Viewpoint: L2 becomes the savior of users while being the predator of L1

Original source: Decentralisedco X account

Author: Decentralised.Co

Compiled by: Deep Tide TechFlow

Is L2 Plundering the Interests of L1?

L2 settles on L1 while providing users with cheaper transaction services. They act as intermediaries between L1 and users, capturing some value by charging fees (including MEV). So, have they paid enough fees for the valuable block space on L1? Let's analyze the impact of L2 on Ethereum through four charts.

1. How Does L2 Help the Ethereum Ecosystem?

Without discussing L2 tokens, let's look at their contribution to the entire Ethereum ecosystem. One way to measure this is to see how L2 tokens enhance the market value of ETH.

For comparison, I use the ETHBTC ratio as a trend benchmark for the Ethereum ecosystem relative to Bitcoin.

To capture the total value of Ethereum, I add the top 10 L2 tokens by market cap to ETH and consider it as "effective ETH" or the value of the entire Ethereum ecosystem.

Currently, the top 10 L2s have almost no impact on the ETHBTC ratio. As Bitcoin's market dominance exceeds 50%, the chart below shows that L2 has not significantly enhanced the ETH (effective) / BTC ratio (see the comparison between the black line and the green line).

2. So, Where is Value Being Captured?

In simple terms, value capture can be measured through two indicators: revenue and market cap. If value is generated, it will reflect in the price.

a. Where is revenue being captured? Ethereum often captures about 90% of the total revenue of the Ethereum ecosystem. In the second quarter of 2024, Base has been the leading L2 in revenue, followed by Blast.

b. In terms of market cap, ETH still accounts for over 95% of the market cap of the top 10 L2s.

3. How Much Revenue Does L2 Pass to Ethereum?

Storing data on Ethereum incurs costs for L2. This is the operational cost of L2. This cost needs to be balanced. If the costs are too high, L2 operations become difficult; if the costs are too low, despite Ethereum providing critical settlement services, the revenue earned from L2 is minimal.

Ethereum's 4844 upgrade (also known as Proto Danksharding) reduced the operational costs for L2. The reduction in L2 data storage costs has decreased L2's revenue contribution to Ethereum from about 10% to around 2%. While this may seem like a setback, it prepares L2 for more users as transaction costs have decreased.

So far, from Ethereum's perspective, blobs seem like a bad idea. So what is the ultimate goal? Scalability.

In one week of 2024, Ethereum supported 7.1 million transactions, generating $10.6 million in revenue. The cost per transaction for users was about $1.5. Meanwhile, five L2s (Arbitrum, Base, Blast, Optimism, and Polygon) supported over 70 million transactions, with fees amounting to $2.75 million. The cost per transaction was only $0.03.

We can discuss the quality of transactions, such as whether they are bot trades or their value, etc. But the fact is, Ethereum cannot support this many transactions.

Overall, building L2 and reducing L2 transaction costs by providing cheaper data storage options on L1 benefits users, but is less advantageous for Ethereum (L1). If most users choose to transact on L2, more data will be pushed to L1. As L2 pushes more data and competes for L1's block space, the base fees for L1 will increase, thereby enhancing Ethereum's revenue. Therefore, when more people start using L2, it could be a win-win for both Ethereum and users.