Sonic Labs wants to 'vertically integrate' core apps to drive value to S token, hints at acquisitions

Sonic, the Layer 1 blockchain formerly known as Fantom, is looking to boost demand for its native S token by building and acquiring products “specifically designed to increase S token utility.” 

“We're building critical economic infrastructure ourselves, particularly where token utility, liquidity, and usage converge, while welcoming all builders who genuinely strengthen, rather than extract from, the S token ecosystem,” the Sonic Labs team wrote in an X post titled Vertical Integration: The Missing Link in L1 Value Creation on Wednesday.

The post notes that Sonic will remain “open and permissionless for developers,” though the team will now look to prevent “value leakage” to blockchain-based apps by owning, internalizing, and monetizing “its most important economic activities.”

Sonic is an EVM-compatible Layer 1 blockchain that aims to achieve 100s of thousands of transactions per second and near-instant confirmations. Chainspect ranks it among the highest-throughput chains, especially within the EVM ecosystem. 

The team notes its previous “core thesis of value accrual” was the idea that “More users = more transactions = more gas spent = deflation and total return of value to token.” However, Sonic Labs no longer wants to simply be in the business of selling blockspace, or what it calls the “Gas Fee Only” model.

“Over the past 5+ years, this has been fully disproven,” Sonic Labs wrote in a response on X. “L1 reliance on gas fees should just be the foundational feature, but more features must be built on top of that.”

“As scaling technology advances, blockspace is no longer scarce. Rollups, alternative L1s, modular architectures, and high-throughput designs have created a structural surplus,” they said, noting this results in fee compression and users and capital moving freely between ecosystems.

Integrated ecosystems

Without going into specifics, Sonic Labs noted that its “vertically integrated ecosystem” will control its key infrastructure, including its “flagship primitives” and “core products across trading, credit, payments, settlement, and risk markets.” The team intends to either build these systems or “acquire and integrate high-quality application teams from across the industry.”

Notably, last fall Sonic rolled out a monetization system called FeeM, which aimed to create token deflation by allowing app builders to capture up to 90% of the fees generated by their apps while burning the rest. Vertical integration will not supplant this system, but reinforce it by redirecting fees towards a system that rewards S tokens, the team said. 

“As these revenue streams build, it will allow the Labs team to execute buybacks at sustainable rates,” Sonic noted. 

Sonic would not be the first blockchain to use protocol revenue to fund buybacks. Ethereum Layer 2 Optimism, for instance, recently approved a buyback plan that would redirecting 50% of the ecosystem’s revenue toward OP token purchases. 

Sonic also noted that Hyperliquid represents a version of its vertically integrated plan, where the popular Hyperliquid perps DEX “is the chain,” meaning that “every trade, liquidation, and fee directly strengthens HYPE because the application and infrastructure are inseparable.”

Andre Cronje, known for his contributions to Sonic as well as for creating foundational DeFi apps like Yearn, raised an additional $25.5 million in a private token round last month for his new onchain exchange, Flying Tulip, now valued at $1 billion.