Original title: Which Blockchains Actually Make Money?

Original author: David C, Bankless

Original translation: Baishui, Golden Finance

Two weeks ago, I wrote an article about protocols with strong fundamentals (such as excess revenue or token supply) that showed promise in the latest wave of price increases.

Now, we take the same fundamentals-driven approach to take a deeper look at L1 and L2.

Whether it’s the influx of institutional investment or the general disappointment with high FDV token issuance, the recent surge provides a potential opportunity to take a closer look at the overall fundamentals of blockchain, not only its revenue but also its earnings.

Today, we’ll explore just that, analyzing the top 4 L1 and L2 by revenue, and then diving into how much of that revenue (if any) these blockchains actually keep.

Note: Just like TradFi, there are a lot of complex ways to filter the returns of various projects. In today’s post, we’re keeping it simple, defining returns as total revenue minus token issuance (the number of native tokens distributed to users) and operating expenses (the costs of developing, maintaining, and upgrading the protocol).

Which L1 blockchains are profitable?

Without further ado, let’s look at the numbers.

Ethereum

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

However, despite the impressive revenue, Ethereum recorded a net loss of $15 million. The reason? This loss was mainly due to the issuance of new tokens faster than its revenue, and after a strong performance in the second half of 2023, its earnings have turned negative so far this year. This can be largely attributed to the shift of transaction activity to L2, which reduces the fees paid directly to the world computer. Therefore, despite Ethereum's high transaction volume and network activity, this migration caused its earnings to decline.

Tron

Under-the-radar giant Tron ranks second in terms of total revenue, with $1.4 billion in revenue over the past year.

This success can be directly attributed to the network’s extensive stablecoin activity, with Tron ranking second only to Ethereum among networks with the most stablecoins, thanks to heavy usage in developing economies such as Argentina, Turkey, and various African countries, where high inflation remains an ongoing issue. While some might call it a one-trick pony, this “one-trick pony” has generated $271 million in revenue over the past year, making it the most profitable blockchain to date.

Solana

As one might expect, Solana also ranks among the highest-earning protocols, with $157 million in revenue over the past year.

Popularity as a memecoin hub, capital growth from airdrops, technical upgrades to address spam issues, and support for leading trends like AI have all contributed to its prominent visibility and strong revenues this cycle. However, this growth has not translated into earnings. Taking into account the issuance of tokens to stakers and operational costs, Solana has lost a whopping $2.53 billion in net losses over the past four full quarters, completely wiping out its revenues and falling into the red.

Avalanche

L1 Avalanche, which has its own memecoin fund, ranks fourth with $69 million in revenues over the past year.

Avalanche, known for its subnet scaling solutions and focus on gaming, is about to launch a major upgrade called ACP-77, which will improve the experience of deploying and managing subnets, making it more affordable, which could increase revenues. With that in mind, the blockchain still has a long way to go, as it faced a net loss of $860.6 million over the past year due to token issuance and operating costs.

Which L2 blockchains are profitable?

Base

Despite being less than a year old, Coinbase’s L2 Base, launched alongside OP Stack, has quickly generated $66.6 million in revenue since its inception.

Notably, Base has managed to retain 63% of its revenue, netting $42M in the same period. This success can be attributed to two key factors.

First, Base has significantly reduced costs by implementing blobs via EIP-4844, slashing those costs from $9.34M in Q1 2024 to $699K in Q2 2024.

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

Arbitrum

Arbitrum is the largest L2 by TVL, with $17.2B locked and generating $61.14M in revenue over the past year.

Arbitrum is at the center of DeFi, with leading DeFi protocols like GMX and Pendle calling it home, while its SDK is the primary infrastructure for L3s like Sanko, Degen chain, and Xai. While Arbitrum still hasn’t hit Base’s revenue levels, it has made $21.8 million in the past year, with an excellent second quarter that saw its expenses drop to just $613,000, compared to $20 million in the first quarter.

zkSync Era

zkSync Era is one of the leading ZK-based L2s, bringing in $53.3 million in revenue over the past year.

After the June 2023 airdrop, the network’s TVL surged as ZK added around $850 million to the chain, though that figure has gradually fallen as users sell the airdropped tokens. The chain remains profitable, though, netting $15.3 million over the past year — and $17.5 million over the past four full quarters. This makes zkSync the third most profitable L2.

OP Mainnet

Optimism is the hub of Hyperchain, bringing in $44.6 million in revenue over the past year from sorter fees on its mainchain and in networks like Zora and Base.

Q2 2024 saw all-time highs in network activity for Optimism. Despite the market downturn, average daily active addresses surged to 121.6K, up 37% QoQ, and daily transactions rose to 601K, up 28% QoQ. As for other L2s, EIP-4844 contributed significantly to this growth, resulting in lower fees and thus increased network activity, which in turn increased Optimism’s net profitability by over 150%.

Despite this growth, Optimism remains deeply in the red, facing a net loss of $239M over the past year due to retroactive airdrops, incentive programs, and operating costs.

Narrative and Fundamentals

When you look at these numbers, remember that, just like with TradFi, profitability is only part of the story. No one is betting trillions on Nvidia's current financials; it's the narrative that's driving its growth.

Narrative-driven investing is often the default choice for crypto buyers who risk their money in the hopes of outsized returns, but it's still important to remember that there are still networks that have built massive businesses out of today's activity.

Diving deeper into the revenues and earnings of the top L1 and L2, we can get a clearer picture of the underlying health of these networks and their place in the competitive landscape.

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