Which Blockchains Are Truly Profitable?

Amid the rise in institutional investments and growing skepticism toward high-FDV token launches, the recent market trends offer a valuable opportunity to examine the core financial aspects of blockchains, particularly focusing on their revenue and profitability.

Today, we will dive into this topic, reviewing the top four Layer 1 (L1) and Layer 2 (L2) blockchains based on revenue, and further assessing how much of this income these blockchains are retaining as profit.

Which L1 Blockchains Are Making Money?

When it comes to revenue, Ethereum dominates the landscape among both L1 and L2 blockchains, generating a substantial $2.22 billion during last.

Ethereum

Despite generating significant revenue, Ethereum reported a net loss of $15 million. How did this happen? The loss is primarily driven by the issuance of new tokens exceeding its revenue, which has turned its earnings negative this year after a strong showing in the latter half of 2023. This downturn is largely due to transaction activity migrating to Layer 2 solutions, which has reduced the fees paid directly to the Ethereum network.

Tron

Tron, often flying under the radar, ranks second in overall revenue, earning $1.4 billion over the past year. This impressive performance is largely fueled by the network’s extensive use of stablecoins. Tron is second only to Ethereum in stablecoin activity, a result of its widespread adoption in developing countries like Argentina, Turkey, and several African nations, where persistent high inflation drives the need for stable digital currencies.

Solana

Unsurprisingly, Solana ranks among the top protocols in revenue generation, pulling in $157 million over the past year.

Its rise to prominence as a hub for memecoins, capital gains from airdrops, technological upgrades to combat spam, and support for emerging trends like AI have all bolstered its visibility and revenue during this cycle. However, this growth hasn’t translated into profits. When factoring in token issuance to stakers and operational expenses, Solana has reported a significant net loss of $2.53 billion over the last four quarters, wiping out its revenue and leaving it deeply in the red.

Layer-2 Blockchains that Yields High Profits?

Just as we have Layer-1 blockchains that generate high revenues, we also have Layer-2 blockchains that generate significant revenues. Below are some examples of these Layer-2 blockchains.

Base

In less than a year since its launch, Base, Coinbase’s Layer 2 solution built with the OP Stack, has already made a significant impact, generating $66.6 million in revenue.

Remarkably, Base has retained 63% of this revenue, earning $42 million during this period. This success can be traced back to two main factors.

First, Base has drastically cut costs by introducing blobs through EIP-4844, reducing expenses from $9.34 million in Q1 2024 to just $699,000 in Q2 2024.
Second, Base’s decision not to launch a native token has made it more competitive by avoiding the distribution-related costs that other L2s typically face.

Arbitrum

Arbitrum, the largest Layer 2 (L2) network by total value locked (TVL) at $17.2 billion, generated $61.14 million in revenue over the last year.

As a major hub for decentralized finance (DeFi), it hosts leading protocols like GMX and Pendle, and its software development kit (SDK) powers Layer 3 (L3) networks such as Sanko, Degen chain, and Xai. Although it hasn’t yet reached the revenue figures of Base, Arbitrum earned $21.8 million in the past year, with exceptional performance in Q2 when expenses fell to just $613,000, a sharp contrast to the $20 million spent in Q1.

zkSync Era

zkSync Era, a top-tier zero-knowledge (ZK)-based L2, generated $53.3 million in revenue over the past year.

Following its airdrop in June 2023, the network experienced a sharp increase in TVL, with ZK adding about $850 million to the chain, though this figure has gradually declined as users sold their airdropped tokens. Nevertheless, the chain remains profitable, netting $15.3 million in earnings over the past year and $17.5 million across the last four quarters. This makes zkSync the third most profitable L2, despite being only the eighth largest.

Stories and Facts

As you examine these figures, keep in mind that, similar to traditional finance, profitability is only one piece of the puzzle. Investors aren’t pouring trillions into Nvidia based solely on its current financials—it’s the narrative driving its growth.

In the crypto world, narrative-driven investing is often the norm, with buyers taking high-risk bets in hopes of significant returns. However, it’s crucial to remember that some networks are already building solid businesses based on current activities.

By taking a closer look at the revenue and earnings of leading Layer 1 and Layer 2 networks, we can gain deeper insights into the fundamental health of these ecosystems and their position in the competitive landscape.