Zon - Layer 1 Inflation: Where Should it Go? - TOKEN2049 Dubai 2025

Initia is an application's final destination. What that means is we're essentially bringing life back into the app chain thesis. We're big believers that there's fundamentally two ways to scale blockchains. One is you have a gigafast layer 1 or layer 2. something like sooie, mega e, monad, um, say even.

Or the other idea is the appchain thesis, the belief that applications will want to control their stack to retain revenue and value capture, but they'll also want to optimize something specific about it that'll allow them to edge out competition on one specific vertical. Um, you're slowly starting to see over this past cycle applications moving to their own blockchains. You have Athena that has recently released Converge. You have um Noble, which is an asset issuance chain. You have the Cosmos ecosystem of course.

And then now you have Inisha. Initia launched mainet last week and TGE on Binance. Um, it was pretty awesome. We did a 5% airdrop to holders and that is around 95% claimed already. And so over the next few weeks we're essentially getting around 10 rollups live on Inisha's stack within the first week.

And those are all different app chains across things like um fully onchain games, NFTts, um DeFi and lending. basically everything under the hood that is an optimized blockchain. So let's quickly break down the history of blockchains and some of the current challenges before we talk about layer 1 inflation. So there was Ethereum of course the first smart contract platform. We basically had applications on this one monolithic chain things like a blur unis swap.

Then we started to see the rise of L2s. So you had arbitum, base, optimism. The problem with a lot of these L2s is that they were general purpose base layer chains, which means you really didn't get anything different, unique, or custom except a different color on the branding. Like I cannot properly tell you the difference of base and Kraken in terms of the tech stack. Um, and to me, when you're building a chain, there needs to be a specific reason it exists.

Otherwise, you get layer 2 fatigue. And this is what happened last cycle. And you essentially got the exact same lending markets, the exact same dexes, the exact same projects forked over and over again until liquidity run dry. Then you start to see the rise of app chains. These are people that started to custom build chains specific for one purpose and really push the boundaries on what's unique about them.

Of course, the greatest success of this cycle has been Hyperlquid and they are their own blockchain that uses parts of the Cosmos SDK underneath. They reorder transactions to ensure that cancel bits show up at the top of the block as well as there's things like HLP prioritization and they can even add stuff like ME internalization. But basically, Hyperlid was so damn good that it started to rival onchain centralized exchanges for the first time ever. The problem with a lot of app chains in the past is that there's open frameworks that give developers too much choice. I know that's a crazy thing to say, giving developers too much choice, but it's true.

If you're trying to build a system that is composed of, you know, potentially a 100 different blockchains that are supposed to communicate and interact, you want to make sure that there's no fragmentation. And fragmentation can mean a lot more than just liquidity fragmentation. Liquidity fragmentation has been solved already. We have things like layer zero, we have OFTs, we have IBC, but there's more fragmentation just liquidity. There are a number of different front-end interfaces that these app chains use.

Whether that's different explorers that give different user experiences. Try downloading a new wallet when you move into a new ecosystem that uses an alternative VM. Or try using different bridge frontends if you're trying to use one application or another. This would be a nightmare if the world was 100 different blockchains with 100 different applications. But people still wanted to build their own app chains.

And the reason was essentially value capture. They don't want to pay rent away to a base layer. they don't want to use someone else's gas token. This is all revenue that can be accumulated to the app itself or they're something that needs to process a lot of transactions. Something like a fully onchain game can't really function well on a monolithic chain if there are other activities going on.

They need their own space. And lastly, the limitation is low. One of the biggest things that we've seen is demand for custom virtual machines. So, Inisha's rollup stack right now supports EVM, MUVM, and COSMA. So, these are the three of the most popular VMs right now.

And you can use either one of those to build your applications. It's really just up to you. And everything in the stack comes out of the box that you would need. So, the real big problem with things like Cosmos and the rollup ccentric road map from Ethereum is that it was too open. There was too many options available for users.

You have things like roll-ups as a service right now. They act as vending machines. It's really good for the vending machine because they get to sell you all different parts of the stack. But for multiple blockchains, it doesn't work well because you might have data availability being posted to Celestia or Avail or Ethereum mainet. You might have one using hyperlane or layer zero or IBC.

And basically these things don't mesh well together. So, Inisha takes a much more federated or opinionated approach. This is a very useful analogy, but it's not one that I love to say, but Inisha is kind of like a fed chain in the sense that we're the US government. The US government has control over things like monetary policy, how transportation works across this multi-chain system, but really every state within it can control a lot of their own policies and customizations. But naturally they still care about the growth of the United States as a whole and that's initia.

So right now uh there are about 16 rollups on initia that are building on our stack. They have raised 28.5 million across them. This is more than initia itself has raised. We raised only around 25 million and they're across all different things whether that's uh lending per prediction markets in DeFi.

that's fully onchain games and gaming. There is TE platforms like Reena and Nillian. Um people that are building memecoin platforms or even NFT launchpads and marketplaces. So at Anisha, we focus on three main things when we're building this multi-chain garden of Eden. The first is the infrastructure stack.

Um it uses the Cosmos SDK underneath. So you can customize things like transaction ordering. You have EVM move and cos and wisom whatever virtual machine you want. You get interoperability baked in with IBC and layer zero. And then you have Celestia for DA.

These are not choices that you can really change. They just come in the stack. They're free and everyone can use them. It's like Costco. You basically have better choices, less of them, but at wholesale prices.

The second is the initial layer one is really tailor made to support hundreds of roll-ups in the future. It acts as the orchestration layer for these rollups ensuring that there's security, liquidity, oracles, asset issuance, basically all the routing throughout this multi-chain world we're building. The next is the product stack on Inisha. So we have an initia app, a bridge, a wallet explorer, um a multisig solution, basically every front-end piece one of these roll-ups would need and we have inserted it on these teams and told them you have to use this wallet widget of ours, you have to use this bridge widget of ours. And that's because as you're using all these different blockchains, the user experience can be the same across them.

And as we move to a chain abstracted experience, because we already own the distribution on what users are touching, we can make this a seamless multi-chain world in the future. So basically on our stack, you get everything for free. What would usually cost you millions of dollars to launch a chain is just baked in. So what about layer 1 inflation? Where should it really go?

If you look at most traditional blockchains or monolithic chains really they have around 30 to 40% of their supply that is acting as a security budget for L1 stakers. This is a really really really ineffective use of capital because all it's doing is locking up stuff like the Salana token or the SE token and really not adding much value back. Rather, Inisha tries to repurpose the chain inflation to be security but also grow the PI and grow the ecosystem. And ultimately, it goes back to users in two different ways. One of the things I want to touch on again is that staking is boring and that's bad.

Why is that bad? If you look at uh a chain that has a high staking emission rate, this is essentially directly competitive with your ecosystem. If I can come and stake Solana for 8% yield, but the lending market has deposits at 6%, you're directly competing with the ecosystem. And that's not something you want to do. You want people to go take their tokens and actually use them in the economy and not just stake them on the underlying layer 1 and sit there.

Cosmos's greatest use case of all time was staking tokens and that's part of the reason it failed. So on initias layer 1 we have a system called enshrined liquidity. What we do here is essentially we have a dex built in and enshrined in the chain. We allow users to LP tokens. So something like init USDC in it e in it susd from Athena.

And you stake these LP tokens with validators for staking inflation. This allows us to build a big hub of liquidity on the layer 1 that is accessible for every roll up on top of Inisha, but it also allows us to bootstrap chain security at the same time. And so now we have this massive hub and sync and all the revenue generated just goes back to users. The second thing we do is a system called initia VIP. What it essentially is built for is to distribute staking rewards and inflation to users across layer 2.

One of the biggest problems of token systems for multi-chain worlds is that no app chain on Cosmos or no roll up on Ethereum is really bought in to the success of the underlying layer 1. It's often argued that layer 2s are parasitic to the L1 or if you look at cosmos chains, none of them care about building atom liquidity or caring about the atom token. So we built this system called initia VIP which directly rewards layer 2s for building use cases for the init token and building demand supply syncs as well as encouraging active usage on those layer twos. So how it works is on the underlying layer one, every epoch there's a gauge vote. People vote for the layer twos that they care about the most.

Either that's because they like using a layer 2 or because the layer 2 itself has acquired stake in the underlying layer 1 is voting for themselves or they're potentially even bribing holders to vote for them. You know, it's a free open economic system. The second way that users get distributed these rewards outside of the gauge vote is based on the balance of in it tokens they have on their chain and that's a direct incentive to build demand and use cases for the native layer 1 token on their layer 2s. So our rollup submissions again are based on the balances they have as well as the gauge vote. Then essentially what happens is users are scored by using the layer 2 itself.

And this is a customizable parameter. So if you're a lending market as a layer 2, you might say I care about the amount of borrows that exist here or the amount of uh supply for USDC. Or if you're a perpetuals platform, you might say I care about the amount of volume done on my per stacks. And these are direct onchain metrics that the underlying layer 1 tracks and then distributes rewards to users based on the metrics that you want. So as you can see here there is a scoring sheet done by each layer 2 and then the layer 1 basically distributes these rewards directly to users ensuring that there's no middleman.

Users just get these rewards themselves. And then lastly, the way that users unlock these rewards is by maintaining their engagement. So I don't just get all these rewards up front. I essentially need to keep trading on this perpetuals platform over time and I slowly unlock them which really builds a bond of having engagement with the underlying layer 1 or the layer 2s which are all beneficial for initia. Sweet.

So that's a bit of a holistic overview of what we're building at Initia, where we are now, as well as how we repurpose layer 1 inflation to really grow the pie rather than focus on economic contraction and staking on the layer 1. Ultimately, Initia wins when rollup wins. And unless there is a winner, there's no point for our infra to exist. So come check out initia.xyz.

Mainet launched last week. There's a lot of fun things to play with.