There has been no shortage of new blockchains launching in this cycle. However, few have generated the kind of interest that MegaETH has. A key reason for this is MegaETH’s differentiated approach to building a layer 2 on Ethereum while the other major reason is the team’s community focused approach. MegaETH’s public auction of its token (MEGA) took place on October 27-30 and was heavily oversubscribed, valuing the token at over $1 billion. Mainnet launch and token listing will likely happen before the yearend, but its token is already trading above $4 billion FDV in pre-launch trading.

While MegaETH is an Ethereum L2, it was not built for that purpose - it was built to be the most performant blockchain ever. It aims to be the first ‘real-time’ blockchain, targeting 100,000 tps, 10+ GGAS and, most importantly, sub 10ms block times. This is made possible by a breakthrough in the largest execution bottleneck EVM chains currently face, the Merkle Patricia Trie (MPT). MPT is the data structure that Ethereum uses to store all state such as account balances, contract storage etc. Every state change updates the MPT but this becomes a bottleneck because the MPT is huge and nodes are scattered across the disk. This means random reads and random writes i.e. the slowest things computers can do. As a result, latency floors around 100-500ms, parallel execution is near impossible without state conflicts and there is a hard cap on TPS regardless of hardware. This is why almost all performance focused blockchains (Solana, Sui, Aptos, Monad, Sei) abandon the MPT but MegaETH could not do that because it is an Ethereum layer 2.

Instead, MegaETH created their own new state system called Small Authentication Large Trie (SALT). By compressing the authentication tree and splitting it up into two layers, they are able to fit it all into RAM, rather than disk I/O. The small authentication trie contains only the cryptographic authentication nodes in an extremely compact structure and eliminates disk seeks entirely for trie updates. The large trie is accessed far less frequently and stores the actual values (balances, storage slots, etc.). With the SALT layer in RAM, MegaETH can support HFT-style workloads and scale without performance degradation, while still remaining fully EVM compatible.

MegaETH’s SALT is more performant than MPT

Source: MegaETH

The key to a new blockchain’s success is the growth of its ecosystem. MegaMafia is MegaETH’s incubation engine, connecting builders with venture investors as well as working alongside ecosystem teams to create differentiated apps. By drastically increasing the performance capabilities of the blockchain, they are able to offer an unparalleled design space for developers that provides the possibility for novel applications that could not feasibly work on any other chain. One good example is Euphoria, which wraps binary options trading into an interactive and gamified tap-trading experience. We view Euphoria as the perfect example of a differentiated product offering that is only possible on MegaETH.

MegaMafia has driven the growth of the MegaETH ecosystem

Source: MegaETH

Partnerships with other major protocols are also a key ingredient for ecosystem growth. To this end, MegaETH has so far made partnerships with Ethena (the issuer of USDe, third largest stablecoin in circulation) and Chainlink (the leading oracle provider). With Ethena, they are launching USDm, a native stablecoin whereby the underlying reserve yield is programmatically directed to cover sequencer operations. This allows gas fees to be priced at-cost, rather than with the extra margin that is typically added on by most other L2s and means that even as network activity grows, transaction fees will remain sub-cent and predictable. With Chainlink, they are deploying Chainlink data streams, a first-of-its-kind integration that promises to deliver highly accurate market data at sub-second latency. It is still underpinned by Chainlink’s typical decentralized oracle networks (DONs), but purpose-built for applications that require high-frequency market data.

MegaETH has one of the strongest communities among this new generation of blockchain projects. The team made community allocation a core priority, selling a combined 10% of total supply through 3 different rounds: Echo, Fluffle and Conviction. Each round was heavily oversubscribed and sold out quickly, most notably the Echo round which sold $10 million in less than 3 minutes with the same terms as the seed round conducted in June 2024. The public sale, conducted through Sonar, was oversubscribed by almost 28x with $1.39 billion in commitments for a $50 million raise @ $999 million FDV. Rather than allocating a portion of the supply towards airdrops, the MegaETH strategy is to give retail investors an opportunity to get skin in the game and participate in price discovery.

The token of layer 2 networks have historically struggled to outperform their layer 1 counterparts. In our view, there are a number of reasons for this:

• Little to no value accrual back to the token

• Lack of use cases for the token

• Lack of differentiated apps

• Cheap, fast and abundant blockspace is no longer a unique selling point - it's table stakes

The MegaETH team recognized the above problems and has designed its tokenomics such that operators have to hold and stake the token, most notably through ‘Proximity Markets’ and ‘Sequencer Rotation’. Proximity Markets are when firms bid in $MEGA to be located close to the sequencer, thereby reducing their latency and giving them an advantage over their competitors in areas such as market making. This also includes ecosystem teams who want to optimize user experience, especially where low-latency is critical.

Sequencer Rotation is where operators bid to run the sequencer as it rotates around the world in line with the economic timezone, allowing them to capture transaction fees and MEV through transaction reordering. By centralising the sequencer, MegaETH can monetise economic activity on the chain to the benefit of $MEGA holders. While the chain will initially launch with ETH as the gas token, it will also be possible to pay gas in MEGA and USDm through a paymaster.

Another interesting feature of MegaETH’s token distribution is its KPI driven approach. Typically, projects have a locked portion of supply which is designated towards the growth of the ecosystem and this unlocks gradually over a number of years. MegaETH, instead, has reserved 53.3% of total supply for staking rewards that are unlocked when key KPI metrics are met. This incentivises the growth of the network and rewards longer-term holders (stakers), while avoiding unnecessary dilution if there isn’t the demand to sustain it. While there isn’t much detail yet in terms of exactly how this will be quantified, the team have confirmed it will be based on a few factors including 1) ecosystem growth, 2) general performance of MegaETH; 3) Ethereum decentralisation and 4) MegaETH decentralisation.

MEGA token distribution

Source: MegaETH