As we all know, the layer 2 ecosystem is still nascent, the tech is immature and improvements are happening on a near daily basis. One of the major areas of focus for all layer 2 teams is optimizing the fees of their respective networks and as you can see below, Optimism was able to reduce fees for the network by around 30% with an iterative improvement. The great thing is that these improvements are not limited to Optimism nor are they limited to just fee improvements - there are many things that can be improved over time.

Optimism @optimismPBC

gm Fees on Optimism just got a nice reduction! Fixed overhead was reduced from 2750 L1 gas to 2100 L1 gas and dynamic overhead was reduced from 1.5x to 1.24x. Fancy numbers, but what do they mean? 🤔 Transactions are now about ~30% cheaper on average!

January 8th 2022

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I often wonder where the “sweet spot” is for users when it comes to fees and I’ve come to realise that it’s a very hard question to answer. This is because the fees that each user will tolerate is relative to a few different things - the major one being how much money they have on-chain. For example, a user that has a $100,000 on-chain is going to be a lot less sensitive to Ethereum layer 1 fees than a user who has $1,000 on-chain. The former would be happy to pay a $50 to $100 fee for a Uniswap trade whereas the latter considers this an insane proposition. Though it’s not just how much money a user has that determines their fee sensitivity - it’s also what the user is paying a fee for and what they are getting out of it. For example, if the user with $1,000 is paying a $50 fee to claim a $1,000 airdrop and then another $50 fee to sell it for ETH, it makes economical sense for them to pay these high fees because they are getting more out than what they put in.

So, in reality, I don’t think there is a “sweet spot” for fees - rather it needs to be viewed at on a case by case and user by user basis. Though there is another way we can look at this by coming up with some sort of range that would cover most users and most use-cases. Of course, what this exact range is is up for debate, but I’d argue for a middle-class person an average fee of anywhere between $0.10 and $1 is more than acceptable - but again, it depends on what the transaction is. Similarly, we can come up with a range of what is totally unacceptable as a fee for individual users and I’d say pretty much anything over $10 is getting into “are you crazy?” territory. This is all very subjective though and I’m sure your own mileage will vary, but this is the conclusion I’ve come to after talking to a few newer people about it.

There is actually another solution here - rollups can subsidize fee costs for users in some way and we’re already seeing this play out. For example, dYdX makes revenue from trading fees on their layer 2 perpetuals exchange and then uses some of those profits to pay the Ethereum layer 1 security fees as gas - the user never has to pay a gas fee. Immutable X, while not technically a rollup (it’s a Validium), does something similar to dYdX because the fees are so cheap. We can even take this a step further and argue that fee costs at layer 2 could be subsidized by native token emissions up to a certain extent - pretty cool, right?

The trend here is clear - fees for end-users will only go down over time until they are basically at an acceptable level, near-0 or literally 0. Though it’s good to keep in mind that just because gas/on-chain fees go down, it doesn’t mean that application-specific fees will - I’m pretty sure there will always be a fee associated with on-chain apps (just like how it is with almost all non-crypto services). There’s also the psychological angle when talking about fees (do you show the fees as a separate line item to the user or not?) but that is a topic for another piece!

Have a great day everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.