Jayakumar

A bit of a brain dump on how I think about L1s, foundations, incentives, and the economies they’re trying to build. I think of L1s as nations, and foundations as something between a central bank, a government treasury, and an economic development agency. Their job is to allocate capital in ways that grow the economy. Part of that is funding infrastructure (the labs and engineers building the chain), and part of it is creating the right conditions for businesses and capital to move into the ecosystem. Unlike central banks, foundations generally can’t arbitrarily print money. Token issuance is largely governed by the protocol. But especially in the early days, when foundations control a significant portion of the token supply, they have enormous influence over how that money enters circulation. In that sense, treasury allocation is a form of fiscal policy. Over time, as tokens and capital become more widely distributed, the foundation’s influence over the economy should naturally diminish. Take Monad as an example. Much of Monad’s economic activity today is incentivized. There’s lending liquidity attracted through ~6% APR on Aave, investments in ecosystem projects, and programs that subsidize operating costs for businesses, like gas subsidies for market makers on Kuru. There’s nothing inherently wrong with subsidized TVL. Imagine a country trying to attract foreign capital and businesses. It offers tax breaks, infrastructure subsidies, and favorable economic policies to make setting up shop attractive. The idea isn’t to subsidize everything forever. It’s to bootstrap an economy where capital and businesses can eventually sustain themselves. Look at the liquidity attracted to Monad through Aave incentives. That capital is now available within the ecosystem, and having access to it makes the chain a much more attractive destination for other businesses. Consider Fasanara Capital’s vault offering ~5.7% native APR. When you’re trying to bring an institutional asset manager onto a chain, being able to demonstrate that you already have significant capital and demand within the ecosystem is an enormous advantage. The foundation’s incentives help attract capital, and its BD efforts help bring in businesses that can put that capital to productive use. Some of that capital, which initially arrived for subsidies, now has a reason to stay for the actual economic opportunities available on the chain. This is how incentivized TVL can progressively turn into sticky TVL. I’ve heard arguments that foundations should use their treasuries to pump meme coins to bootstrap activity. I find this a much less compelling use of capital. You might attract attention, volumes, and speculative capital for a while, but it’s hard to see what lasting economic activity that creates. There’s a difference between subsidizing the formation of an economy and paying people to temporarily participate in one. Network effects matter. When businesses decide where to operate, they care about infrastructure, access to capital, and the other businesses already operating there. Better infrastructure (low block times, MCP, better sequencing and execution), access to liquidity, and an existing ecosystem of applications all make a chain more attractive for businesses. This is also where being EVM compatible matters enormously. Ethereum has built incredible network effects through applications like Aave, Uniswap, and the broader DeFi ecosystem. Monad doesn’t have those network effects organically yet, but by being EVM compatible, it gets to inherit a part of them. Businesses don’t have to build everything from scratch. They can bring existing applications, infrastructure, and tooling into a new economy. I think a large part of a foundation’s job is to accelerate this process. Build good infrastructure, attract businesses, bring in capital, and create the conditions for an economy to flourish. The goal is an economy that eventually doesn’t need subsidies.