Writing: Andrew Huang

Translation: Fire, Blockchain in Plain Language

Why you shouldn't use your protocol's native token as the gas token for Rollup?

At @conduitxyz, we've been fortunate to discuss with hundreds of teams and protocols on how to launch their own Rollup. The most common question we've received is: "Can we allow our users to pay gas fees using our native token?"

Our answer ⬇️

Not suitable if there's no net demand for the token.

If you map out the token flow, there won't be any net demand. Users acquire your token to connect to your Rollup. When they pay gas fees, the sequencer will sell these tokens, attempting to cover data availability (DA) costs, which are priced only in ETH.

If your token gas fees cannot cover data availability (DA) costs, then your protocol will foot the remaining DA costs. Essentially, you're subsidizing usage on your Rollup, but still need to pay DA costs in ETH.

In the long run, cross-domain interoperability and MEV may become the primary revenue model for Rollup sequencers. By mandating your Rollup users to acquire your token, you make it harder for those builders/searchers to extract MEV on your chain.

Unlike holding only one token (ETH), they need to hold N tokens on N Rollups, significantly complicating their token inventory strategy.

In fact, for some systems, such as Optimism's Superchain, using your own token as the gas token may render you incompatible, undermining access to your chain and isolating your Rollup from the broader ecosystem.

Lastly, this adds a cumbersome user experience burden. All users hold ETH because it's Ethereum's native token. Requiring them to first purchase your token to use your Rollup adds another barrier to using your application.

It might be reasonable in the following cases:

If interoperability is not important to you, and your token has net demand (or is a stablecoin), then it might be feasible. An example might be @eco, whose core users are not native crypto users.

Requiring their users to acquire Ether in addition to @ecostablecoin would add an extra user experience burden. Essentially, this is the opposite of the experience for native crypto users.

Perhaps a more sustainable approach is to reinvest surplus sequencer revenue obtained from your Rollup back into the protocol's token through buybacks.

This could create more sustainable demand for the protocol token from Rollup transaction volume and help achieve stronger alignment of incentives between users and the protocol.

Of course, you can also use meta-transactions, relayers, or account abstractions to mimic the way users pay gas fees using the protocol token.

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