The convergence of artificial intelligence (AI) and blockchain technology has sparked a wave of innovation, with developers racing to build the next generation of decentralized AI applications. A critical question emerging from this trend is whether AI-focused crypto projects should develop their own Layer 1 (L1) blockchains or build on existing Layer 2 (L2) solutions. Changpeng Zhao (CZ), former CEO and co-founder of Binance, recently weighed in on this debate—offering insights that could shape how teams approach infrastructure decisions in 2025 and beyond.
Why CZ Believes Layer 2 Is a Smart Move for AI Projects
CZ argues that if an AI project’s primary goal is to leverage blockchain for AI economics—such as tokenized data ownership, decentralized model training incentives, or monetization of AI outputs—then building on a Layer 2 can be far more practical than launching a new Layer 1.
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His reasoning centers on efficiency: L2s inherit the security and decentralization of established L1s like Ethereum while offering faster transaction speeds and lower costs. This allows AI projects to focus on their core innovation—machine learning models, data marketplaces, or agent-based ecosystems—without diverting resources into maintaining a complex blockchain network.
For many teams, full protocol sovereignty isn’t necessary. What matters more is speed to market, access to liquidity, and integration with existing decentralized finance (DeFi) tools—all of which are readily available on mature L2 ecosystems.
The Trade-Off: Control vs. Convenience
While L2s offer clear advantages in terms of development speed and cost-efficiency, they come with trade-offs. Building a Layer 1 grants complete control over consensus mechanisms, governance structures, virtual machine design, and network upgrades. For projects aiming to redefine how blockchains interact with AI workloads—such as custom zk-proof systems for verifiable inference or novel consensus models tailored for high-frequency AI agent communication—an independent L1 may still be the right path.
However, CZ emphasizes that this level of control comes at a steep price. Launching and securing an L1 requires significant capital investment, technical expertise, and time. It also means starting from scratch when it comes to ecosystem growth—no built-in user base, no native DEX integrations, and no established developer community.
In contrast, launching on an L2 enables immediate access to:
- Decentralized exchanges (DEXs) for token liquidity
- Perpetual futures markets (perps) for derivatives trading
- Wallet support and identity layers (e.g., ENS, Web3Auth)
- Developer tools, SDKs, and testing frameworks
- Cross-chain bridges and interoperability protocols
This ecosystem advantage can be a game-changer for early-stage AI projects trying to gain traction.
Understanding the Core Differences: Layer 1 vs. Layer 2
To fully appreciate CZ’s perspective, it's important to understand what distinguishes L1s from L2s.
What Is a Layer 1?
A Layer 1 blockchain is the foundational protocol that processes and validates transactions independently. Examples include Bitcoin, Ethereum, and Solana. These networks handle consensus, security, and execution natively. When a project builds its own L1, it creates a standalone blockchain with its own set of validators, block production rules, and upgrade mechanisms.
Advantages:
- Full autonomy over network upgrades
- Customizability for specific use cases
- Potential for higher performance with dedicated resources
Challenges:
- High development and maintenance costs
- Difficulty attracting validators and securing the chain
- Slower time-to-market due to infrastructure setup
What Is a Layer 2?
A Layer 2 solution operates on top of an existing L1, using it for final settlement while handling computation and transactions off-chain. Common types include optimistic rollups, zk-rollups, and validium chains. By batching transactions and posting proofs to the underlying L1, L2s achieve greater scalability without sacrificing security.
Advantages:
- Lower gas fees and faster confirmations
- Inherits security from the parent L1
- Faster deployment and easier developer onboarding
- Immediate access to DeFi, NFTs, and wallet ecosystems
Challenges:
- Dependency on the base layer’s health and congestion
- Limited ability to customize low-level protocols
- Potential fragmentation across multiple L2 instances
Market Trends Favoring Layer 2 Adoption in AI
Recent trends suggest that the market is aligning with CZ’s viewpoint. Many emerging AI crypto projects—especially those focused on data monetization, decentralized inference markets, or autonomous AI agents—are choosing to launch on Ethereum-compatible L2s like Arbitrum, Optimism, or Base.
This shift reflects a growing recognition that blockchain’s value in AI lies not in reinventing consensus, but in enabling new economic models: rewarding data contributors, verifying model integrity through on-chain proofs, or creating open markets for AI services.
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By building on L2s, these projects avoid the “blockchain tax” of infrastructure overhead and instead focus on solving real-world problems at the intersection of AI and decentralization.
FAQ: Common Questions About L1 vs. L2 for AI Crypto Projects
Q: Can an AI project switch from L2 to L1 later?
A: Yes—many projects start on an L2 to validate their concept and grow their user base, then consider launching a dedicated L1 once they’ve achieved product-market fit. This approach reduces early risk while preserving long-term flexibility.
Q: Are there successful AI projects using L1s?
A: Some projects like Fetch.ai and SingularityNET have built or migrated toward custom L1s to support complex agent economies. However, these are exceptions that required substantial funding and years of development.
Q: Do L2s compromise security for speed?
A: Not inherently. Most modern L2s—especially rollups—derive their security from the underlying L1 (e.g., Ethereum). As long as the bridge mechanisms are sound, funds and data remain protected.
Q: Which L2s are best suited for AI applications?
A: Ethereum-based rollups like Arbitrum and Optimism offer robust ecosystems. For projects needing high throughput and low latency, zk-powered chains like zkSync or Starknet may provide better performance.
Q: Does using an L2 limit innovation?
A: It depends on the layer of innovation. While you can't change the base consensus mechanism, most smart contract functionality—including custom tokenomics, verifiable computation, and privacy-preserving techniques—is fully supported on advanced L2 platforms.
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Final Thoughts: Focus on Value Creation, Not Infrastructure
CZ’s message is clear: don’t build a blockchain just because you can. For most AI crypto ventures, the real innovation happens above the protocol layer—in how tokens incentivize behavior, how data is governed, and how AI agents collaborate in open markets.
Choosing an L2 doesn’t mean sacrificing ambition. On the contrary, it allows teams to move faster, iterate quicker, and engage with real users sooner. In a fast-evolving space like AI x crypto, being first to deliver tangible value often matters more than owning every piece of the stack.
As the ecosystem matures, we’re likely to see a bifurcation: a few dominant L1s serving as settlement layers, and a flourishing landscape of application-specific L2s powering niche innovations—from AI agents to decentralized science (DeSci) and beyond.
For developers building at the frontier of AI and decentralization, the question isn’t just where to build—but why they’re building it that way. And sometimes, the smartest choice is to stand on the shoulders of giants.
Core Keywords: Layer 1, Layer 2, AI crypto projects, blockchain for AI, AI economics, decentralized AI, Ethereum L2, scalable blockchain