TL;DR

PANews interviews Ed Felten, who shares his journey from research and policy to blockchain entrepreneurship. He discusses how Layer2 can balance Ethereum’s ecosystem development, the technical competitiveness of Arbitrum, and the integration of AI and blockchain.

Ed Felten may be one of the most academically inclined entrepreneurs in the blockchain industry. He is the co-founder and Chief Scientist of Offchain Labs and a core driver of the Ethereum Layer2 scalability solution, Arbitrum.

In 2003, Ed became a professor in the Computer Science Department at Princeton University, and in 2010, he became the first Chief Technology Officer of the Federal Trade Commission (FTC). After returning to academia in 2012, he began researching Bitcoin and blockchain technology. In early 2015, Arbitrum was initially developed as a final project for a Princeton computer science course, which caught Felten’s attention. He immediately began deepening his research on Rollup technology. Soon after, he was invited to join the White House as Deputy CTO to oversee technology security issues. In 2018, he returned to academia, rebooted the Arbitrum project with two Ph.D. students, and co-founded Offchain Labs, formally launching Arbitrum into systematic development.

During the Hong Kong Web3 Carnival, PANews interviewed Ed Felten, who shared his journey from academia and policy to blockchain entrepreneurship. He also discussed topics such as how Layer2 balances Ethereum’s ecosystem development, building Arbitrum’s technical competitiveness, and the fusion of AI and blockchain.

In his view, Ethereum faces a crucial decision: does it want to maximize validator income or attract the most users and active developers? Currently, its strategy leans toward developing users and developers, which is exactly where Layer2 excels. When discussing Arbitrum’s development path, Ed emphasized that sustainable growth must start with “creating value,” and his role is focused on this.

PANews: You have held significant roles in academia and government institutions. What prompted your shift to blockchain entrepreneurship? How have your past experiences influenced Offchain Labs’ research direction and technical decisions?

Ed Felten: I spent many years as a professor, and during that time, I was always looking for research directions that combined deep technical problems with social or public policy issues. When I first learned about blockchain technology through Bitcoin, I immediately saw it as a perfect example of what I had been looking for. Around 2011, I began researching blockchain-related topics from a purely academic perspective. I was always thinking about what technical factors could hinder the development of this technology or prevent it from reaching its full potential.

I started by looking at the economics of the chain, which was my earliest research focus, and then gradually began to focus on scalability issues. In 2014, when I learned about smart contracts, I was very excited because it reminded me of the early growth phase of the internet—webpages transformed from a purely static experience of reading or viewing images to something interactive and programmable. When I saw smart contracts, I realized that this transformation was going to happen again, and it would be just as significant.

So I began thinking about how to scale them, which led to my initial work on Arbitrum. Afterward, I spent two years working at the White House, and when I returned, I met with my co-founders. We began formal cooperation in 2017 and 2018.

My experience as a professor carried over in several ways. First, as a technical professor, to be successful, you need to do a lot of management, such as spending time recruiting talent, managing them, handling budgets, and keeping projects on track—all of which are very useful skills for running a startup. So running a startup is actually quite similar to managing an academic research team.

But I also learned something else: to think long-term and focus on foundational issues. This mindset, formed during my academic career, has greatly influenced our thinking on medium- and long-term research.

During my time in government, I worked with many excellent leaders and learned valuable lessons from them, particularly in building communities and achieving consensus. I believe this focus on “community building” and “community-driven governance” is at the core of Arbitrum.

When I think about the Arbitrum DAO and how it self-governs and manages the different chains within Arbitrum, it reminds me of the process of political governance.

In the early days of Arbitrum, as early as 2014, we already foresaw the importance of smart contract public chains, but also recognized that “scalability” would be a core challenge. Therefore, from the very beginning, we focused on scalability as the fundamental problem to solve.

PANews: Currently, the Layer2 space exhibits a clear leader-follower effect, and the diversity leads to fragmentation in liquidity and user experience. How do you think Layer2 projects should address this challenge?

Ed Felten: Regarding your first question—whether Layer2 has “extractive” tendencies—I don’t believe it does. Look at the relationship between Layer2 and Layer1. In fact, Layer2 is the largest user of Layer1. Layer2 brings more users, more transactions, and more traffic.

For example, with Ethereum, over 95% of activity happens on Layer2 and Layer3 today. Without these Layer2 solutions, much of that activity would likely migrate to other Layer1s.

Of course, data fluctuates every day, but this proportion remains very high. Layer2 greatly expands the overall system capacity of Ethereum, and without Layer2, this simply wouldn’t be possible.

I think part of the reason the Ethereum community has achieved its current scale is because of Layer2. I also believe Layer2 plays a major role in keeping Ethereum at the forefront of smart contract blockchain technology. I see Layer2 as part of the Ethereum tech stack. Viewing Layer2 and Layer1 as competitors is a mistaken binary perspective—they actually work in tandem to serve users.

The second issue is about fragmented liquidity and user experience. This is indeed one of the most important problems that Layer2 teams are currently addressing. I believe we will see significant progress in this area.

We have a grand vision of creating a more unified user interface. While users will still need to know which chain they are using, just like you know which website you are visiting on the internet, this is important because it involves differences in trust and security layers. But, like the internet, you can easily switch from one website to another, and the whole experience is interconnected. I believe we can achieve a similar experience in the blockchain world.

This requires clever design in the user interface and core protocol support to provide the interface and interaction that users truly want.

I am confident that we will eventually achieve this. We will see a more seamless inter-chain experience: users will be able to hold funds on one chain and easily use them on another chain without complicated clicks or cross-chain operations.

Of course, achieving this requires long-term, collaborative effort from many teams.

PANews: In this market cycle, many people attribute the decline in the economic value of Ethereum’s mainnet to Layer 2, even labeling it as “parasitic.” What is your view on this? How do you think Layer 2 should balance its development with the long-term development of Ethereum’s mainnet?

Ed Felten: This actually boils down to a core challenge when operating a blockchain: Do you want to maximize revenue, or do you want to maximize user adoption and community size?

If you want to maximize revenue, you will tend to reduce the network’s capacity, causing people to bid for scarce block space. When Layer 2s emerge and expand Ethereum’s block space, I believe that’s actually been part of Ethereum’s strategy all along—trying to offer more block space.

But you can’t increase block space and simultaneously try to raise prices, right? These two things are contradictory.

From my perspective, Ethereum is indeed facing a choice: Do they want to maximize validator revenue, or do they want to have the most users and the most active developers? Currently, their strategy seems to lean towards growing users and developers, which is exactly what Layer 2s excel at. But I don’t think you can have both.

PANews: Currently, Optimistic Rollups dominate the Layer 2 market share. Compared to ZK technologies, what are its core competitive advantages? How does Arbitrum ensure the long-term competitiveness of its tech stack?

Ed Felten: Compared to ZK, Optimistic Rollups have two major advantages: first, they are simpler, and second, they are more cost-effective.

Specifically, they are simpler because they don’t involve very complex cryptographic techniques, nor do they require a large and entirely new toolchain to convert programs into mathematical proof systems—this is a very complex process.

The other advantage is that the cost of using Optimistic protocols is very low. Generating proofs with ZK is itself very expensive. In an Optimistic protocol, on-chain validation only occurs when there is a dispute. If a dispute does happen, it means one party is being malicious, and their stake is forfeited. Therefore, in the Optimistic system, honest participants never need to pay for validation, which brings a significant cost advantage.

Of course, the cost of ZK is gradually decreasing. I do believe that eventually we will enter a phase where different chains will mix both Optimistic and ZK validation mechanisms. But for that to happen, the cost of ZK still needs to be lower than it is now.

At present, Arbitrum only supports Optimistic. In the future, we expect to support both mechanisms. This allows users to choose freely based on cost or other factors.

PANews: DAOs are playing an increasingly important role in ecosystem governance but face challenges such as centralized decision-making, improving voter participation, and balancing commercial interests. How will Arbitrum DAO further improve governance efficiency while maintaining decentralization principles?

Ed Felten: The Arbitrum DAO decides its own actions. So, I do not speak on behalf of Arbitrum DAO in any formal capacity, but I can share my personal views.

One thing I learned during my time in government is that decision-making driven by public participation is both challenging and powerful. Yes, this process can be messy and sometimes slow, but I think it is very resilient. When the community reaches consensus, they can accomplish very ambitious things.

I think we are still in a very early stage. Arbitrum DAO is different from other DAOs in that it has real power and operates in a truly decentralized manner. You can see that different voices are bringing forward different points of view, and people are debating—that’s a healthy state. This is exactly the kind of result we hope to see as we transfer control of the chain to the DAO.

Overall, I think this has been successful, but it also faces—and will always face—some of the challenges that come with governing any large and diverse group.

PANews: Offchain Labs recently launched Onchain Labs to support early-stage projects. Could you share what specific support (such as technical, financial, or market resources) will be provided to these projects? What future plans are there to incentivize the diversification of the Arbitrum ecosystem?

Ed Felten: I prefer to think of it as a “lightweight incubator” designed to help projects get off the ground and ensure they receive funding support.

One of Onchain Labs’ goals is to spark creativity and promote quick action.

We don’t intend to heavily guide or control these teams; rather, we aim to help them launch their projects, provide some financial backing, and then allow them to grow independently.

PANews: We have noticed that Arbitrum is also making moves in the AI space, such as the Trailblazer AI Agent Grant Program and supporting AI projects like ElizaOS. How do you think AI technology will revolutionize the blockchain industry, and what unique advantages does Arbitrum have in its AI initiatives?

Ed Felten: I think there are two very different ways in which AI interacts with blockchain.

One is off-chain AI agents, which act on behalf of users or are themselves users of the chain. For these off-chain agents, their needs are very similar to regular users: they require a low-cost, reliable blockchain system. And for them, response time is even more important than it is for human users. For humans, 0.1 or 0.2 seconds of response time is considered fast, but for a machine, that could already be considered a “long” delay.

As these AI agents are more widely adopted, I think we will see more complex and dynamic DeFi markets, and some more interesting gaming applications will emerge.

The next important phase is to implement on-chain AI agents. This requires more computational power and data processing capabilities than most current blockchains can provide.

We are working on expanding the chain’s capacity to directly support this goal, while also developing specialized support mechanisms for training, validating, and evaluating AI models on-chain.

PANews: Buyback plans are becoming a common strategy for crypto projects, but some argue that this only boosts market confidence in the short term and doesn’t address the underlying issues. What considerations, long-term goals, and execution methods does Arbitrum have regarding its buyback plan?

Ed Felten: I think my role is focused on long-term growth and sustainability. I have always believed that it must start with “creating value.” If you can create value for users, create value for the community, people will naturally find ways to utilize and gain that value.

So for me, as I mentioned earlier, the focus is on creating value, and how to capture that value, I think that should be decided by the community.

PANews: The altcoin market is generally sluggish right now. In addition to the buyback plan, does Arbitrum have deeper plans to enhance the intrinsic value of its token?

This question should actually be answered by the DAO, not by me. But I think value ultimately comes from people’s willingness to participate in governance and the revenue generated on-chain. And that revenue comes from traffic and usage. Therefore, driving growth in technology adoption is the most important factor in achieving all of this.

We at Offchain Labs have always viewed the development of technology and the creation of value from a long-term perspective. I think the DAO shares a similar stance.

From my perspective, the DAO is focused on driving growth to achieve long-term value creation.

Disclaimer:

1. This article is reprinted from [PANews]. The copyright belongs to the original author [Weilin]. If you have any objection to the reprint, please contact Gate Learn team, the team will handle it as soon as possible according to relevant procedures.

2. Disclaimer: The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

3. Other language versions of the article are translated by the Gate Learn team. The translated article may not be copied, distributed or plagiarized without mentioning Gate.io.