In an article for his personal blog, Ethereum co-founder and Web3 architect Vitalik Buterin has laid out his perspective on the growing trend of rising transaction fees and its consequences for decentralization. In particular, he argues that due to the exponential increase in fees, Web3’s progress towards decentralized infrastructure is significantly slowing down.
Buterin claims that high transaction fees on the Ethereum blockchain, which has resulted from the widespread adoption of the network, has led to a decrease in “decentralization-focused applications” that would have otherwise used the Ethereum blockchain. He goes on to highlight the bi-directional effect of this issue, arguing that the lack of adoption of Web3 protocols has further driven up fees, making decentralization-focused applications economically infeasible.
Buterin hones in on the importance of ensuring that any fees are recovered in a balanced and efficient way, suggesting the use of bonding curves, “automated market maker” economic models, and on-chain liquidity protocols for payment channels as potential solutions.
Critically, he also calls for an increase in the use of Layer 2 solutions, such as zk-Snarks and Optimistic Rollup’s, as a means to reduce Ethereum’s transaction fees. Buterin highlights the positive outcomes of such an approach, arguing that “having cheaper fees is a prerequisite for decentralization-focused applications that rely on micro-fees for incentives and participation, such as decentralized finance.”
Ultimately, Buterin offers a multi-pronged approach to tackling the fundamental tension between the need for decentralization and the requirement for greater scalability as the blockchain industry matures. An increase in L2 solutions and the use of decentralized autonomous organizations (DAOs) could help restore parity, lessening the burden of prohibitively high transaction fees on Web3 protocols.