MR PRO | Economics, Tokenomics and Value Accrual of L2s

GM PRO DOers! 😎

It’s time to put our money where our mouth is.

We talk a big deal about L2s and now it’s time to find out which L2 tokens are the best investments. 🤑

I believe that L2s will play a crucial part in shaping the web3 infrastructure.

Additionally, I think the tokens associated with these L2s have potential to be the next $ETH in terms of sustainable and useful tokens with massive investment returns.

In last week’s PRO report we covered the current and potential activity growth across the 4 top L2s: Arbitrum, Optimism, Polygon and Immutable.

Today we will cover the economics of the Layer 2 business model and dive into the tokenomics and value accrual of $OP and $ARB.

Next week we will finish off this L2 series by looking at the same for $IMX and the coming new Polygon token, $POL. 🚀

Which of these tokens should you hold in your portfolio now and for the long term… if any? That’s what I’m about to answer.

Let’s get right into it, shall we? ⏬

Economics of Layer 2s 💲

As shown last week, here is the cumulative revenues of Optimism, Arbitrum, Polygon and Base.

These things generate some serious revenues, and they’re only just getting started. 🌊

As a reminder, L2s earn revenue the same way that L1s do, requiring fees to transact onchain. 

Of course, where there are revenues, there are also expenses. 😰 

For L2s, their expenses come from paying gas fees to Ethereum to settle the bundled up transactions that occurred on the L2.

And here are the cumulative expenses…

You can think of L2s as a “reseller” of Ethereum blockspace, albeit in a more gas efficient and faster form. 

As a result, as L2s sell Ethereum blockspace, they skim off the top for their own profit. 💸

You can see below that Optimism and Arbitrum are generating more than $200k in profit per week. 

Base is higher, but that’s likely just because of a hyped up launch, I’m not sure it will sustain these numbers in the medium to long-term.

That said, you can see that both Arbitrum and Optimism profits are growing as of late. As more users enter web3 and more transactions occur, these revenues will go exponential.

For context, here are the cumulative profit numbers for each chain.

You may have noticed that I haven’t included Polygon in the expenses or profit charts above. 

That’s because Polygon is not yet an L2, so it doesn’t pay Ethereum to settle its transactions. 

Polygon has to pay to secure its own blockspace and settle transactions on Polygon instead.

As we’ve taught previously, securing blockspace is not cheap! 😅

Here’s what Polygon pays for its expenses, which it affords through its fee revenue and inflating its currency, $MATIC. 

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