Blockchain networks are not just technological marvels; they are economic entities. Revenue and profitability metrics provide a clear lens through which to assess their financial health and future growth potential. This article dives into the data behind the most profitable Layer 1 (L1) and Layer 2 (L2) networks, analyzing which ones are truly retaining value.
In this context, "profit" is defined as total revenue minus token issuance. This metric helps cut through the noise to see which networks are generating sustainable economic activity.
Understanding Layer 1 Blockchain Profitability
Layer 1 blockchains are the foundational protocols, like Ethereum or Solana. Their revenue primarily comes from transaction fees paid by users. However, high revenue doesn't always translate to profit due to the high costs of token incentives for validators and stakers.
1) Ethereum: The Revenue Leader
Ethereum stands far above all other blockchains, both L1 and L2, generating a staggering $2.22 billion in revenue over the past year.
Despite this impressive income, Ethereum recorded a net loss of $15 million. How is this possible? The loss is primarily due to new token issuance outpacing revenue. While the network had a strong second half of 2023, activity has since migrated to L2s. This shift means fewer fees are paid directly to the mainnet, causing its profitability to decline even amidst high overall ecosystem activity.
2) Tron: The Stablecoin Powerhouse
Often flying under the radar, Tron ranks second in total revenue, having generated $1.4 billion over the past year.
Tron's success is directly tied to its massive stablecoin activity, holding the second-largest stablecoin market cap after Ethereum. It sees widespread use in developing economies like Argentina, Turkey, and across Africa, where users seek a hedge against high inflation. This singular focus has proven incredibly profitable, translating into $271 million in earnings, making it the most profitable blockchain by this metric.
3) Solana: High Revenue, Higher Costs
Solana has emerged as a top revenue-generating protocol, with $157 million in income over the last year.
Its popularity is fueled by its status as a hub for meme coins, lucrative airdrops, technical upgrades that combat spam, and strong support for trending sectors like AI. However, this growth has not led to profitability. When accounting for token issuance to stakers and operational costs, Solana recorded a massive net loss of $2.53 billion over the past four quarters, completely overshadowing its revenue.
4) Avalanche: Betting on Subnets and Gaming
Avalanche rounds out the top four L1s with $69 million in revenue.
Known for its subnet scaling solution and a focus on gaming, Avalanche aims to boost revenue with its upcoming ACP-77 upgrade, which will make deploying and managing subnets more affordable. Despite this potential, the chain faced a net loss of $86.6 million last year, largely due to token issuance, indicating it still has a long path to profitability.
Analyzing Layer 2 Blockchain Earnings
Layer 2 networks build on top of L1s to provide cheaper and faster transactions. Their revenue models often involve taking a share of the transaction fees, and their lack of native token issuance (in some cases) can lead to stronger profitability.
1) Base: The Profitable Newcomer
Despite being less than a year old, Base, the L2 launched by Coinbase, has rapidly ascended, generating $66.6 million in revenue since its inception.
Remarkably, Base has successfully retained 63% of that, netting $42 million in profit. This success is attributed to two key factors:
- The implementation of EIP-4844, which introduced "blobs" and drastically reduced costs from $9.34 million in Q1 2024 to just $699,000 in Q2.
- The absence of a native token, which allows it to avoid the massive distribution-related expenses that burden other networks.
2) Arbitrum: The DeFi Hub
As the largest L2 by Total Value Locked (TVL) at $17.2 billion, Arbitrum created $61.14 million in revenue over the past year.
A central hub for DeFi, it hosts leading protocols and serves as the primary infrastructure for numerous L3s. While its revenue hasn't yet reached Base's level, Arbitrum achieved a profit of $21.8 million last year. **It had a particularly strong Q2, where its fees dropped to just $613,000, a significant decrease from $20 million in Q1,** showcasing improved efficiency.
3) zkSync Era: ZK Technology Pays Off
As a leading zero-knowledge (ZK) rollup, zkSync Era generated $53.3 million in revenue over the past year.
Following a major airdrop in June 2023, the network's TVL saw a significant increase. The chain has remained profitable, netting $15.3 million over the last year and $17.5 million over the past four quarters. Although it ranks 8th in L2 TVL, its profitability makes it the third most profitable L2.
4) OP Mainnet: The Superchain Core
As the core of the growing Superchain, Optimism generated $44.6 million in revenue over the past year from sequencer fees on its mainnet and from networks within its ecosystem, like Base.
The network saw record activity in Q2 2024, with daily active addresses and transactions growing significantly. Like other L2s, EIP-4844 contributed massively to this growth by lowering fees. Consequently, Optimism's net earnings grew by over 150%.
However, due to retrospective airdrops, incentive programs, and operational costs, Optimism still posted a substantial net loss of $239 million for the year.
The Interplay of Narrative and Fundamentals
When analyzing this data, it's crucial to remember that profitability is only one part of the story. Just as in traditional finance, where investors bet on a company's future narrative rather than just its current finances, the same is true in crypto.
Narrative-based investing is often the default for crypto participants seeking outsized returns. However, it's equally important to recognize that substantive businesses are being built on today's network activity. Examining the revenue and profits of top L1 and L2 networks provides a deeper understanding of their fundamental health and their position in the competitive landscape. For those looking to dive deeper into the strategies behind these metrics, you can explore more analytical strategies here.
Frequently Asked Questions
What is the difference between revenue and profit in blockchain?
Revenue refers to the total fees collected by the network from users for transactions and smart contract interactions. Profit, in this context, is revenue minus the cost of token issuance to stakers and validators. A network can have high revenue but still be unprofitable if it issues more in tokens than it earns.
Why is Ethereum profitable but still has a net loss?
Ethereum generates enormous revenue from gas fees. However, its proof-of-stake model requires issuing new ETH to stakers as a reward for securing the network. Currently, the value of these new tokens being issued is greater than the revenue from fees, resulting in a net loss.
How do L2s like Base achieve profitability so quickly?
L2s can achieve profitability by leveraging the security of an L1 like Ethereum while operating with greater efficiency. Base benefits from not having a native token (avoiding issuance costs) and from Ethereum's EIP-4844 upgrade, which drastically reduced its operational costs, allowing it to retain a large portion of its revenue.
Does high profitability mean a blockchain is a better investment?
Not necessarily. Profitability indicates sustainable economic activity, but many investors prioritize growth and narrative. A network might be unprofitable now because it is heavily incentivizing ecosystem growth (through token grants and airdrops), which could lead to much higher adoption and value in the future.
What role does token issuance play in a network's health?
Token issuance is a necessary cost for securing proof-of-stake networks and incentivizing participation. However, excessive issuance that consistently outpaces revenue can lead to inflation and sell pressure, negatively impacting the token's price and the network's long-term economic sustainability.
How can I track these metrics for different blockchains?
Several crypto analytics platforms provide detailed on-chain data, including revenue, token issuance, and profit metrics for most major L1 and L2 networks. These platforms allow for real-time comparison and trend analysis. To stay updated on these vital statistics, view real-time tracking tools.