Fee Collection in Native Token vs Collected in Any Asset

Protocol Security & Tokenomics: Fees paid in the native asset directly support network security (PoS staking rewards) and create a constant buy-side demand, strengthening the token's economic flywheel. This is critical for Layer 1s like Ethereum and Solana.

Simplified User Experience: Users only need to hold one asset for gas and fees, reducing complexity. This is the standard model for most DeFi protocols (Uniswap, Aave) on their native chains, leading to higher adoption rates.

Stable Value & Treasury Management: Protocols collect fees in stablecoins or blue-chip assets, insulating their treasury from native token volatility. This is preferred by DAOs (like MakerDAO with DAI surplus) for predictable budgeting and operational runway.

User Flexibility & Cross-Chain Viability: Users can transact without holding the volatile native token, lowering entry barriers. Essential for cross-chain or appchain strategies where the native token isn't the primary medium of exchange (e.g., dYdX on Cosmos, many Avalanche Subnets).

Demand Driver: Fees create a direct, non-speculative utility sink, burning or staking the native token. This is a core mechanism for protocols like Ethereum (EIP-1559 burn) and Avalanche (C-Chain fee burn). It matters for bootstrapping sustainable token value and aligning user activity with network security.

Reduced Attack Surface: Validators/sequencers are paid in the asset they are securing, eliminating oracle or price feed dependencies for fee conversion. This is critical for maximizing liveness and minimizing consensus complexity, as seen in Solana and Sui. It matters for high-throughput, low-latency chains where fee market stability is paramount.

Frictionless Onboarding: Users pay with the asset they hold (e.g., USDC, wBTC), avoiding multiple swaps. This mirrors the model of Arbitrum's ability to pay fees in any ERC-20 via DEX aggregation. It matters for mass-market dApps (DeFi, Gaming) where conversion steps directly reduce conversion rates.

Risk-Managed Revenue: Protocol treasury collects fees in stablecoins or blue-chip assets, insulating it from native token volatility. This is a strategic advantage for DAOs and foundations managing operational budgets, as utilized by dYdX (trading fees in USDC). It matters for long-term protocol runway and predictable budgeting.

Price Risk for Users: Users must hold a volatile asset specifically for gas, creating a poor experience for new entrants. This is a well-documented barrier on Ethereum L1, leading to the need for gas abstraction SDKs (Biconomy, ZeroDev). It matters if user acquisition cost and simplicity are top priorities.

Systemic Dependency: Requires a secure, low-latency price feed (e.g., Chainlink, Pyth) to convert fees, adding a centralization vector and potential failure point. This introduces liveness risk and smart contract complexity, as seen in early versions of Fantom's multi-asset fee model. It matters for protocols prioritizing maximal decentralization and security.

Demand Driver & Value Accrual: Fees paid in the native token (e.g., ETH, SOL, AVAX) create a direct, utility-driven demand sink. This is a proven model for protocols like Ethereum (burning ETH via EIP-1559) and Avalanche (staking AVAX for validation), directly linking network usage to token value.

User Friction & Barrier to Entry: Users must acquire and hold the specific native token to interact, adding steps (CEX purchase, bridging) and exposure to its volatility. This is a significant UX hurdle for new users and dApps targeting mainstream adoption, unlike paying with a stablecoin they already hold.

Superior User Experience & Composability: Users pay with the asset most convenient for them (e.g., USDC, wETH, wBTC). This reduces friction dramatically and is ideal for DeFi aggregators and consumer dApps. Protocols like dYdX (v3) and GMX allow fee payment in stablecoins, abstracting gas complexity.

Complex Treasury Management & Value Leakage: The protocol treasury becomes a multi-asset portfolio (USDC, ETH, etc.), requiring active management (e.g., via Yearn Finance vaults) to convert to native token for staking rewards or burns. This adds operational overhead and can dilute value accrual to the native token.