Mitchell Demeter, CEO of Sonic Labs, explains what layer 1 blockchains need to do today to stay competitive.
Summary
- Layer 1 networks used to compete on speed and transaction costs alone
- However, with an increased number of chains, the key is user and developer retention
- Sonic is rolling out several upgrades to reward token holders
As block space becomes increasingly commoditized, blockchain projects are under pressure to prove they can deliver sustainable business models instead of short-term speculative narratives.
In an interview with crypto.news, Demeter describes how Sonic is shifting its strategy toward builder stickiness and long-term value capture.
Crypto.news: Layer 1 networks spent years competing on speed and fees. You’ve said that phase is over. What should chains be optimizing for now?
Mitchell Demeter: Back in 2020 and 2021, the landscape was very different. When you were comparing chains against Ethereum, being faster and cheaper was a major differentiator. That attracted a lot of builders and users to different layer 1s and layer 2s.
Back then, the primary battle was basically: who can be the fastest and who can offer the best user experience. But now, the landscape has shifted. We have a lot of fast and cheap chains. Block space has effectively become commoditized.
Now the real battle is: who can attract users, attract builders, and actually keep them. There has to be more of a moat.
I came in as CEO two months ago, and now we’re going through a shift at Sonic. We need to differentiate the chain through protocol-level changes and Ethereum Improvement Proposals to make the builder environment more conducive, unique, and sticky.
Builders, users, and capital move very easily today. Being fast and being cheap is no longer enough. There has to be a reason for them to stay on your chain.
CN: What are some concrete examples of the changes you’re exploring?
Demeter: There are many Ethereum Improvement Proposals that people have been discussing for a long time, but Ethereum is now a huge ecosystem, so it moves slowly. Smaller, younger chains like us can move faster and experiment more.
Right now, I’ve tasked our product and engineering teams with pulling together the EIPs we’re evaluating. We’re actively in that process, digging through them and deciding what belongs on our roadmap, while also talking directly to builders about what they want to see.
One example is EIP-7903, which increases the contract size limit. Right now, developers have to fit their smart contracts inside roughly 49 kilobytes. Increasing that limit makes it easier to build more complex applications and makes the chain stickier, because it becomes harder for developers to move their entire infrastructure across chains.
That’s just one concrete example of how we’re trying to improve the developer experience at the protocol level.
CN: You’ve talked about Sonic’s fee model. How does it work now, and what’s changing?
Demeter: What people want to see now is how on-chain activity translates into real value creation, value capture, and the return of value to token holders.
We’re coming out of a speculative phase where people were just betting that something could become the next big network. Now investors want to see clear mechanisms.
The simplest one is a burn mechanism, where tokens are actively removed from circulation. That’s how you move from an inflationary model to a deflationary one.
I compare it to early technology companies like Tesla. For years, they issued stock to raise capital. Once they hit a critical mass, they shifted into buybacks. That’s the “value return” phase.
A lot of blockchains, including Sonic, are still in that product-market fit stage. But the direction has to be clear: usage → fees → burns → value back to holders.
CN: How does your fee model fit into that?
Demeter: Right now, our fee model returns 90% of fees to builders and 10% to validators. The idea was that applications can abstract the blockchain away from the user. With fee subsidies and account abstraction, apps can pay gas fees for users, then recover those fees through fee monetization.
That means the user doesn’t see the blockchain, doesn’t sign transactions, and doesn’t touch gas. They just use a Venmo-style app that holds USDC in a wallet, while the app handles everything under the hood. The validators are still paid.
The user experience becomes radically simpler. But the problem is: token holders don’t benefit. If the whole world moved to on-chain under that model, nothing would leave the circulating supply. No scarcity is created.
So we’re working on changing that into a sliding-scale model. Builders might receive around 15%, validators get 10%, and the rest is burned. That way, increased usage actually benefits token holders.
We’re also early in our growth. We’ve spent seven years building world-class tech, have a large engineering team, and serious technical depth — but on-chain traction still has room to grow.
We’re also exploring licensing our technology to exchanges, governments, and banks wanting their own blockchains, using that revenue to fund token buybacks and burns.
CN: How do you see competition with Ethereum and Layer 2s?
Demeter: Layer 2s are ultimately dependent on Ethereum. They rely on Ethereum’s base layer.
We have our own network and our own distributed validator set. That gives us more flexibility and lets us move faster when it comes to protocol changes and experimentation.
CN: Ethereum funds public goods directly. How do you think about that?
Demeter: We’re exploring it. Historically, we ran grant programs. The challenge is that builders can be very transitory. We’ve been building relationships with VCs to help fund businesses rather than trying to play venture capitalist ourselves.
There may be cases where we fund public services or build them directly, but they need to be sustainable. The ideal case is that public infrastructure has real business models and real entrepreneurs behind it.
CN: What were your first priorities as CEO?
Demeter: Fixing tokenomics. Making sure value can actually flow back to token holders. Building a sustainable grants model with partners. And shifting Sonic from a tech-only culture into a real business: marketing, communications, business development, and institutional sales.
For years, the company focused almost entirely on technology. Now the industry itself is moving away from pure speculation, and it’s the right time to shift toward sustainability.
CN: How do you see the broader crypto market right now?
Demeter: We’re moving through a transition. Liquidity has tightened, investors are more sophisticated, and builders and users have more optionality. We can’t just rely on narratives anymore. We have to build real businesses.
I don’t have a crystal ball, but my sense is that most of the pain is behind us, and liquidity will return. But it won’t be blind speculation — it’ll be driven more by fundamentals.