Taiko’s Costly Dominance in the Ethereum Layer-2 Blob Market
An Ethereum layer-2 network, Taiko, is leading the market for “blobs,” which are dedicated data storage for Ethereum scalers. However, this success incurs significant daily expenses, occasionally surpassing $100,000.
Introduction to Taiko Protocol
The Taiko protocol, launched in late May, aims to provide cheaper and faster transactions compared to Ethereum’s mainnet while maintaining similar security. Since its launch, Taiko has spent $900,000 on blobs within two weeks to facilitate users’ transactions on Ethereum’s network.
Comparison with Competitors
In contrast, Taiko’s competitors, such as the Optimism network, spend less than $1,000 daily on blob-related fees. Blobs, introduced in an Ethereum upgrade in March, allow layer-2 scaling networks to post transactions on Ethereum more affordably.
Taiko’s Unique Approach and Financial Backing
Taiko Labs, the creator of Taiko, announced a $15 million Series A funding round in March. Using “zero-knowledge” cryptography, Taiko aims to stand out in the competitive scaling solutions market. Taiko Labs CEO, Daniel Wang, emphasized that the extensive use of blobs is a deliberate design choice.
Sequencing Methodology
Layer-2 networks typically batch transactions and process them on a separate chain before posting receipts to Ethereum. Taiko deviates from this by sequencing transactions on Ethereum itself. This method, termed “base sequencing,” is more decentralized but incurs higher costs.
Tradeoffs and Future Prospects
Despite the high costs, Wang believes that if fully utilized, Taiko could achieve a break-even point through sustainable gas fees. He hopes Ethereum researchers will examine Taiko’s data for potential improvements to support similar networks.
Decentralization and Security
Some Ethereum researchers view Taiko’s decentralized sequencing as a pioneering approach that could address significant challenges in Ethereum’s ecosystem. More layer-2 networks adopting this method could resolve current fragmentation issues, enhancing liquidity and asset management across different solutions.
Blob Market Impact
Blobs have changed how layer-2 networks interact with Ethereum. Previously, transactions were posted as Ethereum “calldata.” Now, blobs offer a dedicated lane, reducing congestion and costs. However, the optimal packaging of transactions remains debated.
Financial and Operational Challenges
While Taiko’s decentralization commitment is commendable, it comes with efficiency drawbacks. The constant posting of blobs, regardless of transaction volume, has positioned Taiko as a top blob user. For instance, Taiko posted 25% of all blobs on Ethereum in one day, incurring nearly $63,000 in fees.
Community Considerations
Wang mentioned the potential to reduce block proposing frequency to manage costs better. Currently, the Taiko team subsidizes the high costs, with future adjustments likely to optimize profitability.
Performance and Market Reaction
During Taiko’s recent TAIKO token airdrop, the network averaged 6.42 transactions per second. The token’s price experienced volatility, initially dropping 40% but later recovering to $2.45.
In summary, while Taiko is revolutionizing Ethereum layer-2 scaling with its blob usage, the high associated costs pose significant challenges that the team aims to address through ongoing adjustments and community support.
