Author: Day

This year, Ethereum Layer2 has experienced explosive growth, similar to the previous public chain boom, with a large number of projects starting to lay out the Layer2 track, whether they have a plan or not, they are taking the first step. Recently, some opinions believe that due to the expectation of Layer2 token distribution, many studios have become the target of anti-laundering, earning profits from token distribution and fees, making Layer 2 project parties the biggest winners in this laundering game.

According to The Block's analysis, based on the current daily profit calculation, Coinbase can obtain an annual profit of $61 million from the Base network, surpassing many public chain platforms or DAPP applications in the industry. Today, let's take a brief look at how Layer 2 project parties actually make profits (referring to Rollup solutions).

01. How Layer2 Makes Profits

Layer2 refers to the extension technology and protocol built on top of the blockchain, aiming to improve the scalability, performance, and transaction throughput of the blockchain. Traditional blockchains (such as Ethereum) have some limitations, such as high transaction fees, low throughput, and long confirmation times. Layer2 typically introduces new protocols and mechanisms on top of the blockchain, allowing a large number of transactions to be processed in auxiliary networks before leaving the main blockchain. The results of these transactions are aggregated and submitted to the main blockchain, thereby reducing the burden on the main blockchain, achieving higher throughput, lower costs, faster confirmation speeds, while maintaining security and interoperability with the main blockchain.

As a hot track at present, Layer2 is highly anticipated by many. In the current bear market environment, can one still make money by doing Layer2? How exactly is it done?

(1) Transaction Fees

Layer2 platforms can make profits by charging users transaction fees. When users conduct transactions on Layer2, they need to pay a certain fee, which can flow directly or indirectly to the maintainers or node operators of the Layer2 platform. The platform can set different fee structures, such as fee models based on transaction quantity or value, to generate income.

Let's first take a look at the composition of Layer2 transaction fees:

• Computation Fees: The fees required for executing smart contracts or computational operations on the Layer2 chain. This includes executing contract code, computing state transitions, and other operations.

• Storage Fees: Layer2 involves storing user data, in which case, users need to pay storage fees to cover the costs of data storage and management. Storage fees may vary based on the amount of data stored, storage time, and the complexity of the data.

• Main Chain Transaction Fees: The cost of submitting transaction results from the Rollup chain to the main chain. This includes the cost of submitting information such as aggregated transactions or state updates' hash values to the main chain for verification and storage. There is also a need for a small number of transactions on the main chain to support the operation and security of the Rollup chain, which may involve opening, closing, and state update operations, thus requiring payment of fees related to main chain transactions.

The profit obtained by the project party = Layer2 gas - data computation storage fees - Layer1 verification fees.

This is just a rough calculation, without considering some transaction hardware facilities, node operation, and labor costs.

(2) MEV

Layer2 separates transaction verification and Sequencer (transaction submission ordering) into two parts. Currently, the majority of Layer2 Sequencers are centralized, mostly controlled by the project party, such as Base, where Coinbase is its sole Sequencer. Due to the centralization of Sequencers, a portion of the MEV (Maximum Extractable Value) is also earned by Layer2 project parties.

(3) Developer Tools and Services

Layer2 platforms provide various developer tools and services to facilitate and support developers. These tools and services may include software development kits (SDKs), smart contract templates, cross-chain bridging, etc. The platform can generate revenue by charging developers licensing fees, usage fees, or subscription fees for advanced features.

For example, OP Stack, as revealed by Twitter KOL w3tester, the cost for each project to enter OP Stack is 30% of the revenue, and it will be even more expensive if a one-click chain deployment project is used. This also means that if not operated properly and unable to guarantee a sufficient number of transactions, deploying Layer2 with a one-click deployment may also result in losses.

(4) Ecosystem Benefits

The success of a Layer2 platform is closely related to the prosperity of its ecosystem. If the platform can attract more users and projects and provide them with better scalability and user experience, this will help increase the value of the entire ecosystem. The platform can benefit from the appreciation of the ecosystem through token holdings, equity, or other means. Additionally, the prosperity of the ecosystem will bring a lot of popularity and activity to Layer2, and Layer2 can also earn revenue from gas fees.

(5) Token Economic Model

Layer2 platforms issue their own tokens, and token holders can earn profits by participating in platform governance, staking tokens, or enjoying other benefits. Layer2 platforms can raise funds through equity or token sales. If there is a major market upturn and related tracks explode, the appreciation of tokens will also bring considerable profits to Layer2 project parties.

The above are the main profit models for Layer2 project parties.

02. Current On-Chain Profit Status of Top Layer2 Chains

On-Chain Profit Table of Top Layer2 Chains

Let's take a brief look at the on-chain profit situation of the top Layer2 chains in August. Here, profit mainly refers to the extraction of fees through transaction fees. L2 revenue = L2 transaction fees - L1 data storage costs - L1 verification costs. This can only be a rough estimate because the off-chain resource consumption and operational costs of Layer2 are not calculated:

• zkSync

  Around $3.4 million. It can be seen that since zkSync went online, its profit-making ability has always been at the forefront. If other project parties engage in short distribution, zkSync's income will also increase accordingly. Since its launch on the mainnet, in about six months, it has made a total profit of around $23.5 million. It can be confirmed that most of zkSync's income is contributed by the launderers. When this number was calculated, it was really surprising. In such a bad market this year, it can still quietly make so much money, with top institutions supporting and leading the track, making money is really easy.

• BASE

  Around $2.1 million. BASE just went online at the end of last month. The huge traffic owned by the Coinbase platform itself, combined with the short-term explosion of the BALD project, brought a large amount of traffic to BASE. Although the BALD project eventually rug pulled, it still left a large number of users for BASE. In addition, the strong rise of the social application Friend and the entry of Twitter KOLs have continued to bring popularity to BASE. In less than two weeks, Friend has already obtained a total locked value (TVL) of $6 million, achieving $3 million in revenue, and attracting over 100,000 users.

• Arbitrum

  Around $930,000. Arbitrum's recent popularity has declined. In March and April, when the Arbitrum Token was just launched, the on-chain ecosystem was boosted by the outstanding performance of projects such as GMX, RDNT, and GNS, leading to an increase in activity at that time.

• Optimism

  Around $800,000. The Optimism ecosystem has always been in a lukewarm state. The rise of the Arbitrum ecosystem in March and April brought some attention from on-chain players to Optimism, which also benefited from the recent selection of projects such as Coinbase, BNB Chain, and Worldcoin to launch based on the OP stack, leading to a slight increase in on-chain activity in the Optimism ecosystem.

The aforementioned profits of Layer2 mainly come from gas fees. The more people use it, the more profits it makes. When popular projects appear in the ecosystem, or when there are potential positive factors, the project will earn more.

03. Conclusion

In any case, there are profits and losses in any track. It is relatively easier to make profits in a favorable trend, but to earn more, one must become a leader to have the opportunity. The vast majority of projects are always the followers, and profits always belong to the minority.

Overall, for Layer2 to develop better, it needs to occupy a larger market share, and at the same time, the appearance of popular projects in the ecosystem can bring activity to it.

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