L3s with Custom Gas Tokens

Last week, we helped Jacek, the founder of Degen, launch Degen Chain, the first Arbitrum Orbit L3 on Base with a custom gas token. In just a week since launch, Degen Chain has processed 14+ million transactions, 770k+ active addresses, 25k+ deployed contracts, and $60+ million bridged.

Numerous projects over the last several days have reached out to us about launching their own L3, and among their top questions is “should it have a custom gas token?”

This is some of the advice we give teams based on our experience partnering deeply with a number of new L3s.

The case for custom gas tokens

Fundamentally, whether or not to have a custom gas token comes down to how much flexibility you want (or need) over how your community’s economy is managed. If you don’t need the flexibility (perhaps liquidity matters more) then ETH should be used as the gas token for your L3. But if this flexibility matters and/or will play a key role in growing and managing your community over time, then a custom gas token for your L3 should be strongly considered.

Custom gas tokens open up a wide range of ways to create and share value with your community—more than just charging a markup on sequencing fees in ETH (particularly if the L3 moves to a based or shared sequencing model). This is powerful because it gives L3s the option to preserve one of their most unique features: ultra-low gas fees (where as a result the sequencer ends up making little-to-no revenue) that enable new types of users, applications, games, experiences, and data to live and grow onchain that otherwise would not be possible economically. For example, on Degen Chain there are transactions that cost less than 1 millionth of a penny!

Custom gas tokens also enable you to dynamically tune and manage how the chain, community, and ecosystem around it develops and grows over time. You can use the custom gas token to permission access to your chain and progressively decentralize it. You can encourage specific types of users, developers, contracts, applications, interactions, and data on the L3 through targeted gas subsidies/rebates—and discourage others through higher gas fees. Want to subsidize consumer applications and games that onboard and retain users but charge financially-oriented ones? Want to encourage more developers and creators to use the chain but discourage short-term speculators? All of this will be possible and more. Syndicate is working with a number of new L3s on building the infrastructure and tooling to empower communities with these kinds of capabilities.

Custom gas token considerations

While custom gas tokens are compelling, there are a number of reasons why projects might not want to have a custom gas token and instead use ETH:

• Your L3 needs a lot of liquidity
• You plan to generate revenue primarily by charging a markup on sequencing fees and there is demand for your blockspace
• You don’t want to worry about the liquidity and price of a custom gas token
• You want shared liquidity models or to use ETH for instant bridging of large amounts of assets between chains
• You want certainty that your L3 will be Superchain or shared sequencing compatible (note: it’s not yet clear whether this will the case)
• You want to be maximally ETH aligned

Another important consideration is that once an L3 is live, it’s difficult to switch from a custom gas token to ETH, or vice versa, ETH to a custom gas token. To do so, you’d need to upgrade the bridge, take control over the funds in the bridge, safely give funds back to users, swap in a new gas token, and then figure out what to do with all of the old gas tokens on the L3. Given this, you might as well migrate to an entirely new L3, which is rife with issues.

As such, whether or not to use ETH or a custom gas token is a critical decision that Syndicate is helping projects with based on our experience with Degen Chain, Gold, Syndicate Frame Chain, and many others in development.

Interested in your own L3?

A new wave of L3s are coming—many with custom gas tokens—and they’ll unlock opportunities that builders have been pursuing for years in the areas of scaling, ultra-low gas fees, fully onchain apps/games, community, and economic/incentive design.

We’re excited about how L3s can economically empower onchain communities and developers in ways that were previously impossible. If you’re interested in an L3 for your own community, app, or game, reach out to us by filling out this quick form or casting into the /syndicate channel on Warpcast.