Zilliqa’s Ethereum pivot tests the economics of alt-L1s

By Elena Vasquez

Zilliqa announced plans last week to end its nine-year run as a standalone Layer 1 and become an Ethereum Layer 2, citing usage that never reached the scale needed to sustain the chain. The pivot places Zilliqa alongside Gnosis Chain’s planned migration and the gaming-focused Ronin’s completed move to Ethereum as an L2 in May.

Why is Zilliqa leaving its own chain?

Zilliqa wrote: “We know it’s not great. For nine years we built and ran our own Layer 1. It hasn’t worked.” The project said usage never reached what a standalone chain needs, while funding and liquidity dried up and recent hacks showed the expense of securing a chain alone.

Zilliqa said the underlying data is onchain for anyone to assess. The appeal of independence is control: a Layer 1 team sets consensus rules, maintains validators and builds infrastructure without relying on another network.

Independent chains must maintain execution, consensus, data availability and settlement. They also must fund token incentives that pay validators through staking. For smaller networks, maintaining all four functions now outweighs the autonomy they provide.

Takeaway: The obstacle is not technical ambition, but whether enough users and fees can pay for a chain’s own security.

What changes when a chain becomes a Layer 2?

Bitwise senior research analyst Max Shannon framed the decision around chain profitability. He argued that Layer 2s need to maintain execution, do not necessarily need a token, and therefore offer a more attractive financial and operational proposition.

The largest projects show the divide. Shannon said the top 10 are more financially sustainable; Coinbase’s and Robinhood’s Layer 2 networks generated $48 million and $52 million in fees over the past 365 days, with margins above 90%. The next eight largest chains each produced more than $1 million annually.

From 11th place onward, however, the chains generated less than $1 million in annual fees collectively. Ethereum is often criticized for distributing too much revenue to Layer 2s, but that revenue share is a central reason operators choose the model.

The cost saving does not guarantee profitability. Shannon identified Optimism, Katana and Linea as networks whose expenses exceed fee revenue, while Blast has already been forced to shut down.

Takeaway: Shared settlement can reduce fixed costs, but it does not ensure that a chain earns more than it spends.

What can Ethereum change for Gnosis?

Gnosis, which has always been Ethereum-adjacent, is working to relaunch Gnosis Chain through its Ethereum Economic Zone initiative. Its RollupX test network is intended to show whether participating chains can share Ethereum settlement and synchronous composability as native rollups.

Gnosis targets spring 2027 to complete the transition and replace independent validator-based consensus with Ethereum settlement. Under the EEZ design, separate Ethereum-based networks could interact synchronously within one transaction.

A smart contract on one network could call another and use its response in the same transaction, without the usual bridge-and-wait process. Gnosis co-founder Martin Köppelmann said RollupX goes beyond the native-rollup vision he outlined two years earlier, while ETH bull materkel described the EEZ as a potential magnet for liquidity.

Supporters argue that participating networks could tap Ethereum’s total value locked and reinforce Ethereum as the hub. That liquidity thesis still depends on RollupX demonstrating the proposed behavior; a test network is not yet proof of adoption or sustainable economics.

Takeaway: EEZ offers shared settlement and cross-network calls, but its liquidity benefits remain contingent on the test network working as designed.

Does every chain need Ethereum?

Alex Gluchowski, co-founder and chief executive of Matter Labs, developer of the ZKsync Layer 2, expects more Layer 1 teams to retain their own chains while using Ethereum for settlement. Running an independent L1 requires maintaining security while building something people want to use, he said.

Gluchowski said: “Sharing Ethereum’s security gives a team more room to focus on its users. I see very few user needs that require an independent L1 rather than an Ethereum-based chain.”

Shared settlement does not require surrendering operational sovereignty. Chains can retain control over their rules and operations, while confidential transaction data need not become public merely because Ethereum handles settlement.

For applications handling sensitive financial information, a private environment under the team’s own control can remain essential. That creates a practical reason for cooperation without requiring every chain to adopt identical operating rules.

Fragmentation remains the obstacle. Layer 2s are effectively isolated from one another and from Ethereum. Transfers between them are possible, but the process is not seamless, and interoperability remains poor. Gluchowski described fragmentation as an existing problem, particularly when connecting networks involves privacy.

Interoperability between private environments should become more important as applications combine confidential activity with access to public blockchain liquidity. Shared settlement also gives projects access to Ethereum’s established application and developer ecosystem rather than rebuilding those network effects. No figure was provided for that benefit, so it should not be treated as a guaranteed margin improvement.

Takeaway: Ethereum can provide shared security without taking control of every chain, although cross-network privacy and liquidity remain unresolved.

Is Ethereum becoming the default?

Shannon cautioned against describing the shift as straightforward consolidation around Ethereum. Large institutions, including Coinbase and Robinhood, are launching Layer 2 networks, while Circle’s Arc, Stripe’s Tempo and Hyperliquid’s purpose-built perpetual-futures chain are independent Layer 1 choices.

Shannon said the market has reached no clear verdict on Layer 1 versus Layer 2 architecture. The evidence points to selective adoption based on security costs, existing applications and developer liquidity, not the disappearance of independent chains.

The next concrete checkpoint is Gnosis’s RollupX test and its spring 2027 migration target. Until shared settlement, synchronous calls and liquidity gains are demonstrated at scale, smaller chains may adopt Ethereum selectively rather than abandon autonomy altogether.