Insight by: Ray Song, founder at aPriori
With time in the markets, recognizing patterns becomes second nature. The platforms we utilize and the frameworks we develop are in constant flux. Currently, a significant transformation in crypto is unfolding at the foundational level.
Historically, discussions regarding layer 1 revolved around Ethereum for composability and developer engagement, Solana for speed, and Cosmos for sovereignty. Choosing an L1 felt analogous to selecting a trading platform, based on fees, liquidity, and execution.
Recently, this decision has shifted from a tactical to a strategic perspective. While developers are navigating ecosystems, major companies are now constructing their blockchains from ground zero. When these entities include giants like Stripe and Coinbase, the L1 landscape transforms from a neutral territory to a competitive barrier.
The Stripe Tempo development
Consider the recent Stripe announcement. The “Tempo,” a layer 1 focused on payments, is being developed in collaboration with Paradigm. Experienced traders understand that Stripe has a purpose behind this initiative. It positions itself as a settlement-layer, controlling fees and availability.
In traditional markets, clearing and settlement processes are often hidden from users, yet they represent substantial leverage. Tempo would equip Stripe with a chain designed for consistent fees, predictable settlement times, and unmatched merchant distribution. This represents two decades of payment processing expertise applied to crypto infrastructure.
Transitioning from permissionless to permissioned
A distinct spectrum is emerging. On one end are fully decentralized and censorship-resistant protocols. Though these chains may lack institutional polish or compliance, they serve as the breeding ground for genuine innovation: early Ethereum, Bitcoin today, and newer privacy-focused chains exploring the limits of non-KYC compliance.
At the opposite end are corporate-controlled L1s aligned with regulated custodians and exchanges. Coinbase’s Base chain has already launched, while Binance’s BNB Chain forms a corporate ecosystem. Now, Stripe joins this category.
Sandwiched between are hybrid L1s aiming for enough openness to attract crypto enthusiasts while being structured enough to please institutions. This middle space is likely where the most compelling conflicts will arise, as it serves as a potential meeting ground.
Imbalances in competition
Crypto-native founders find it challenging to compete with Stripe or Coinbase on distribution and regulatory terms. The giants can obtain licenses swiftly and onboard countless merchants with a simple API call.
Related: After stablecoin initiatives, Stripe acquires crypto wallet developer Privy
This situation doesn’t render permissionless builders powerless, but it certainly alters the dynamics. Attempting to compete on identical fronts (licensing, institutional distribution) is a losing strategy. The true opportunity lies in areas the corporate L1s overlook or avoid.
They generally won’t emphasize privacy features that might attract regulatory scrutiny, nor can they deploy novel DeFi innovations swiftly, as each new feature requires legal approval. Balancing decentralization with shareholder demands will always be a concern.
Identifying opportunities
The most impactful advancements in DeFi have emerged from the ability for anyone to interface with others’ contracts without seeking permission. Achieving that becomes more complex within a corporate-controlled L1 laden with restrictions. If you can offer genuine composability, you’ll draw in builders they cannot.
Crypto-native founders can also explore tokenomics, governance structures, or cross-chain integration while traditional players are preoccupied with risk assessment.
Lastly, it’s vital to acknowledge the importance of cultural alignment. Ethereum boasts an identity, and Bitcoin carries a mission. If you can articulate a vision that resonates with specific audiences—be it privacy advocates, DeFi enthusiasts, or niche regional adopters—you can outmaneuver corporate L1s in those segments.
The rise of corporate L1s reshapes the liquidity landscape. Should Stripe’s Tempo gain traction among merchants, expect stable, high-volume transaction flows, which bode well for conservative yield strategies. However, volatility and unique opportunities will persist within the permissionless sector, where changes in protocol, governance, or market narratives can dramatically shift valuations overnight.
In a permissionless chain, risks are technical and market-centric, whereas corporate chains face regulatory and business model risks. Tempo may not lead to a technical downfall, but it could jeopardize yields with policy shifts.
The ultimate outcome
This battle isn’t strictly zero-sum between corporate and permissionless chains. They will likely complement each other. Corporate L1s will cater to compliant, high-volume transactions that attract conservative investments, while permissionless chains will continue pushing boundaries, fostering innovations that corporations will eventually adopt.
For traders and builders, understanding the migration of value across these ecosystems will yield the greatest advantage. The news surrounding Stripe’s Tempo illustrates that the foundational layer has evolved into strategic territory. In markets, controlling the infrastructure typically translates to controlling profit margins.
Insight by: Ray Song, founder at aPriori.
This article is for general information and should not be interpreted as legal or investment advice. The views and opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.
