Layer‑1 blockchains can’t win on speed alone anymore, says Sonic Labs CEO Mitchell Demeter. In his view, the “fast and cheap” race that defined 2020–2021 is effectively finished. Today, the real contest is about who can keep builders, users, and capital on their chain long enough to build sustainable value.
Demeter, who took over as CEO of Sonic Labs two months ago, says the company is now reorienting its entire strategy around long‑term “stickiness” instead of raw performance metrics. With block space becoming a commodity, Sonic is betting that protocol‑level innovation and a more thoughtful fee model will matter far more than microsecond speed gains or marginally lower gas.
From speed wars to retention wars
In the early DeFi and NFT boom of 2020–2021, blockchains could easily differentiate themselves from Ethereum simply by being faster and cheaper. That alone was enough to draw developers to alternative layer‑1 and layer‑2 networks, each promising higher throughput, lower fees, and a smoother user experience.
At that time, the competition was almost entirely about performance:
Who can process more transactions per second?
Whose fees are near‑zero?
Who can offer the least friction to end users?
According to Demeter, that era is over. The market is now flooded with technically capable, low‑cost chains. As a result, block space — the raw capacity to process transactions — has largely turned into a commodity. Being merely efficient is no longer a unique selling point; it’s a baseline expectation.
In this new environment, the real challenge is not attracting activity briefly, but retaining it. Chains must build defensible moats: reasons for developers to commit, for applications to embed deeply, and for capital to remain invested over the long term.
Sonic’s strategic pivot: protocol‑level differentiation
Demeter explains that Sonic is undergoing a deliberate strategic shift toward changes embedded at the protocol level. Instead of relying on ecosystem grants, marketing pushes, or short‑lived yield incentives, Sonic aims to tweak the chain’s underlying rules so that building there becomes uniquely convenient — and moving away becomes meaningfully costly.
To get there, Sonic is actively reevaluating its roadmap through the lens of Ethereum Improvement Proposals (EIPs). Many EIPs have been debated for years in the Ethereum ecosystem but are slow to implement because Ethereum, as a mature and large network, must prioritize stability and broad consensus. Smaller, more agile chains such as Sonic can adopt and experiment with these ideas much faster.
Demeter says he has directed Sonic’s product and engineering teams to systematically examine relevant EIPs, map them against the needs of current and prospective builders, and decide which ones should be integrated into Sonic’s protocol. The process includes not only technical analysis but also direct dialogue with developers to understand the practical constraints they face.
Bigger contracts, stickier builders: EIP‑7903 as an example
One tangible example Demeter points to is EIP‑7903, which proposes increasing the maximum size of smart contracts. Currently, smart contract developers on Ethereum and many EVM‑compatible chains are effectively constrained to around 49 kilobytes of code per contract.
That ceiling forces teams to break complex applications into multiple smaller contracts, manage more inter‑contract calls, and work around structural limitations. By raising the contract size limit, Sonic would make it easier to develop sophisticated, feature‑rich applications without as many compromises.
This change has two important consequences:
1. Developer experience improves. Teams can implement richer logic in a single contract, simplifying architecture and reducing overhead in development, testing, and maintenance.
2. Switching costs increase. If an application’s logic and infrastructure are built assuming a higher contract size limit, migrating that entire stack to a more constrained chain becomes harder and more expensive.
In other words, increasing contract size has a clear strategic intent: make Sonic more attractive to serious builders and, at the same time, make it less trivial to pick up and leave once an ecosystem has been established.
Demeter frames this as emblematic of Sonic’s broader approach: make structural, protocol‑level decisions that steadily increase the chain’s “stickiness” rather than relying purely on incentives.
Beyond hype: from speculation to value capture
Demeter also argues that the crypto markets are moving out of a purely speculative phase. For years, investors were content to bet that a new chain could hypothetically become “the next big network,” with valuations often driven by narratives rather than measurable value creation.
Today, expectations are stricter. Investors and sophisticated users increasingly want to understand how on‑chain activity translates into:
– Real economic value
– Measurable value capture by the protocol
– Concrete value return to token holders
Tokenomics, once treated as secondary to speed and user experience, has become a central battlefield. Projects need clear, credible mechanisms that show how growth in usage benefits long‑term participants rather than just subsidizing short‑term activity.
The most basic of these mechanisms is a burn model: a portion of fees or emissions is permanently removed from circulation, pushing the tokenomics structure over time from inflationary (ever‑growing supply) toward neutral or deflationary (shrinking or stable supply).
Demeter compares this transition to the trajectory of early technology companies. At first, firms like Tesla relied heavily on issuing new stock to raise capital, diluting existing shareholders but funding growth. Once they reached a certain scale and profitability, the focus shifted toward stock buybacks — a way of returning value to shareholders and signaling confidence in the business.
Many layer‑1s, Sonic included, are still in the early “growth and discovery” stage, trying to nail product‑market fit and core use cases. But, in Demeter’s view, the direction of travel must be clearly defined:
on‑chain usage → fee generation → burns or buybacks → value accrual to holders.
Sonic’s current fee model: user‑friendly, but with a gap
Up to now, Sonic has used a fee structure heavily tilted toward builders. Under the current design, 90% of transaction fees are returned to application developers, while 10% go to validators who secure the network.
This model is designed to support a vision of web3 where the blockchain layer becomes largely invisible to end users. Through account abstraction and fee subsidies, applications can cover gas costs on behalf of their users and then recover or monetize those fees within their own business models.
In practical terms, a user might interact with a payment app that looks and feels like a standard fintech product: a Venmo‑style interface with a USDC balance in a wallet the user barely thinks about. The user doesn’t manually sign blockchain transactions or handle gas tokens; all of that is abstracted away by the app and the underlying chain.
Validators still receive compensation for securing the network, but the user journey is drastically simplified. This is precisely the kind of experience many believe is necessary for mainstream adoption.
However, the downside of this model, as Demeter points out, is that token holders are largely left out of the equation. Even if global transaction volume were to migrate on‑chain under this fee structure, almost none of the value would be directed toward removing tokens from circulation or strengthening scarcity. Fees would simply recycle within the ecosystem, with minimal deflationary pressure.
Transitioning to a sliding‑scale fee and burn model
To address that weakness, Sonic is restructuring its fee model into a sliding‑scale system that introduces a substantial burn component. Under the model Demeter describes, builders would see their share reduced to somewhere around 15% of total fees, validators would continue to receive around 10%, and the majority of fees would be burned.
The intent is to preserve strong incentives for developers and validators while ensuring that increased on‑chain activity directly benefits token holders through supply reduction. In a high‑usage environment, such a structure can create a clear and transparent link between network growth and token scarcity.
Importantly, this does not mean abandoning the user‑friendly abstraction strategy. Applications can still subsidize gas, design seamless flows, and hide blockchain complexity. The difference is that, behind the scenes, the network is constantly converting usage into deflationary pressure rather than recycling every token back into circulation.
For long‑term investors evaluating layer‑1 ecosystems, such mechanisms may become a key differentiator. As more chains converge on similar performance metrics, questions like “Does more usage actually help the token?” will grow louder.
Sonic’s growth stage: deep tech, early traction
Demeter is candid about where Sonic stands in its lifecycle. The team has spent roughly seven years building its technology stack and now boasts a sizable engineering organization with serious technical capabilities. At the infrastructure level, Sonic considers itself a “world‑class” product.
Yet, despite that foundation, on‑chain traction is still in an early phase. The network has room to grow in terms of daily active users, transaction volumes, and major flagship applications. That, in part, explains the emphasis on protocol‑level differentiation and new economic models: Sonic needs stronger hooks to draw ambitious projects and retain them as the ecosystem matures.
For Sonic, the upcoming period is about proving that its technology and economics can translate into real‑world adoption, not just theoretical performance benchmarks.
Licensing tech as a revenue engine for buybacks and burns
Alongside changes to on‑chain fee structures, Sonic is exploring an additional avenue of value capture: licensing its blockchain technology to institutional partners such as exchanges, governments, and banks interested in deploying their own chains.
By offering its infrastructure as a white‑label or dedicated solution, Sonic aims to generate off‑chain revenue streams. Demeter says the plan is to use that income to fund token buybacks and subsequent burns. In combination with fee burns on the main network, this creates a second channel through which value can flow back to token holders.
This approach effectively blends traditional business revenue with crypto tokenomics. Rather than relying solely on native activity, Sonic would also benefit from enterprise‑level adoption of its stack, all while preserving or enhancing scarcity of its token over time.
Why speed isn’t enough — and what chains must optimize now
Demeter’s broader message to the market is that layer‑1s need to redefine what “competitive” means. When every major chain can claim high throughput and low fees, those characteristics stop being compelling differentiators.
Instead, successful networks will likely optimize for:
– Developer experience: fewer constraints (like contract size limits), better tooling, and more predictable economics.
– Retention mechanics: protocol features and business models that make it rational for builders and capital to stay put.
– Tokenholder alignment: clear, transparent pathways for value created on‑chain to return to long‑term supporters via burns, buybacks, or similar mechanisms.
– User invisibility of blockchain complexity: applications that hide wallets, keys, and gas from mainstream users without sacrificing security or decentralization.
– Institutional integration: frameworks that let enterprises adopt blockchain technology while reinforcing, not undermining, the value of the public network and its token.
For Sonic, that means continuing to experiment at the protocol layer, reforming its fee distribution model, and building a bridge between its deep technical stack and sustainable, visible value capture.
As the noise around raw speed fades, the next phase of the layer‑1 competition will be decided by which chains can offer real economic gravity — pulling in builders, users, and institutions, and giving them compelling reasons to never leave.