The post Sovereignty vs Scalability—L1 or L2? appeared on BitcoinEthereumNews.com.

Binance’s founder and former CEO, Changpeng Zhao (CZ), has sparked a fresh debate in the crypto community. The crypto executive questioned whether AI-focused blockchain projects should be built on Layer 1 (L1) or Layer 2 (L2) networks. The broader discussion aligns with industry trends, where AI and blockchain convergence is becoming a focal point for developers and investors alike. Where Should AI Live? CZ Fuels L1 vs. L2 Discussion In a recent post on X (Twitter), CZ highlighted that the core purpose of such projects is not to develop a superior blockchain. Instead, it is to use blockchain technology to support AI economics. He noted that while L1 provides greater sovereignty and decentralization, it also demands more effort in maintaining nodes and validators. In contrast, L2 networks offer convenience by leveraging existing ecosystems like Ethereum’s decentralized exchanges (DEXs), perpetual contracts, and tools without significant value leakage to the base layer. “L1 vs L2…Does it matter if a new AI project is an L1 or an L2?… Is L1 cooler than L2 or the reverse? Old topic, but wondering if sentiment has changed or not,” CZ posed, welcoming conversation. Crypto analyst Hitesh Malviya argues that L1 blockchain is the superior choice. The analyst advocates this network for projects seeking to establish their own consensus mechanisms, optimize performance, and reduce validator costs. However, he also warns that despite extensive fundraising and user acquisition efforts, many L1 projects still experience retention drops of 70-90% after token generation events (TGE). “…even if you retain users, you would only see one category or niche capturing the maximum traction onchain. So if the destination is already known—retention drop, higher user acquisition costs, and niche-specific demand capture—then why not build an app chain using an L2 stack,” Hitesh suggested. Given these challenges, he suggests that building an…

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Filed under: News - @ March 7, 2025 11:27 am