Original title: "Blockchain Economics: How much does it cost to run your own chain?"
Original author: Sharanya Sahai, Hashed Emergent

Original translation: 0x26, BlockBeats

Editor's note: Galaxy Research recently published an article stating that "Since the Cancun upgrade, Ethereum mainnet protocol revenue from Layer 2 is almost zero." Ethereum is going further and further on the road to expansion, but how much does it actually cost to run an L2? Through the introduction of this article, we can understand the true cost of "one-click chain" L2 projects.

Over the past year, the number of new Layer 2 (L2) solutions has increased significantly with technological advances, focus on specific application scenarios, and strong community participation. While this development is encouraging, the main challenge remains how to scale these blockchains in a more cost-effective way. Running application chains has become a key means of solving this problem, as application chains can control the operating costs of blockchains through various initiatives in the modular infrastructure stack.

While L1 - Ethereum-specific initiatives have significantly reduced transaction costs on the blockchain, major Rollup and infrastructure service providers are also pushing to further improve scalability and unlock use cases that are currently too expensive to execute on-chain.

We can categorize and analyze these developments in three categories: a) L1 approaches, b) L2 approaches, and c) modular infrastructure approaches, all of which have made meaningful contributions in reducing the entry barriers to on-chain transactions.

The first is that Ethereum has made some upgrades, such as EIP 1559 and 4844, which have reduced costs and improved scalability.

Let's first look at the contribution of L1 initiatives to rationalizing transaction costs on the Ethereum chain, such as EIP 1559 and EIP 4844 (Cancun Upgrades). EIP 1559 introduces the concept of base fee + tip/priority fee, as well as a dynamic pricing mechanism based on network congestion, providing users with a better mechanism to estimate costs and trade on the network based on their priority and network congestion. EIP 4844 introduces a new transaction type to Ethereum through the concept of Blob, enabling L2 to store data in the form of Blob instead of expensive callData, significantly reducing costs when settling transactions on L1.

The implementation of Blobs has led to a significant reduction in transaction costs due to the reduced storage cost per byte and the expansion of capacity per block, as Blobs do not compete with Ethereum transactions for Gas and are not stored permanently, being deleted from the blockchain after approximately 18 days.

Each Blob contains 4096 32-byte field elements, and the total number of Blobs in a block is capped at 16, providing an additional maximum capacity of approximately 2 MB (4096 * 32 bytes * 16 Blobs per block). The current starting capacity is 0.8 MB, with a target of 3 Blobs per block and a maximum of 6 (after EIP 4844 is implemented). Given the historical callData standard of 2-10KB per block, EIP 4844 means a theoretical capacity increase of up to 384 times.

In fact, after the implementation of EIP 4844, fees for many L2s dropped by more than 90%. However, relying on these upgrades alone is not enough for Ethereum to achieve greater scalability. With thousands of Rollups, transaction costs may rise sharply as storage space requirements increase with the emergence of large-scale applications on the chain.

As L2 moves execution off-chain to cut costs and maintain security, industry initiatives such as open source frameworks and revenue sharing models are shaping the competitive landscape of the "L2 Stack War".

The emergence of Rollup in the previous cycle aims to significantly reduce the cost of on-chain operations by moving execution off the main chain while gaining security from the main chain. While Op Rollup allows a single honest entity to submit “fraud proofs” and be rewarded for identifying misbehaving sorters, ZK Rollup uses zero-knowledge proofs to prove that the L2 chain has been correctly updated.

Rollup performs the following tasks:

· Ordering: Organize end-user transactions in order, group them, and occasionally publish these grouped batches to L1

· Execution: Store and execute operations and update the state of the Rollup

· Proposal: Proposer regularly updates the Rollup state root on L1, which is very important to ensure that the blockchain remains trust-free and verifiable

· State root challenge: Submit evidence of state root fraud and challenge the state root on L1 (only applicable to Op Rollup)

· Proofs: Generate state roots Verification of state updates from Rollup to L1 (only for ZK Rollup)

They profit from transaction fees paid by users (sorter revenue) and potentially MEV (maximum extractable value), although MEV is not extracted as part of their strategy yet. Their costs mainly come from L2 (operational costs) and L1 (data availability and settlement) costs. Organizations looking to launch their own chain usually only consider doing so if they expect transaction fees to be higher than the cost of such an initiative.

Base layer networks such as Ethereum usually charge more for compute and storage as a majority of nodes are required to sync and validate the chain. However, in a Rollup, a chain is considered secure even if only one honest entity is able to validate it. As a result, Rollup charges lower fees for compute and storage, but higher fees for rolling up transactions to package and publish to L1, resulting in L1 costs accounting for 98% of the L2 cost base before the launch of EIP 4844.

In addition to base layer optimizations, L2 has also made a strong push to further reduce costs. These initiatives are referred to as L2 practices at the beginning of the article, and can be mainly divided into two categories: industry alignment or company alignment.

Industry alignment initiatives include allowing new players to build their own chains by open sourcing the L2 technology stack (Rollup framework). This wave of initiatives was initially led by Op Rollup through the launch of OP Stack and Arbitrum Orbit, and other mature L2s such as Polygon (Polygon CDK), ZK Sync (ZK Stack) and Starkware (Madara Stack) followed closely, driving large-scale applications by open sourcing their proprietary technologies.

Corporate alignment initiatives are where these chains reduce costs and accrue value to their tokens, either through direct revenue/profit sharing models or indirectly through the secondary effects of expanding their ecosystems. Optimism’s Superchain vision, Arbitrum’s scaling plans, Polygon’s aggregation layer, ZK Sync’s Elastic Chain are all examples of such initiatives. The specifics of these projects may vary, but what they have in common is that they all have an interconnected network that provides enhanced interoperability, communication between multiple Rollups, and shared key infrastructure such as a shared data availability layer, shared cross-chain bridges, aggregation proofs (only for ZK chains), etc. to further improve capital efficiency - a problem currently faced by the Ethereum ecosystem with fragmented liquidity and lack of interoperability between Rollups. However, these stacks also allow each chain to be uniquely customized according to its needs in terms of block time, withdrawal period, finality, token usage, gas limits, etc., eliminating the high gas costs and latency issues caused by running on public chains due to other applications.

While these independent ecosystems are focused on growth and adoption, we have begun to see some established players like Optimism and Arbitrum gradually monetize.

Optimism charges participants who want to be part of its Superchain 2.5% of the total sorter revenue or 15% of the sorter profit (sorter revenue - L1 settlement and data availability costs). Arbitrum charges participants who use its stack to release L2 10% of the sorter profit, while ZK Rollup stacks including Polygon CDK and ZK Stack are currently free to use, but as they develop and are adopted, they may have sustainable economic models built in.

The "L2 Stack Wars" have officially begun as all ecosystems compete to attract important projects through unique strategies. Optimism announced a $22 million bounty for Superchain builders, with retrospective airdrops based on usage and participation metrics, while ZK Sync offered $22 million in ZK tokens to entice Lens to migrate from Polygon to its stack. Arbitrum offers its stack for free on the condition that participants launch on Arbitrum as an L3 (referring to using L2 as a settlement layer instead of Ethereum), as Arbitrum benefits from increased L3 activity, and these L3 chains will always pay settlement costs to Arbitrum during their lifetime.

RaaS and alternative settlement and data availability solutions have redefined blockchain cost structures, and future modular infrastructure innovations are expected to reduce costs further

Despite the availability of these technology stacks, running a blockchain involves a lot of operational overhead, personnel, expertise, and resources. Developers who want to attract users on their chains do not want to be distracted by handling the operation and maintenance of chain infrastructure, and instead want to focus on core business activities.

This problem has led to the emergence of RaaS service providers, who work with these developers to abstract the complexity of running chains using mature L2 frameworks/stacks. The services they provide include node operation, software updates, infrastructure management, and products such as sequencing, indexing, and analysis. RaaS service providers have adopted different market capture strategies, some are aligned with specific L2 ecosystems, and others take a more framework-agnostic approach and provide integration across all ecosystems. Conduit and Nexus Network integrate with Op Rollups such as Optimism and Arbitrum, while Truezk, Karnot, and Slush focus on ZK chains. On the other hand, Caldera, Zeeve, Alt Layer, and Gelato provide integration across Op and ZK Rollups.

The typical business model for these services consists of a fixed fee plus a share of sorter profits. While monthly subscriptions to run an Op Rollup are typically between $3,000 and $4,000, running a ZK Rollup can cost more than double that at $9,500 to $14,000 due to the extreme computational intensity required to generate ZK proofs and the high cost of proof verification. Additionally, to align incentives between RaaS providers and Rollups, a 3-5% share of sorter profits is typically levied, allowing them to capture economic upside as these chains gain traction.

Caldera is exploring a different model with its Metalayer vision, which only charges a 2% share of sorter profits, has no fixed costs, and is designed to enable interoperability between chains using Caldera, whether Op or ZK.

It is important to note that the volatility of the industry and the efforts of teams on these stacks, especially the ZK stack, may further compress the subscription costs of RaaS service providers. In addition, due to the scarcity of strong consumer-grade Web3 businesses, large consumer-facing applications may be able to negotiate better economic sharing agreements with infrastructure service providers, so initial pricing may not be standardized.

As mentioned earlier, the largest expenses of Rollup are L1 costs, namely data availability and settlement costs. For a standard Rollup processing 100 million transactions, L1 costs can be as high as $25,000 per month, making L1 settlement only feasible for the largest and most used chains. The need for alternative settlement and data availability solutions has prompted specialized players to optimize costs and performance on these layers. Data availability alternatives to Ethereum include Celestia, Near, EigenDA, and the mature L2 discussed above aims to be the settlement layer for Rollup, which can be classified as L3. Compared with Ethereum, these players have reduced the settlement and data availability costs of Rollup by orders of magnitude. The figure below provides a rough cost comparison, showing how much cost savings there would be if Rollup published callData to Celestia instead of Ethereum. It is worth emphasizing that the gap in cost savings increases exponentially with the increase in transaction volume.

In addition to the data availability cost, there is also the settlement cost, that is, Celestia publishes a marker on Ethereum pointing to the relevant block on Celestia to ensure the ordering and integrity of the data published on Celestia.

The development of specialized players across the modular infrastructure stack, such as alternative data availability and RaaS providers, can be collectively referred to as modular infrastructure behavior. There are other categories of innovation that are further optimizing costs, including shared sorters (Espresso, Astria, Radius), proof aggregation (Nebra, Electron), etc. These are currently in the early stages of development, and we expect costs to fall further as the industry matures.

Although the cost of on-chain operations has dropped significantly, Web2 founders should still conduct a thorough cost-benefit analysis before deciding to launch their own chain.

The full cost of running a chain depends on the specific usage requirements of each chain, but we can roughly estimate the cost of using alternative data availability solutions for an average Op or ZK chain processing 2 million transactions per month, as shown in the figure below.

Despite various optimizations at the industry level and at the individual chain level, a total of $10,500 to $16,500 per month in fees is still required for ZK Rollup and $4,000 to $6,500 for Op Rollup, in addition to up to 20% of sorter profits once the chain becomes profitable.

The three major categories of initiatives highlighted in this article will be key to driving industry adoption, with the ultimate goal of closing the gap in cost and convenience between decentralized applications and Web2. Builders should carefully evaluate the cost-benefit analysis of running an independent chain versus building on an existing chain based on their end-user needs, product priorities, performance metrics required for their use cases, and existing market appeal.

We found that building solutions to reduce the cost and performance differences between Web3 and Web2 infrastructure is necessary because society’s preference for using decentralized systems is not sufficient to expand the scope of Web3 applications, and this challenge remains a key bottleneck in promoting large-scale blockchain applications.

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