Binance’s CZ Sparks Debate: Should AI Projects Be Built on Layer 1 or Layer 2 Blockchains?
Binance’s founder and former CEO, Changpeng Zhao (CZ), has sparked a fresh debate in the crypto community. The crypto executive questioned whether AI-focused blockchain projects should be built on Layer 1 (L1) or Layer 2 (L2) networks.
The broader discussion aligns with industry trends, where AI and blockchain convergence is becoming a focal point for developers and investors alike.
Where Should AI Live? CZ Fuels L1 vs. L2 Discussion
In a recent post on X (Twitter), CZ highlighted that the core purpose of such projects is not to develop a superior blockchain. Instead, it is to use blockchain technology to support AI economics.
He noted that while L1 provides greater sovereignty and decentralization, it also demands more effort in maintaining nodes and validators. In contrast, L2 networks offer convenience by leveraging existing ecosystems like Ethereum’s decentralized exchanges (DEXs), perpetual contracts, and tools without significant value leakage to the base layer.
“L1 vs L2…Does it matter if a new AI project is an L1 or an L2?… Is L1 cooler than L2 or the reverse? Old topic, but wondering if sentiment has changed or not,” CZ posed, welcoming conversation.
Crypto analyst Hitesh Malviya argues that L1 blockchain is the superior choice. The analyst advocates this network for projects seeking to establish their own consensus mechanisms, optimize performance, and reduce validator costs.
However, he also warns that despite extensive fundraising and user acquisition efforts, many L1 projects still experience retention drops of 70-90% after token generation events (TGE).
“…even if you retain users, you would only see one category or niche capturing the maximum traction onchain. So if the destination is already known—retention drop, higher user acquisition costs, and niche-specific demand capture—then why not build an app chain using an L2 stack,” Hitesh suggested.
Given these challenges, he suggests that building an AI-focused blockchain as an L2 app chain is a more practical approach. This would allow for faster development, marketing, and scalability.
Meanwhile, Walter from the BNB Chain Business Development team supports L2. He emphasized its accessibility to existing tools and infrastructure. His comment also hints at speculation regarding CZ’s possible attendance at an upcoming Crypto Summit at the White House.
AI & Blockchain: The Layer 1, Layer 2, and Layer 3 Debate
Investor and blockchain advisor Anndy Lian adds another dimension to the debate. In a subsequent comment on X, he argued that AI is most effectively deployed at Layer-3 (L3). He explains that while implementing AI on L1 is theoretically possible, it is impractical due to security and resource constraints.
“AI can be implemented on blockchain Layers 1, 2, or 3… In practice, Layer 3 is where AI is most effectively and frequently utilized, leveraging the blockchain’s strengths while accommodating AI’s computational needs,” Lian explained.
On L2, the blockchain advisor noted that AI can optimize scalability. However, AI is most frequently utilized in L3, enabling a diverse range of AI-powered applications while leveraging blockchain’s strengths.
Meanwhile, CZ discusses AI’s placement in the blockchain ecosystem amid growing interest in AI-integrated L2 networks. In June 2024, Binance Labs (now YZI Labs) invested in Zircuit, an AI-enhanced L2 network that utilizes zero-knowledge rollups to improve security.
This investment signals Binance’s strategic focus on AI-blockchain integration, potentially influencing CZ’s latest inquiry.
Ethereum co-founder Vitalik Buterin has also been actively discussing L1 and L2 scaling solutions. Last month, Buterin outlined a roadmap for scaling Ethereum’s L1 and L2 protocols in 2025. However, he also recently cautioned that certain L2 networks will likely fail due to weak economic models and poor execution.
These statements further fuel the debate on whether AI projects should build their sovereign chains or integrate with existing ecosystems.
Nevertheless, CZ’s timing in raising this question may suggest he is gauging market sentiment for a new AI blockchain initiative. Given Binance’s investment in AI-driven L2 solutions and the increasing interest in modular blockchain architectures, he could be testing the waters for future ventures.
The trade-offs between sovereignty, scalability, and accessibility will shape the future of AI-blockchain integration. This could make it essential for developers and investors to weigh their options carefully.
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