By: Ray Song, founder at aPriori
Having been in markets for a long time, you begin to notice trends. The platforms we utilize and the infrastructure we develop are constantly evolving. In the crypto space, a significant change is unfolding at the foundational level.
Historically, the layer 1 dialogue centered around Ethereum for its composability and developer community, Solana for speed, and Cosmos for sovereignty. Choosing an L1 was akin to selecting a trading venue, considering aspects like fees, liquidity, and execution.
Recently, this choice has shifted from tactical to strategic. Beyond developers selecting ecosystems, major corporations are now constructing their blockchains from scratch. When entities such as Stripe and Coinbase—equipped with substantial regulatory experience and distribution networks—engage in this development, the L1 landscape transforms from a neutral arena to a fortified stronghold.
The Stripe Tempo moment
Consider the news surrounding Stripe. It has been revealed that “Tempo,” a layer 1 focused on payments, is being created in collaboration with Paradigm. Those familiar with trading understand that Stripe’s motives are intentional. This move represents a settlement layer strategy, allowing control over the foundational aspects, fees, and uptime.
In traditional finance, clearing and settlement processes often remain unnoticed by end-users, yet they hold immense leverage. Tempo could provide Stripe with a blockchain designed for reliable fees, predictable settlement times, and unmatched merchant distribution. This leverages two decades of payment processing expertise applied to cryptocurrency systems.
From permissionless to permissioned
A clear spectrum is emerging. On one side are entirely decentralized, censorship-resistant protocols. While these chains may lack the refinement or compliance assurances that institutions desire, they are hotbeds of genuine innovation. This includes early Ethereum, current Bitcoin, and newer privacy chains exploring uncharted waters without KYC constraints.
On the opposite end are corporate-controlled L1s aligned with regulated custodians and exchanges. Coinbase’s Base chain is already operational, and Binance’s BNB Chain functions as a corporate ecosystem. Stripe is entering this arena.
In between lie hybrid L1s, which aim to attract the crypto-native community while being structured enough to reassure institutional players. This middle ground is poised for intriguing conflicts—it’s one area where both sides may converge.
This isn’t a level playing field
Crypto-native founders face insurmountable challenges when competing with the likes of Stripe or Coinbase in terms of distribution and regulatory conditions. These industry giants can obtain licenses swiftly and onboard millions of merchants with just an API call.
Related: After stablecoin push, Stripe acquires crypto wallet developer Privy
However, this doesn’t render it impossible for permissionless innovators; it merely alters the competitive landscape. Competing directly in areas like licensing and institutional distribution is unwise. The advantage lies in what corporate L1s won’t or can’t pursue.
They will typically deprioritize privacy features that may trigger regulatory scrutiny and cannot move quickly to implement novel DeFi innovations, as all new features require legal approval. They are forever balancing decentralization against shareholder interests.
Where the opportunities still live
Major advancements in DeFi emerged from unrestricted collaboration on contracts. Achieving this in a corporate-controlled L1 with strict regulations is considerably more complex. If you can deliver genuine composability, you will attract the innovators they overlook.
Crypto-native founders can also explore tokenomics, governance frameworks, or cross-chain integrations that require established players to conduct risk assessments.
Furthermore, it’s essential to recognize the importance of cultural alignment. Ethereum carries an identity, while Bitcoin embodies a mission. If you can present a vision that resonates with a defined audience—be it privacy advocates, DeFi enthusiasts, or regions seeking adoption—you can outpace corporate L1s in those relevant sectors.
The rise of corporate L1s shifts the liquidity landscape. If Stripe’s Tempo attracts merchants successfully, one can expect predictable, high-volume transactions, beneficial for conservative yield strategies. Yet, the volatility and unique prospects will continue to exist in the permissionless domain, where protocol modifications, governance changes, or evolving narratives can alter valuations in a flash.
On a permissionless chain, risks are rooted in technical and market factors. Conversely, in a corporate chain, risks revolve around regulatory and business model issues. While Tempo might not technically fail you, it could diminish your yields through policy alterations.
The endgame
This is not a binary clash between corporate and permissionless chains; rather, they will likely complement one another. Corporate L1s will manage compliant, high-volume transactions that attract conservative investment, while permissionless chains will continue to push boundaries, fostering the innovations that corporations will eventually incorporate.
For traders and builders, genuine opportunities will arise from comprehending how value transitions between these realms. The Stripe Tempo announcement illustrates that foundational layers have become strategic assets. In financial markets, those controlling infrastructure ultimately govern profitability.
By: Ray Song, founder at aPriori.
This article is for informational purposes only and should not be construed as legal or investment advice. The views and opinions expressed herein are solely those of the author and do not necessarily represent the opinions of Cointelegraph.
