Layer2 Gas' is a low-cost and reliable transaction fee that earns millions of dollars per month. How do they make a profit?

0xTodd

2023-08-21 17:47

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Source: 0xTodd

Many people ask how Layer2 makes a profit?

Everyone's GAS fee paid to L2 = income

L2 Gas fees paid to Ethereum = expenditure

L2 essentially is a business of extracting fees like plucking feathers from a goose.

Arb and OP extract around $1 million per month from this, while the more popular Base and ZK can extract $2-3 million per month in scale.

Why is the Cancun upgrade of Ethereum so important for L2?

The most important upgrade for Cancun is EIP-4844, which allows L2 to transmit data to Ethereum's Blob area instead of Ethereum. To use an analogy, it's like developing a new area in land planning.

L2's expenses are greatly reduced. As everyone in business knows, when expenses are reduced, profits go up. If Cancun is upgraded and L2 doesn't reduce fees, theoretically, gross profit can easily double.

Of course, L2 theoretically will also reduce fees. Currently, L2 is a completely homogeneous competition. For example, OP launched Stack, and Arb and ZK followed suit in a hurry. After all, if your competitors have done it and you haven't, it will put you at a disadvantage in the competition.

Back to the topic. When will the bull market arrive? With more geese and stronger geese, there will be more feathers to pluck. After all, the unit of plucking feathers is ETH, and the current USD valuation is just for everyone's understanding. I fully believe that L2 will earn $10 million per month in the bull market.

This also raises another question: why don't L2s use their own tokens as GAS fees? The reason is simple: most L2s do not use their own tokens as GAS fees.

First of all, ETH is more popular among users, and using ETH as GAS is also more orthodox.

Secondly, it's practical - you can earn Ether. You should know that the project party is least short of their own tokens. If you earn a bunch of their own tokens back with GAS, it always feels less cost-effective than directly earning ETH.

So the trend of L2 in the future is clear:

1. Increase revenue (activity). For example, constantly using airdrops to lure you, or secretly encouraging dog coins, free mint NFTs, and so on.

2. Increase revenue (average order value). Use your brain in terms of MEV.

3. Reduce expenses (on your own). Embrace Cancun upgrade; use cheaper DA layer.

4. Reduce expenses (cooperation). Share L2 gateway, shared sorter, and other L2 "carpooling" to reduce GAS.