Uncovering the secrets of blockchain profitability: Which L1 and L2 generate the highest revenue?

Author: @BanklessHQ; Compiler: Vernacular Blockchain

The figure is the data supporting the L1 and L2 networks with the most revenue and earnings. Today, we will explore the top four L1 and L2 by revenue and analyze how much revenue these blockchains actually retain.

In this article, we define earnings as: total revenue minus token issuance.

1. Which L1 blockchains are profitable?

1) Ethereum

In terms of revenue, @Ethereum is far ahead of all other blockchains, both L1 and L2, with $2.22 billion in revenue over the past year.

However, despite its impressive revenue, Ethereum recorded a net loss of $15 million.

What's going on? This loss is mainly due to the issuance of new tokens outpacing revenue, causing its earnings to turn negative so far this year after a strong performance in the second half of 2023. This can largely be traced to the shift of transaction activity to L2, reducing the fees paid directly to the global computer. As a result, the migration has resulted in a decline in Ethereum earnings despite significant transaction volume and network activity.

2) TRON

The unheralded giant @trondao ranks second in terms of total revenue, with $1.4 billion in revenue over the past year.

TRON’s success is directly attributed to the extensive stablecoin activity on its network, which ranks second only to Ethereum in terms of stablecoin volume. This is particularly notable due to its widespread use in developing economies such as Argentina, Turkey, and African countries that continue to experience high inflation rates. While some might call it a “single-skill player,” that “skill” has translated into $271 million in earnings over the past year, making it the most profitable blockchain to date.

3) Solana

@solana is also one of the top protocols in terms of revenue, with $157 million in revenue over the past year.

Solana’s popularity stems from its status as a hub for emoji coins, capital growth from airdrops, technical upgrades to address spam issues, and support for leading trends such as artificial intelligence, all of which have helped it gain significant attention and strong revenue in this cycle. However, this growth has not translated into actual gains. Taking into account the tokens issued to stakers and operating costs, Solana recorded a huge net loss of $2.53 billion over the past four full quarters, completely offsetting its revenue and leaving it deeply in the red.

4) Avalanche

L1 @avax, which has its own emoji coin fund, ranked fourth with $69 million in revenue.

Avalanche is known for its subnet scaling solutions and gaming-focused features, and its upcoming major upgrade ACP-77 will improve the deployment and management experience of subnets, making them more affordable, which has the potential to increase revenue. Despite this, the chain still faced a net loss of $860.6 million over the past year, mainly due to token issuance and operating costs, so there is still a long way to go in the future.

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2. Which L2 blockchains are profitable?

1) Base

Despite being less than a year old, Base, an L2 launched by Coinbase, has quickly risen to prominence with OP Stack, generating $66.6 million in revenue since its inception.

Notably, @base managed to retain 63% of that, netting $42 million during the same period. This success can be attributed to two key factors:

• First, Base significantly reduced costs by introducing blobs through EIP-4844, bringing costs down from $9.34 million in Q1 2024 to $699,000 in Q2 2024.

• Second, Base has no native token, which makes it more competitive and avoids the distribution-related fees faced by other L2s.

2) Arbitrum

Arbitrum is the L2 with the largest TVL, with a locked volume of $17.2 billion, and has generated $61.14 million in revenue in the past year.

As the hub of DeFi, leading DeFi protocols such as @GMX_IO and @pendle_fi have settled in @arbitrum, and its SDK also provides the main infrastructure for L3s such as @SankoGameCorp, @degentokenbase and @XAI_GAMES. Although its revenue has not yet reached the level of Base, Arbitrum has made $21.8 million in revenue in the past year, especially in the second quarter, when its fees fell to only $613,000, compared with $20 million in the first quarter.

4) zkSync Era

As one of the leading zero-knowledge (ZK) technology-driven L2s, @zksync Era has generated $53.3 million in revenue over the past year.

Since the June 2023 airdrop, the network's locked volume (TVL) has increased significantly, with ZK technology adding approximately $850 million in value to the chain, although this amount has gradually decreased as users sell the airdropped tokens. However, the chain remains profitable, with a net profit of $15.3 million over the past year and $17.5 million over the past four full quarters. Although zkSync ranks only eighth in the L2 rankings, its profitability makes it the third most profitable L2.

5) OP Mainnet

As the core of Superchain, @Optimism has generated $44.6 million in revenue over the past year through sorter fees on its mainchain and projects such as @zora and Base in the network.

In the second quarter of 2024, Optimism network activity reached record levels. The average daily active address number grew to 121.6K, a 37% increase from the previous quarter, and the average daily transaction volume also grew to 601K, a 28% increase from the previous quarter despite the market downturn. Like other L2s, EIP-4844 contributed greatly to this growth, and the reduction in fees increased network activity, which in turn increased Optimism's net profit by more than 150%.

Despite this, Optimism is still deeply in the red, suffering a net loss of $239 million over the past year due to retroactive airdrops, incentive programs, and operating costs.

3. Narratives vs. Fundamentals

When analyzing this data, remember that, as in traditional finance (TradFi), profitability only tells part of the story. No one is betting trillions on Nvidia based on its current financials, but rather the narrative behind it that drives its growth.

Narrative-based investing is often the default choice for cryptocurrency buyers who want outsized returns while taking high-risk actions. However, it remains important to remember that there are still networks that have built substantial businesses based on today's activity.

Diving deeper into the revenues and earnings of the top L1 and L2s provides a deeper understanding of the fundamental health of these networks and their position in the competitive landscape.