community, but that doesn’t necessarily mean it can pay the bills.

Ethereum is often criticized for giving too much revenue to L2s, but precisely this aspect gives it unique appeal.

However, simply becoming an Ethereum L2 does not guarantee profitability. Shannon pointed out that Optimism, Katana, and Linea are examples of projects that have spent more than their fee income, while projects like Blast have already been forced to shut down.

ZIL becomes an L2 on Ethereum. Source: Zilliqa

Ethereum as a "Black Hole" of Liquidity

Gnosis plans to complete its transition by spring 2027, at which point it will abandon consensus based on independent validators in favor of Ethereum settlement.

"Two years ago, I gave a talk about native rollups, which truly scale Ethereum, rather than creating an isolated chain," said Martin Köppelmann, co-founder of Gnosis, adding that RollupX "even exceeded my expectations at that time!"

Gnosis's EEZ plan aims to enable independent Ethereum-based networks to interact synchronously: a smart contract on one network can call another network and use its returned results within the same transaction, without relying on the usual "cross-chain bridge + wait" process.

Gnosis Chain will restart as part of the Ethereum Economic Zone, Source: Gnosis

This prospect has made some Ethereum supporters particularly optimistic. ETH bull materkel referred to the EEZ as a potential "liquidity black hole," suggesting it could increase the total locked value of networks accessing Ethereum, further solidifying its status as a liquidity hub.

Will network effects and enhanced interoperability draw more chains into the Ethereum ecosystem?

More Than Just Saving Money

The economic benefits of not only operational costs are significant. Projects can tap into existing mature applications and developer ecosystems without having to build these network effects from scratch.

Alex Gluchowski, co-founder and CEO of Matter Labs, the company behind Ethereum L2 ZKsync, stated that he expects more L1 teams to maintain their chains but use Ethereum for settlement.

"Operating an independent L1 means maintaining its security while also creating something people want to use," Gluchowski said.

"Sharing Ethereum's security allows teams more space to focus on users. I don’t see how many user needs must be met by an independent L1 rather than an Ethereum-based chain."

But Gluchowski noted that integrating with Ethereum does not necessarily mean losing control; chains can retain control over their own rules and operations while using Ethereum for shared settlement.

He also mentioned that for applications handling sensitive financial information, maintaining a privately controlled environment may be necessary. Shared settlement does not inherently mean exposing confidential transaction data.

The biggest obstacle currently is that all L2s are effectively isolated from each other and from Ethereum. Jumping between them is certainly possible, but it is far from smooth, and interoperability is poor.

"Fragmentation is already present," Gluchowski said, pointing out that the difficulty of connecting networks increases when transactions involve privacy.

He stated that as more applications seek to combine "confidential activities" with "accessing public chain liquidity," interoperability between private environments will become increasingly important.

Ronin completed its migration to Ethereum in May. Source: Ronin

Does Every Chain Need Ethereum?

Shannon cautioned against simply describing the current market as "integration around Ethereum."

He said that some large institutions are launching L2 networks, including Coinbase and Robinhood; but others are still choosing to build independent L1s, such as Circle's Arc, Stripe's Tempo, and Hyperliquid's blockchain dedicated to perpetual contracts.

"So, the L1 vs. L2 battle does not have a clear conclusion yet."