‘End of L2s?’ Stripe’s Tempo debut challenges Ethereum’s scaling vision

Key Takeaways

Stripe’s payment-focused Tempo chain will be an L1 and not an Ethereum L2 as previously thought. Will the shift dent Ethereum’s long-term market share in the stablecoin and tokenized market? 

Stripe has unveiled Tempo, a new payments-first L1 blockchain in collaboration with Paradigm. In soing so, it has officially joined Google in the race for next-generation stablecoin rails. 

Tempo was initially rumored to be an Ethereum [ETH] L2, similar to the Robinhood chain. However, it will be a standalone network that uses stablecoins for gas fees, with support for autonomous AI agents. 

For his part, Stripe CEO Patrick Collison has billed the chain as “optimized for high-scale, real-world financial services applications.”

According to the exec, existing blockchains are not optimized for growing stablecoin traction in the Stripe ecosystem. In particular, he cited low throughput and user experience as the reasons for not avoiding the L2 route. 

“It’s valuable for real-world financial applications that fees be denominated in a fiat currency that makes sense to the user, but existing blockchains denominate their fees in blockchain-specific tokens.”

Source: X

Trouble for Ethereum L2s?

Interestingly, the network strives to serve broader use cases, including AI agent payments and tokenized deposits. Collison added, 

“We hope that Tempo makes it easier for things like payment acceptance, global payouts, remittances, microtransactions, tokenized deposits, agentic payments, and more, to move onchain.”

This is exactly what Ethereum and L2s’ scaling vision are expected to capture. However, with the upcoming competition, including from Google’s GCUL, its market share could be eaten by new players with large distribution networks. 

In fact, Tushar Jain, Co-founder of crypto VC Multicoin Capital, claimed the update was bearish for L2s. 

“The beginning of the end for L2s”

A similar position was echoed by crypto investor Jon Charbonneau. He added, 

“The guys with the biggest ETH bags are literally building their own L1, & people still think Ethereum being the “settlement layer for the internet of value” is a coherent idea.”

For Chuk Okpalugo, Product Lead at stablecoin issuer Paxos, Tempo has been positioned as decentralized and its diverse partners make it the “one to watch.”

“TEMPO has the features, the partners, and the permissionless narrative. The challenge is partner coordination, but Stripe’s distribution could overcome the cold start and bring others along. One to watch!”

Meanwhile, the overall market sentiment around Ethereum dropped slightly after the announcement.

It will be interesting to see how ETH investors react. Especially when these new competing blockchains become operational in the next few months. 

Source: Santiment