The Bank for International Settlements has published a staff bulletin examining why permissionless blockchains have not converged on a single scalable infrastructure. It argues that differences in consensus design and validator incentives create distinct trade-offs between decentralisation, security and scalability, which in turn support the coexistence of multiple layer 1 networks and the growth of layer 2 solutions. The result is fragmentation of infrastructure, liquidity and assets across and within chains rather than a unified market structure. The bulletin explains that broader validator participation can strengthen decentralisation and security but raises coordination costs, limits throughput and increases latency, while designs that improve speed and lower fees often do so by narrowing validator participation or increasing hardware requirements. It also notes that layer 2 architectures improve efficiency by processing transactions off-chain and settling back to a base layer 1 chain, but create separate execution environments, liquidity pools and governance arrangements. Tools intended to reduce fragmentation, including bridges, native multi-chain issuance, shared security or sequencing layers and interoperability protocols, can ease frictions but introduce new dependencies on trust, governance and operational resilience. In the case of bridges, the bulletin points to concentrated risk, including losses such as the USD 625 million Ronin Network hack in March 2022. For permissionless blockchains to support functions similar to financial market infrastructures, the bulletin says attention would need to focus on operational and cyber resilience, the regulatory perimeter for shared components such as sequencers, data-availability layers and cross-chain messaging services, and the balance between competition and standardisation. It adds that consolidation around common middleware could reduce fragmentation but may also create critical points of failure and components of systemic importance within an ecosystem.
Bank for International Settlements2026-07-06
Bank for International Settlements bulletin links blockchain consensus trade-offs to fragmentation across layer 1 and layer 2 networks
A Bank for International Settlements staff bulletin says the design of permissionless blockchain consensus mechanisms creates trade-offs between decentralisation, security and scalability that drive fragmentation across layer 1 and layer 2 networks. It says tools such as bridges, multi-chain token issuance and interoperability protocols can reduce frictions but add new trust, governance and operational risks. The bulletin also highlights implications for oversight if these systems take on financial market infrastructure-like roles.