The Future of Blockchain Was Already in the Internet: L1 Public Goods and the L2 Co‑Funding Model

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The Future of Blockchain Was Already in the Internet: L1 Public Goods and the L2 Co-Funding Model

For deeper context, this article is best read together with the following two pieces:
1) Why Stripe, JP Morgan, and Circle Will Never Use Each Other’s Chains — and Why the Future Is L1 + L2
2) If Ethereum Falls, the Blockchain Falls: How the Ecosystem Will Respond to the Funding Crisis

The neutral L1 + institution-specific L2 structure discussed in this article is not a concept unique to blockchain. It is a model that has already been tested and proven for decades in the internet infrastructure. Companies operate their own cloud environments (L2) independently, but all of them pay ISPs to maintain the shared base layer of the internet (L1). In other words, a structure where each company’s profits naturally flow back into sustaining the L1 infrastructure is already working successfully in the real world — and this is a powerful reason why an L2 co-funding model can also succeed in blockchain.

Today, the blockchain ecosystem is facing two major inflection points at the same time. One is the Funding Crisis triggered by the end of CIP-style funding, and the other is the reality that large institutions will never run on each other’s chains.

These two issues may look separate, but in practice they converge on a single answer: a neutral L1 + institution-specific L2 model, and on top of that, a joint funding structure for L1 driven by L2 (L2 Co-Funding).

1) The end of CIP and the Funding Crisis: The biggest risk to the L1 ecosystem

For the past several years, the L1 ecosystem has relied on CIP (Community Improvement Proposal) style funding to sustain critical public goods such as client development, research, security, and infrastructure. But after the end of CIP-based funding, the ecosystem is now facing several structural problems.

• Weakened sustainability of public goods development: L1 is infrastructure used by everyone, yet the developers who maintain and improve it struggle to secure stable, long-term funding.
• Asymmetry between L2 growth and L1 funding: L2s are growing rapidly and generating revenue, while the L1s they depend on are experiencing a funding squeeze.
• The structural risk that “if L1 falls, the entire blockchain falls”: No matter how advanced L2 becomes, if L1 is unstable, the entire ecosystem is at risk.

The current Funding Crisis is therefore not just a matter of budget shortfalls. It is a structural threat to the long-term sustainability of blockchain infrastructure as a whole.

2) Why large institutions refuse to run on each other’s networks

Large institutions like Stripe, JP Morgan, and Circle are all building their own chains. But they will never seriously run their core systems on each other’s chains. The reasons are straightforward.

• Loss of control: The moment you run on a competitor’s chain, you hand over control of upgrades, fees, and policy decisions to someone else.
• Data sovereignty: Financial data is an asset. Putting it on a competitor’s chain is effectively giving up control over that asset.
• Strategic dependency: You become dependent on a rival for technology, regulatory response, and even pricing power.
• Regulatory and audit risk: Accountability becomes blurred, and regulatory and audit processes become more complex and risky.

As a result, large institutions are strongly incentivized not to use each other’s L1s. So what do they need instead?

The answer is a neutral L1 that everyone can trust, and on top of it, institution-specific L2s that each entity can operate independently.

This structure is very similar to the relationship between the internet and the cloud. The internet (L1) is a shared public infrastructure, while the cloud (L2) is a dedicated layer that each company operates and configures on its own.

3) An institutional L2 Co-Funding model that can resolve the post-CIP Funding Crisis

This is where the Funding Crisis and the institution-specific L2 model converge.

On one side, L1 is a public good but is suffering from a lack of sustainable funding. On the other side, institutions need a neutral L1, refuse to run on each other’s chains, and are generating real revenue on their own L2s.

The natural answer that emerges from this is:

Institutions operate their own L2s, while jointly funding the maintenance and development of L1 — in other words, a L2 Co-Funding model.

• L2 cannot exist without L1: L1 is the base layer for settlement, security, and finality.
• Institutions need a neutral L1: An L1 controlled by any single institution is unacceptable; a shared public layer is required.
• L2s generate real business revenue: Payments, data processing, and financial products all create monetizable flows at the L2 level.
• It is rational to reinvest part of L2 revenue into L1 public goods: This is not charity; it is a strategic investment in the survival of their own infrastructure.

4) When institutional profits flow into L1, L1 matures into a true public good

Once institutions begin jointly funding L1, several important shifts occur in the ecosystem.

• Financial stability for L1: The post-CIP Funding Crisis can be addressed in a structural, long-term way.
• Strengthening L1 as a public good: L1 evolves into a global infrastructure maintained not by a single company, but by many institutions together.
• Greater sustainability for the L2 ecosystem: A stable L1 means a stable L2 environment, which directly benefits institutions.
• Higher trust in the overall blockchain ecosystem: Institutional participation improves trust from regulators, auditors, and traditional finance.
• L1 becomes “a global public good maintained by institutions together”: This mirrors the way the internet itself has evolved over time.

5) Cloud (L2) is operated independently, but everyone pays the ISP (L1) — why L2 Co-Funding is structurally destined to work

The reason an institution-driven L2 Co-Funding model can succeed is that the global digital infrastructure already operates on an almost identical pattern. The clearest example is the relationship between cloud providers and ISPs.

Today, companies build and run their own systems independently on AWS, Azure, Google Cloud, and other cloud platforms. But all of these services ultimately run on top of the shared internet infrastructure (L1) provided by ISPs.

The key points are:

• The cloud is independent (L2), the internet is the shared base (L1).
• Companies are free to choose and operate their own cloud environments,
• but they must pay ISPs to use the internet (L1).
• In other words, each company’s profits naturally flow into sustaining the L1 infrastructure.

The same structure can be reproduced in blockchain.

• L2 is a dedicated network operated by each institution.
• L1 is the shared public infrastructure that all L2s rely on.
• Institutions generate business revenue at the L2 layer,
• but L2 can only exist as long as L1 remains stable and secure.

Therefore, when institutions run their own L2s and at the same time jointly fund the maintenance and development of L1, this is not optional but a structurally inevitable outcome.

It is not a donation model, but a strategic reinvestment into the very foundation of their business, and it is a model that has already been validated for decades in the internet ecosystem.

Ultimately, the L2 Co-Funding model is the most realistic and sustainable way for the blockchain ecosystem to mature into a true global public infrastructure.

Conclusion: Funding Crisis and institution-specific L2s converge on a single answer

To summarize, the current blockchain ecosystem is moving along the following trajectory:

• The end of CIP-style funding has pushed L1 into a serious Funding Crisis.
• Large institutions will never seriously run on each other’s chains and therefore require a neutral L1.
• The only realistic architecture is a neutral L1 + institution-specific L2 model.
• This architecture naturally leads to a joint L1 funding structure driven by L2 (L2 Co-Funding).
• As a result, L1 can evolve into a more mature public good, and the entire blockchain ecosystem can become more stable and sustainable.

The emergence of the Funding Crisis and institution-specific L2s is both a risk and an opportunity. The L2 Co-Funding model that connects these two trends is likely to become a key pillar in the next phase of blockchain’s evolution as a genuine global public infrastructure.

Younchan Jung
Researcher exploring structural shifts in AI, blockchain, and the on‑chain economy.

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