The Coming Consolidation: Why Few L2 Grant Programs Will Survive

Programs are spending millions on speculative, low-utility dApps to inflate TVL and transaction counts. This creates a phantom ecosystem that collapses when grants dry up.

• ROI is negative: Most funded projects fail to achieve $1M in sustainable TVL.
• Metrics are gamed: Teams chase grant KPIs instead of real user problems.
• Capital cannibalization: Funds are diverted from core protocol R&D and security.

With the standardization of rollup SDKs like OP Stack, Arbitrum Orbit, and zkStack, launching an L2 is now a configuration exercise. This eliminates the technical moat that grants were meant to build.

• No lock-in: Projects can fork and redeploy in days, making grant loyalty nonexistent.
• Shared sequencers (like Espresso, Astria) further decouple execution from settlement.
• The real battle shifts to liquidity and user experience, which grants cannot directly buy.

Fragmented liquidity across dozens of L2s creates a poor user experience and strangles DeFi composability. Aggregators like UniswapX, CowSwap, and intents-based bridges like Across are abstracting the chain away, making individual L2 grants irrelevant.

• Users don't care about chains: They care about final asset delivery and cost.
• Grants cannot bootstrap deep, sticky liquidity; only sustainable yield can.
• Winning L2s will be those integrated into the universal liquidity layer, not those with the biggest grant purse.

Facing a $3.3B treasury and community pressure, the Foundation pivoted from generic grants to a protocol-directed incentives program. The goal: align grants with measurable, on-chain utility and network security via staking.

• Strategic Shift: From speculative dApp funding to protocol-owned liquidity and core infrastructure.
• Key Metric: ~$40M monthly in ARB emissions now tied to provable growth metrics, not promises.
• Survival Tactic: Transforms grants from a cost center into a capital-efficient growth lever.

A radical, multi-round experiment in retroactive public goods funding. It funds what proved useful, not what promises to be. This imposes market discipline post-hoc.

• Core Mechanism: Community-voted allocation of $100M+ per round to past contributors.
• Key Benefit: Eliminates speculative grant proposals; rewards only demonstrated impact.
• The Catch: Requires a strong, informed citizen house to avoid becoming a popularity contest. Later rounds show signs of vote-buying and sybil attacks.

For newer ZK-rollups like zkSync Era, Scroll, and Starknet, grant programs are a commoditized user acquisition tool. With near-identical tech (EVM-equivalence, low fees), grants become a desperate bid for initial TVL and developers.

• The Problem: Indistinguishable utility leads to grant arbitrage by mercenary devs.
• Resulting Dynamic: Short-term TVL spikes followed by rapid capital flight post-incentive.
• The Survivor: The chain that first transitions grants into sustainable economic alignment (e.g., native yield, shared sequencer revenue) will win.

Coinbase's Base skipped the traditional grant circus entirely. Its "grant program" is native integration with the Coinbase ecosystem and the Onchain Summer cultural event.

• Strategic Advantage: Leverages 100M+ verified users and fiat on-ramps as the ultimate incentive.
• Cost Efficiency: $0 dedicated grant budget; growth driven by product-market fit and partnership.
• The Lesson: The most capital-efficient "grant" is a killer distribution channel and a superior developer experience. This sets a brutal benchmark for standalone L2s.

Most L2 programs fund generic DeFi clones to inflate TVL, creating a mercenary capital ecosystem with no lasting loyalty.

• Zero Stickiness: Projects deploy, collect grant, and bridge out.
• No Protocol Value: Funds vanity metrics, not core infrastructure or unique utility.
• Unsustainable Burn: $50M+ programs yield <10% retained projects after 18 months.

Survivors will fund integrated application stacks that are native and sticky to their chain's technical or economic niche.

• Examples: A gaming L2 funding an entire engine-to-marketplace stack; a DeFi L2 funding a perps DEX + intent solver + onchain OEV capture.
• Result: Creates defensible moats and real ecosystem value, not just rented liquidity.
• Model: Look at Starknet's focused gaming grants or zkSync's native account abstraction push.

Grants often hide the true cost of security by subsidizing sequencer/DA fees, creating a false economy.

• Reality Check: When grants dry up, projects face 10-100x cost increases as they pay real Ethereum L1 data fees or alternative DA.
• Architectural Lock-in: Projects built for a specific (subsidized) DA layer cannot easily migrate.
• This kills long-tail apps first, leading to rapid ecosystem collapse post-grant.

The only sustainable model: fund the public goods that lower costs for everyone, permanently.

• Fund: Provers, shared sequencers, EigenDA / Celestia integrations, and cross-chain messaging (LayerZero, CCIP) standards.
• Outcome: Lowers the base cost layer, making the L2 attractive without perpetual subsidies.
• Precedent: Optimism's RetroPGF model, though flawed, points in this direction by rewarding ecosystem-enabling work.

Grant budgets are often just VC war chests for user acquisition, creating a race to the bottom on giveaway size.

• Zero-Sum Game: Attracts grant farmers, not builders. See the Arbitrum -> Optimism -> Base airdrop hunter migration.
• Capital Inefficiency: >80% of grant capital leaks to sybil attackers and mercenary users.
• Endgame: VCs stop funding growth marketing disguised as R&D.

The survivors will operate like YC for crypto, taking real equity/ tokens for strategic capital and hands-on scaling support.

• Mechanism: Replace pure grants with structured equity investments + technical advisory. Aligns L2 and project success.
• Filters for: Real teams with real business models, not airdrop scripts.
• Future State: L2s become venture studios, not ATMs. Look at Polygon Ventures' approach as an early template.