Want Free Money? Make A L2 Chain!

Today we cover Blast, the new upcoming L2 chain. Here are my thoughts about it.

Another day, a new L2 chain. Heard this before? 2023 has been all about L2s and now we have another one! This one is called Blast.

Now usually I would’t write about another L2, especially now that we have what feels like 50-100+ of them, however, Blast has caught the crypto world by storm.

It all started with this.

4.3 million and counting views later, in just a matter of days, the chain has now achieved over 1/2 a billion dollars in deposits across both ETH and Stables.

You can track this yourself with the link below.

Blast Metrics - Dune

Why has this happened? Why does Blast have so much hype?

Well there is a number of reasons which we’ll dive into below. To understand why, we first need to go over the infrastructure behind Blast.

Native yield

So Blast is an Ethereum optimistic L2 roll up with this concept of native yield. What do I mean by this? Well they incorporate this idea of native yield by taking all underlying ETH and stable coins and earning yield on them through Ethereum staking via Lido and then by MakerDAOs DSR for stable coin yield.

So users can deposit ETH or stETH into the chain and it’ll be staked as stETH to earn that underlying 3-4% APY. Similarly USDC, USDT and DAI will go into MakerDAOs DSR to earn the underlying yield mostly from US treasures.

Why is this significant?

Well you don’t need to go far to see that there are big inefficiencies in the market. Take a look at Arbitrum who have almost 1.3 million ETH sat in their bridge contract. None of it is staked and therefore none of it is earning any yield whatsoever. Thats $2.5 billion not being utilised. Simply staking this will make Arbitrum an extra $100 million income a year, something that Blast are now doing themselves.

Blast are taking advantage of this inefficiency to generate extra yield but also to become more capital efficient. The concept of real yield is big here and clearly its one of the big drivers for why Blast has gathered such attention. A simple yet powerful feature that ensure revenue is built in at the protocol level.

Points mean prizes!

It may come as no surprise but Paradigm, the backers of Blast also backed Blur, the largest NFT marketplace and lending market in Crypto today. They managed to dethrone OpenSea, the previous leader with an innovative token design and point system eventually leading to the Blur token and airdrop. It looks like the same thing is being repeat again, this time with more gamified systems including an invite only access with point system to incentivise inviting whales. More deposits = more points = bigger airdrop when the eventual Blast token comes in summer 2024.

Points are also earned for simply depositing in the Blast contracts. Any ETH or stable deposit is rewarded with points. Some calculations by some gigabrains on twitter have said that based on a Blast valuation of $1b and given a 10% airdrop, it could account to double digit yields on your ETH / Stables.

The success of Blur gives Blast some credibility when it comes to whether this points system will work. They interestingly released the Blast L2 announcement at the same time of the next Blur airdrop which somehow I was able to get some $BLUR tokens from. These tokens can be staked to again earn points. Funnily they use the power of unit bias to make you think you’re going to stack a big Airdrop. With less than $100, I’ve been able to achieve 66,000 points in just a few days. Clearly another play at getting users excited. As always, points mean prizes!

They’ve also gamified or ‘gamblefied’ the process by including ‘Spin to Win’. Guess what, the more ETH your deposit, the more spins you get and more points you get. An incredible design to get the attention of airdrop farmers who would like to get another spin to ‘win’ more.

Whale deposits

Within days, 64,000 users have moved funds to the Blast contracts. Almost $600m worth of assets. In fact some whales have deposited millions themselves. All of this has created massive fomo and continued to increase the number of deposits. Its important to know that these funds cannot be removed but yet still the deposits increase.

Concerns

For me, there are a number of concerning aspects. One of them being that the blast contracts are controlled by a multisig which has clear evidence that these few wallets are all linked with one another. When depositing ETH or stables, you are just dropping them into a contract. Not the actual L2 itself!

The other concerns come from not being able to withdraw until the contracts themselves get upgrades. Jared explains it well here.

Thirdly, Paradigm themselves, whilst backing Blast have openly said they weren’t happy with how things have been ‘marketed’ so far.

Conclusion

All in all, Blast is interesting. With native yield built in, backers in the form of Paradigm and a TVL of over 1/2 a Billion. It’s got lots of elements that can give it success in future. Whether that comes or not depends on their execution. Can they get innovative dApps on board? Will they retain this TVL post airdrop?
If users are just depositing now to ‘farm and dump’ I think Blast will end up like many of the L1’s we had in 2021. Hyped and then dead. It feels somewhat like a Casino for airdrop farmers who need to get another dopamine hit by being the first to get another ‘free money package’.
For now I haven’t deposited any assets. Either way, I’ll be keeping a close eye.

Let me know your thoughts below!