Grant programs create mercenary builders. Teams optimize for grant committee approval, not user adoption. This results in features that check boxes for VCs but lack product-market fit, a pattern seen in the empty dApp graveyards of early L2s.
layer-2-wars-arbitrum-optimism-base-and-beyond
Blog
Why Base's 'No Grant' Approach Redefines Builder Incentives
While Arbitrum and Optimism deploy massive grant programs, Base leverages Coinbase's distribution as its primary incentive. This 'no grant' strategy filters for builders who solve real user problems, not grant committee checklists.
introduction
THE INCENTIVE MISMATCH
The Grant Industrial Complex is Broken
Base's refusal to operate a grant program exposes the fundamental misalignment between traditional grant-making and sustainable protocol growth.
Base funds demand, not supply. Instead of paying builders to deploy, Base's ecosystem fund invests in applications that drive real onchain activity. This mirrors the demand-side liquidity strategy of protocols like Uniswap and Aave, which bootstrap networks by attracting users first.
The proof is in retention. Grant-heavy chains like early Fantom or Avalanche subnets saw initial deployment spikes followed by developer churn. Base's model, focusing on integrated products like friend.tech and Blackbird, demonstrates that aligned economic incentives outperform subsidized development.
thesis-statement
THE INCENTIVE FLIP
Distribution > Subsidy: The Base Thesis
Base's ecosystem growth stems from superior distribution mechanics, not capital subsidies.
Ecosystems compete on distribution. Base's 'no grant' approach forces builders to find real users, not grant committees. This creates a natural selection pressure for applications with genuine product-market fit, unlike subsidized ecosystems where activity is a capital burn.
Subsidies create artificial demand. Grant programs on Arbitrum and Optimism fund projects that often fail post-funding. Base's model inverts this: success is measured by protocol revenue and user retention, metrics that align with sustainable growth.
The Onchain Summer model is distribution-as-a-service. By providing viral, integrated launch platforms like Farcaster frames and friend.tech, Base offers native user acquisition that is more valuable than a one-time grant. This turns the chain into a growth partner.
Evidence: Base's TVL and DEX volume surpassed Optimism within months of mainnet, without a token or major liquidity incentives. The primary driver was Coinbase's 110M+ user funnel and seamless fiat onramps, a distribution moat no grant can match.
key-trends
WHY GRANTS FAIL
The Flaws of the Grant Economy
The traditional grant model creates misaligned incentives, funding speculation over sustainable development. Base's 'no grant' policy forces a market-driven reset.
01
The Grant-to-Grift Pipeline
Grant programs often fund roadmap theater, not product-market fit. Teams optimize for proposal approval over user adoption, leading to high failure rates and capital misallocation.\n- >70% of grant-funded projects fail post-funding\n- Incentivizes building for grantors, not users\n- Creates zombie projects that inflate ecosystem metrics
>70%
Failure Rate
$B+
Capital Wasted
02
Base's 'Earn, Not Grant' Mandate
Base forces builders to monetize from day one via real user fees or protocol revenue. This aligns success with creating genuine utility, mirroring the Uniswap and Compound bootstrap model.\n- Revenue replaces grants as the primary KPI\n- Filters for founders with go-to-market discipline\n- Creates sustainable flywheels, not grant dependency
100%
Revenue-Aligned
0 Grants
Policy
03
The Venture Capital Pivot
By removing grants, Base redirects elite builder attention to venture-scale opportunities. This attracts capital from top-tier VCs like a16z and Paradigm, who fund based on traction, not proposals.\n- Shifts signaling from foundation committees to market VCs\n- Higher average check sizes for proven concepts\n- Builders graduate to Series A, not grant renewal
10x+
Capital Scale
Traction
Primary Metric
04
Protocol-Led Growth Flywheel
Successful Base projects like friend.tech and Aerodrome reinvest protocol revenue into ecosystem incentives (e.g., bribes, liquidity mining). This creates a self-funding growth engine superior to grant distributions.\n- Protocol revenue > Grant treasury for sustainability\n- Incentives are market-priced via vote markets\n- Aligns all participants (users, builders, LPs) on value creation
$100M+
Protocol Revenue
Flywheel
Growth Model
BUILDER INCENTIVE MODELS
L2 Grant Program Comparison: Capital vs. Distribution
A comparison of how leading L2s allocate resources to attract developers, contrasting direct capital grants with ecosystem distribution.
| Incentive Mechanism | Base (Coinbase) | Optimism (OP Stack) | Arbitrum (Arbitrum One) | zkSync (ZK Stack) |
|---|---|---|---|---|
Primary Funding Vehicle | Onchain Summer, Ecosystem Fund | Retroactive Public Goods Funding (RPGF) | Arbitrum Grants Program (DAO-managed) | ZK Credo, Ecosystem Acceleration Program |
Direct Capital Grants | ||||
Average Grant Size | N/A (Non-cash prizes) | $50k - $500k+ | $25k - $250k | $10k - $100k |
Token Distribution to Builders | None (No native token) | Yes (OP token airdrops) | Yes (ARB token grants) | Yes (anticipated future airdrop) |
Core Value Proposition | Distribution to 110M+ verified users | Retroactive alignment via Optimism Collective | Large DAO Treasury ($3B+ ARB) | ZK-tech moat & future airdrop speculation |
Application Review Time | N/A (Contest-based) | 6-12 weeks | 8-16 weeks | 4-8 weeks |
Key Performance Metric | User adoption & onchain activity | Public goods impact | TVL & network utility | Technical innovation & transaction volume |
Ecosystem Lock-in | Low (Standard EVM, OP Stack fork) | Medium (OP Stack governance) | High (Arbitrum Orbit tooling) | High (ZK Stack proprietary circuit tech) |
deep-dive
THE FILTER
How Base's Model Filters for Signal
Base's lack of a grants program forces builders to prove product-market fit with real users, not grant proposals.
The No-Grant Filter eliminates subsidy-seekers. By refusing to fund ideas on paper, Base ensures only builders with genuine user traction and a sustainable economic model deploy. This mirrors the real-world venture capital selection process, where capital follows traction, not the reverse.
Incentive alignment shifts from pleasing grant committees to serving users. Projects like friend.tech and Aerodrome succeeded because they solved immediate user problems, not because they wrote the best grant application. This creates a natural selection environment for applications.
Contrast with grant-heavy L2s like Arbitrum and Optimism, where treasury distributions can inflate TVL metrics with temporary incentives. Base's model measures success by organic revenue and daily active addresses, metrics that signal sustainable protocol health, not subsidized activity.
case-study
THE NO-GRANT EFFECT
Proof in the Pudding: Base's Breakout Projects
Base's ecosystem grew by attracting builders with superior fundamentals, not grants, creating a more resilient and innovative environment.
01
Friend.tech: Viral Product-Market Fit
The Problem: SocialFi was a graveyard of token-gated Discord servers. The Solution: A seamless, on-chain social graph with embedded financialization.
- Key Benefit: $50M+ in fees generated in 6 months, proving a sustainable model.
- Key Benefit: Created a new primitive (Keys) that other protocols like Farcaster and Lens are now iterating on.
$50M+
Protocol Fees
0 Grants
Seed Capital
02
Aerodrome: The Liquidity Black Hole
The Problem: Base needed deep, sticky native liquidity to escape the Circle → CEX capital flight loop. The Solution: A Velodrome-fork with a hyper-aggressive ve(3,3) tokenomics model.
- Key Benefit: Attracted ~$1B TVL by aligning LP incentives with long-term protocol governance.
- Key Benefit: Became the central liquidity hub, enabling the rise of projects like Extra Finance and Moonwell.
$1B+
Peak TVL
#1 DEX
On Base
03
The Onchain Summer Thesis
The Problem: How do you bootstrap a cultural movement without paying for it? The Solution: A coordinated, time-boxed event offering builders a massive, engaged audience and distribution, not cash.
- Key Benefit: Generated 10M+ transactions and hundreds of projects from a standing start.
- Key Benefit: Proved that developer attention is a more valuable currency than grants for sparking organic innovation.
10M+
Transactions
0 Grants
Campaign Budget
04
Parallel: AAA Gaming on L2
The Problem: High-fidelity blockchain games were trapped by high costs and poor UX on Ethereum L1. The Solution: A full-stack gaming studio building natively on Base for scale and low fees.
- Key Benefit: Sub-$0.01 transaction costs enable complex, frequent in-game actions previously impossible.
- Key Benefit: Demonstrates Base's capability as a platform for applications beyond DeFi, attracting a new user cohort.
<$0.01
Avg. TX Cost
AAA
Production Quality
05
The Farcaster Flywheel
The Problem: Social networks on-chain were clunky and siloed. The Solution: Farcaster's decentralized protocol, with clients like Warpcast, chose Base for its low-cost, high-throughput environment.
- Key Benefit: Enabled millions of low-fee social casts, creating a vibrant developer ecosystem for frames and apps.
- Key Benefit: Proves that the best infrastructure attracts the best protocols, which then attract more users and builders.
Millions
Daily Casts
$0.0001
Per Cast Cost
06
USDC as the Primitive
The Problem: L2s struggle with fragmented, bridged stablecoins. The Solution: Native USDC issuance by Circle directly on Base, making it the chain's base money layer.
- Key Benefit: ~$3B+ in native supply creates a trust-minimized, capital-efficient foundation for all DeFi.
- Key Benefit: Eliminates bridge risk for major protocols like Aave and Compound, making Base the safest L2 for institutional activity.
$3B+
Native Supply
0 Bridge Risk
For DeFi
counter-argument
THE INCENTIVE MISMATCH
The Critic's Corner: Is This Just VC Capture?
Base's rejection of a traditional grant program exposes a fundamental flaw in how L2s fund ecosystem growth.
Grant programs are misaligned subsidies. They reward speculative promises over shipped products, creating a class of professional grant writers instead of builders. Base's direct investment in proven protocols like Aerodrome and Friend.tech targets traction, not pitches.
The model inverts the funding timeline. Traditional L2s like Arbitrum and Optimism front-load capital to attract developers. Base back-loads support, creating a performance-based flywheel where success earns resources, mirroring Coinbase's venture playbook.
Evidence: The $100M+ in locked value attracted to Aerodrome within weeks of Base's co-investment demonstrates capital follows utility, not the promise of it. This invalidates the need for a large, pre-allocated grant treasury.
takeaways
THE INCENTIVE RESET
TL;DR for Protocol Architects
Base's rejection of traditional grant programs isn't a budget cut; it's a strategic bet on a more capital-efficient, product-led growth model for ecosystem development.
01
The Problem: Grant-Driven Zombie Chains
Traditional grant programs create misaligned incentives, funding projects that serve the grant committee, not the market. This leads to:
- Short-term mercenaries chasing funding cycles, not users.
- High capital burn for low user retention and <10% sustainable project rate.
- Ecosystem bloat with ghost protocols that die post-funding.
<10%
Survival Rate
$100M+
Capital Wasted
02
The Solution: Product-Market Fit as the Only Grant
Base redirects capital to proven demand, not speculative proposals. It funds infrastructure after it demonstrates organic traction.
- Onchain revenue is the KPI. Projects like friend.tech and Aerodrome validated this, attracting $1B+ TVL without upfront grants.
- Capital follows users, not roadmaps. This aligns builder incentives with real economic activity.
- Ecosystem Darwinism: Only protocols that solve real problems survive and get amplified.
$1B+
Organic TVL
0
Upfront Grants
03
The Mechanism: Superchain Economic Alignment
Base's model leverages the OP Stack's shared sequencing fee revenue. Sustainable growth benefits the entire Superchain (Base, Optimism, etc.).
- Revenue recycling: Fees from successful apps fund public goods and further infrastructure, creating a virtuous cycle.
- Collective upside: Builders are incentivized to grow the collective L2 pie, not just their own app. This is the Layer 2 answer to sustainable scaling.
- Reduces governance overhead: No committee decides winners; the market does.
100%
Market-Decided
Shared
Sequencer Revenue
04
The Precedent: Uniswap & The VC-Free Blueprint
Base's philosophy mirrors Uniswap's iconic launch: no grant, just a superior product that captured market fit. This proves:
- Protocol-market fit > Grant committee fit. The most powerful protocols (Uniswap, Lido, Maker) grew from usage, not handouts.
- Developer mindshare is the ultimate moat. By attracting builders who want to earn not ask, Base cultivates a more resilient, inventive ecosystem than Avalanche or Polygon grant programs.
- Sets a new standard: Forces every other L2 (Arbitrum, zkSync) to justify their grant treasury efficiency.
$1T+
Cumulative Volume
0
Initial Grants
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