Original author: Jack
原文来源：BlockBeats
Last week, the U.S. stock market ushered in the busiest "earnings week" of the first quarter, and nearly half of the U.S. listed companies chose to report their earnings this week. After the crash on Friday, the eyes of the market are on the earnings reports that the tech giants have released or will release this week.
Under the "financial report fever", several data charts of "public chain financial reports" released by blockchain data analysis company Token Terminal on its official Twitter account two days ago have also attracted the attention and discussion of the crypto community. After several sets of data, the "financial status" of L1 and L2 public chains such as ETH, Solana, and Base is much more intuitive. However, more people's first reaction to the "public chain financial report" is: Is this concept really reasonable?
The term "financial report" has always been far away from the crypto industry, and in this market where the business model is not yet clear and the team's monetization is still dominated by token issuance, data such as the number of active addresses, TVL, and market capitalization seem to be more intuitive and transparent. But is the traditional financial reporting logic applicable to the crypto market? Is it the protocol or the team to be measured, and what statistical metrics should be used? These questions make the "chain" business seem out of place compared to traditional business. Shouting "Mass Adoption" all day long, and knowing the door of "Ponzi Game" in my heart, this is probably the general view and cognition of crypto people on the industry.
So is the concept of financial reporting applicable in the crypto industry? Although there may be a lot of discrepancies in specific metrics and presentation logic, public chains (especially general-purpose public chains like Ethereum and Solana) as a decentralized network essentially need the same ability to self-hematopoiesis as traditional companies, otherwise they will become real Ponzi.
So for a chain, how can it be called "hematopoietic"?
A public chain that burns money like crazy
In fact, in the current crypto industry, in addition to the decentralized ledger of Bitcoin, almost all public chains need to have hematopoietic ability in order to survive in the long term and safely.
In the case of BTC, its market cap and price reflect the volume of the outside world's wealth placed on the Bitcoin ledger, and that wealth is willing to pay miners a satisfactory "property custody fee" in order to secure the Bitcoin network. But this set does not seem to work on general-purpose public chains such as Ethereum and Solana. Because miners are a group of mercenary people, they will go where they make more money, and the "world computer" to be maintained by the general-purpose public chain is not very attractive to the wealth of the outside world, so from the perspective of supply and demand, the burden of hiring miners (of course, most of them are validators now) to watch the home is generally on the shoulders of the network itself.
To put it simply, the general-purpose public chain needs to find a way to "generate revenue" to pay the validators who maintain the network, not only to simply issue token incentives, but also to make the issued tokens have long-term value support, which is the basic hematopoietic ability of the public chain. Of course, hematopoiesis is not all about "living". In the stock market, a stronger revenue capacity means stronger repurchase strength and stock price expectations, and the same is true for public chain business.
According to this logic, it is actually clear what data should be in a "public chain financial report".
First of all, it is natural to operate income, for the public chain, this part comes from the network fee, and the part of the fee that is destroyed can be regarded as the network's revenue (equivalent to repurchase), and the more network activities, the higher the fee income. The second is operational costs, which include the portion of each network fee paid to validators (Supply-Side Fees), as well as the tokens issued by the network, with fewer tokens being issued and the lower the cost. Finally, there is the gross profit, that is, the token burn minus the token issuance (and validator fees), which is the ultimate embodiment of the hematopoietic ability and network value of a public chain. It is not difficult to see that for a public chain, the amount of gas burned and block incentives issued largely determines its revenue capacity and self-sustainability.
In the first quarter of this year, how did the revenue generation performance of general-purpose public chains perform? We selected three representative cases for comparative analysis, namely Ethereum for gas buyback and burn based on base fees, Solana for 50% of the fees for buyback and burning, and Avalanche for 100% of the fees.
Judging from the final "quarterly report", Ethereum is still the most profitable general-purpose public chain in the crypto world, achieving revenue of $1.17 billion and net profit of $369 million in the first quarter of 2024. Despite Solana's strong ecosystem momentum in the past six months, it achieved less than $100 million in revenue in the first quarter due to its advocacy of ultra-low gas and lack of a dynamic fee mechanism, while its network operating costs (i.e., token incentives) were as high as $844 million, resulting in a total loss of $796 million. Avalanche Networks had almost no revenue in the first quarter, with a loss of $179 million excluding costs.
ETH: Barely breaking even
In terms of expansion, the Ethereum network turned a profit in February this year, and its revenue continued to grow throughout the first quarter, including $606 million in March, accounting for 51.7% of the first-quarter revenue. In March, the price of Bitcoin hit an all-time high, and the sentiment in the crypto market was high, thanks to a surge in the number of on-chain transactions, and the Ethereum network's average gas per transaction as well as total fee income increased significantly.
From the comparison of network revenue and operating costs, the operating costs of the Ethereum network are relatively stable, remaining at around $4 million per day for a long time since the completion of the Merge in September 2022, but with the rise in ETH price and block space demand, this figure has climbed since mid-to-late February and is currently maintained at around $8 million per day.
In terms of revenue, Ethereum has introduced a gas buyback and burn mechanism since the launch of EIP-1559 in August 2021, and has truly begun to generate network revenue. EIP-1559 stipulates that the base fee required for each transaction will be burned, so the network's revenue is positively and linearly related to the volume of on-chain transactions and the degree of block space demand. The more transactions on the chain and the greater the block space requirements, the higher the average base fee for burning.
However, it is worth noting that when we extend the observation to the last bull market, the current revenue capacity of the Ethereum network is actually reduced, which is also strongly correlated with the market cycle. In comparison, the average daily revenue of the Ethereum network at the end of 2021 was about 3 times that of the current one.
It is also observable that the transition to PoS has indeed become a key factor in Ethereum's break-even. Before switching from PoW to PoS, Ethereum still needed the economically-intensive labor of graphics card miners to maintain its network, which led to the high operating costs paid by the network to miners. According to Ethereum's official website, before the Merge, the Ethereum network had to pay 2 ETH for miners every 13.3 seconds (i.e., a block), and with the addition of ommer blocks (not counting the blocks of the longest chain), Ethereum's daily operating costs were as high as about 13,000 ETH.
After moving to PoS, node validators no longer need high maintenance fees, and the network operating costs are based on the total amount of staked ETH (about 14 million ETH) and only spend 1,700 ETH per day, directly saving the network about 88% of the cost. Therefore, despite the current decline in Ethereum's revenue capacity, the network can still maintain a basic break-even compared to the plummeting costs.
Judging from the comparison of network revenue and net profit, the gross profit margin of the Ethereum network after the merger is about 40% to 70%, and the more congested the network, the higher the gross profit margin. In addition, the entire network currently needs to maintain $8 million in revenue per day to become profitable. For example, although it is not within the scope of the first quarter, it can be seen from the chart below that Ethereum's fee income has been declining throughout April due to market conditions, so after achieving profitability for two consecutive months, the Ethereum network has once again entered a state of loss. You can see how difficult it is to make a chain self-sufficient.
Looking further at the number of daily active addresses and contract deployers (ecosystem developer data proxies) on the Ethereum network, we can gain some additional perspectives. In the first quarter, the daily active addresses of the Ethereum network remained around 420,000, but the number of contract deployers declined significantly, from an average of 4,000 per day in January to an average of 2,000 per day in March.
In the long run, the number of ecological developers on the Ethereum network seems to have stagnated since the end of the last bull market, and even began to shrink at an accelerated pace after February 2024. The market has entered a new round of upward cycle, but the Ethereum network has fallen into the dilemma of developers fleeing and active user growth slowing down, which is closely related to the lack of innovation in application scenarios in the ecosystem.
During the 2020-2022 bull run, exciting native crypto innovations such as DeFi, NFTs, GameFi, SolcialFi, and more were born out of the Ethereum ecosystem, and each narrative had a profound impact on the future of the industry. In 2024, people are once again expecting a miraculous reappearance of Ethereum to bring you eye-catching narrative innovation, but for now, except for the re-staking of Eigen Layer, there are almost no exciting "new things" in the ecosystem.
On the other hand, this is also because of the mismatch between market expectations and the development law of the industry. The innovation and development of an industry and the capital effect it brings are often causal, and similarly, just because the crypto market cycle occurs every 4 years, the innovation of the industry cannot be forced to follow the same rhythm. Of course, there are industries such as AI and nuclear energy that rely on capital leverage to smash technological progress, but obviously blockchain and Web3 are not in this category.
What's more, the crypto market over the past few months has been almost entirely driven by Bitcoin ETF funds, and the macro environment has not brought significant liquidity injections to the market, and the altcoin space is more of a game between existing funds. Against this backdrop, Solana's meme boom and the brewing "Base Season" narrative are undoubtedly sucking the blood of the Ethereum ecosystem.
Without playing the two cards of "low gas" and "mass consumption", how to make the blocks sold by the Ethereum network have higher demand is the core issue that the foundation and the top VCs need to think about.
Solana:疯狂烧钱带动营收
Compared with Ethereum, which has basically broken even, Solana is still in an obvious "cash burning stage", with an overall loss of $797 million in the first quarter, including a loss of $380 million in the third quarter, accounting for 47.6%. As SOL prices have risen, the Solana network's operating costs have continued to climb over the past quarter, nearly doubling from $212 million in January to $414 million in March.
However, it is worth noting that despite the sharp rise in costs, Solana's revenue in the first quarter grew rapidly, with network fees (including supply-side fees) revenue of $69 million in March, up nearly five times from $15.38 million in January. This was driven by the continuous meme boom in the Solana ecosystem in March and the surge in transaction volume and priority fees due to ORE mining, but it is still a drop in the bucket compared to the cost of the entire network.
In terms of network revenue and operating costs, the Solana network's spend-to-income ratio remained at 15 to 30 times in the first quarter, which means that the network needs to spend $15 to $30 for every $1 it makes, and the cost of customer acquisition is extremely high. But a closer look reveals that achieving this figure is a huge step forward for the Solana network, which has seen negligible network revenue over the past year and in the last bull run. In March, the Solana network generated $1 million in daily revenue, up from $145,000 in 2022.
In the past quarter, the daily active addresses of the Solana network continued to climb, and in mid-March, when BOME, SLERF and other "meme magic disks" burst out one after another, it hit a historical figure of 2.4 million. The number of contract deployers on the network has also been on the rise since the end of last year, and has remained at an average of 80 per day throughout the first quarter.
Compared with Ethereum, Solana has adhered to the non-EVM compatible route in the past, and developers in the ecosystem have cultivated stronger stickiness, effectively reducing the situation of "developer flight". In addition, a series of waves of wealth creation since the JTO airdrop have also attracted a large number of external users and developers to the network. However, it should be noted that since the current high growth of Solana network users is mainly driven by "cash burning subsidies", there is also a lack of effective innovation in application scenarios in the ecosystem, and once the capital subsidies are released, this growth potential can easily fade quickly.
On the other hand, although 50% of the transaction fees of the Solana network are used for buyback and burning, the surge in the number of transactions has not brought significant revenue, which also reflects the current problems in the fee mechanism of the Solana network.
Similar to Ethereum, Solana's fee mechanism is also divided into Base Fees and Priority Fees, but unlike Ethereum's dynamic base fee mechanism, Solana's base fees are statically measured in Lamports (typically 0.000005 SOL), while priority fees are measured in Compute Units required per transaction.
As you can see in the chart below, the percentage of priority fees has been increasing since the beginning of the year, with the majority of the Solana network's fee revenue coming from priority fees. According to The Block, $11.9 million of Solana's record fee income of $15.6 million in January came from priority fees, accounting for 92% of non-voting transaction fees.
However, many people can sense from the poor experience with the Solana network over the past month that the current priority fee mechanism doesn't seem to be a good solution to the problem of pricing specific block spaces. While setting a priority fee increases the chances of a transaction being packed into a block, due to the nature of Solana's continuous block production, setting a higher priority fee does not guarantee that a transaction will be included in the block sooner.
The lack of a dynamic fee mechanism for accurately pricing block space has led many bots to send SPAM to get their transactions included in the block, as in most cases, the base fee cost of 0.000005 SOL will not exceed the expected profit after a successful transaction. According to a research report by Umbra Research, due to the extremely high speed requirements for Searchers, it is rare to see arbitrage transactions on the Solana network with priority fees exceeding 0.02 SOL, and about 96% of arbitrage attempts on the current Solana network fail.
A large number of failed transactions seriously consume block space, which not only affects the efficiency of validators in capturing the value of the blocks they are responsible for, but also causes the loss of a large number of users and transaction volume. After Jito's MEV mempool was shut down in early March, Solana needed to find a fee solution that would effectively price block space and increase network fee revenue.
In addition to the growth dilemma on the revenue side, Solana needs to make more efforts in cost control if it wants to break even.
In order to achieve ultra-high performance, the operating costs of validators and nodes on the Solana network are significantly higher than those of Ethereum, and the joke of "running Solana nodes and crashing the corporate network" is still the stereotype of many people on the Solana network.
According to Validators.app, 14% of Solana validators use Latitude as their hardware device, with bare-metal products starting at $350 per month and C3 Large costing between $370 and $470 per month. In addition, many validators choose to use dedicated bare metal servers directly, and the Solana Foundation has long-term agreements with many data centers to guarantee rack availability and monthly contracts.
Currently, the Solana network has over 1,000 validators in operation, but the revenue gap between them is huge, with large validators like Jito being able to earn millions of dollars in profits from delegated staking, while many validators are losing money. In addition to hosting costs (which can reach tens of thousands of dollars per year), Solana validators must also pay for voting fees, which according to Helius are around 3 SOL per epoch.
Many people have found that in order to achieve profitability, you need to have at least a basic capital of about 5000 SOL, and you must also have your own delegated staking income. This, of course, indirectly increases the marketing spend of validators. And that's not even counting the cost of running a Solana node, which many members of the Reddit community say "can only run in the data center" due to the high bandwidth and uptime requirements.
In order to maintain a high-performance network, the cost Solana pays to "supernodes" is necessarily high. According to Solana's inflation plan, the network starts with an annual inflation rate of 8% and decreases at a rate of 15% per year, eventually keeping the annual inflation indicator at 1.5%.
On the bright side, Solana is designed to follow Moore's Law and promises to double the scalability of the network every two years with the development of CPUs and other technologies, which means more users and higher fee revenue. On the downside, it will take about 10 years for Solana to reach target inflation, and until then, the network is likely to be in the red.
Although it does work to fight Ethereum with "low gas", this is like a price reduction promotion for new energy vehicles. Low fees mean that Solana's selling point is no longer a block premium, and volume has become the key to survival. And what capital needs to consider is, how long can its own money be burned?
Avalanche: Gradual loss of hematopoietic ability
Compared to the first two, Avalanche was in the worst situation, with almost no revenue for the entire first quarter and relatively high operating costs. This is also related to the lack of attractiveness of the Avalanche ecosystem in the past. Since the end of last year, Avalanche has been a passive follower of industry buzz, first with AVAV following the inscription craze, and then with the Foundation slowly launching the meme foundation. Although the traffic has been rubbed up, the effect is just like that, and there is no achievement in the overall revenue capacity.
Although Avalanche has used 100% of its transaction fees for buyback and burning, we find that the Avalanche network has been "burning money" like Solana except for a short period of profit through AVAV during the "EVM inscription fever".
In terms of the number of daily active addresses and contract deployers, the number of users and developers in the Avalanche ecosystem declined seriously in the first quarter, and in the long run, it showed extremely high volatility, which means that the stickiness of network users is low and greatly affected by market conditions and hot spots.
In fact, Avalanche's unoptimistic data in the first quarter reflects to a certain extent the dilemmas and challenges faced by the current EVM public chain and even the public chains that advertise new languages and new narratives, that is, in the stock market where the industry's user base is growing slowly and the block space is oversupplied, it is difficult for products with basically similar user experience to stand out in the market and grab food from tigers like Ethereum and Solana. Like the war in the Internet era, most of today's public chains choose to burn money, but it is still the same problem, if there is no hope, how long is capital willing to hold on?
A million-dollar L2
Factors such as high operating costs in the early stage and high uncertainty on the revenue side make it particularly difficult for public chain entrepreneurship, which is why in the past 10 years, the list of the top 10 by market capitalization in the crypto field has been so frequent and drastic. However, with the emergence of the trend of modularization led by Celestia and the development of RaaS infrastructure such as Altlayer, the industry has gradually explored a more certain entrepreneurial opportunity than public chains - L2.
The operating cost of an L2 consists of three parts: pre-development, running the sequencer, and uploading the package transaction (DA). Regardless of development costs, a single L2 fee income must cover DA costs. Therefore, compared with L1 public chains, L2 will hardly face the problem of making ends meet, as long as the operating cost of the sequencer is low enough, L2 is a profitable business. As the infrastructure related to "one-click chain" becomes more and more perfect, the cost of L2 entrepreneurship is also decreasing, which is why L2 has emerged recently.
In this article, we have selected the performance of Arbitrum, Base, and Blast to compare the performance of three L2s. You'll notice that L1 is thinking about break-even, while for L2, it seems to be thinking about earning more and earning less. In the first quarter, all three L2s were profitable, with Base and Arbitrum both achieving revenue of more than $27 million, while Last, as a new L2 force, had a quarterly revenue of $7.66 million, which inevitably embarrassed many L1s.
Arbitrum has a stable income
Broadened up, Arbitrum's average monthly revenue in the first quarter was stable at around $2.3 million. In January, Arbitrum Network generated $7.44 million in revenue, $4.88 million in DA costs, and a gross profit of about $2.5 million, while in March, it had a revenue of $10.46 million, and a gross profit of $7.94 million in DA costs, which was also about $2.5 million.
As you can see, prior to EIP-4844 and the Cancun upgrade, the revenue ceiling for L2 was fixed and very limited. Due to the positive linear relationship between fee income and on-chain costs, L2's gross margin has been confined to a fixed range, which in the case of Arbitrum remained between 25% and 40% in the first quarter. After the upgrade in Cancun, the cost of DA for L2 using blobs has been greatly reduced, which has greatly improved the gross margin of L2, as you can see in the chart below, the gross margin of L2 has basically stabilized at 90% after EIP-4844 went live. Of course, this data does not take into account the running costs of the sequencer.
However, the reduction in DA costs also leads to lower transaction fees, which means a sharp drop in network fee revenue in the absence of incremental users. As you can see from the chart below, the Arbitrum network has also seen a significant reduction in fee revenue after the Cancun upgrade, even though operating costs have been almost "zero". Looking at the April data, Arbitrum's revenue shrank by nearly 80% to only about $2 million, but thanks to extremely low DA costs, it eventually achieved a gross profit of $1.88 million, down only 25.3% from March.
Gross profit margins have been extreme, but revenue has not grown, and user growth bottlenecks are also the biggest challenges for Arbitrum. Arbitrum's daily active address growth slowed down after March, while the number of contract deployers did not change significantly in the first quarter, and the number of cross-chain assets and transactions also stopped growing in March. From the user's point of view, the value of Arbitrum's tools seems to far exceed its application value, and the single application scenario in the ecosystem makes it difficult to activate existing users on the one hand, and it is difficult to retain new users on the other hand, which has become a "transit chain" in the eyes of many people.
Base is growing explosively
Growth bottlenecks don't seem to be an issue on the Base side. In March, Base ushered in explosive growth, with revenue increasing by more than 4 times year-on-year. On the one hand, DA costs have plummeted, and on the other hand, the number of users has surged, and after removing the $6.34 million in DA costs, the base network's gross profit in a single month has reached more than twice the gross profit of Arbitrum in the entire first quarter.
After the upgrade in Cancun, Base also experienced a halving of revenue, but quickly reversed the decline. Judging from the net profit data, the profit of the Bas network has been growing since the beginning of the year, and after EIP-4844, Base directly "made money".
The explosive revenue growth is fueled by the narrative of "Base Season", which is one of the few networks that has seen rapid growth in both the number of daily active addresses and contract deployers in the past quarter. However, it is worth noting that the developers in its ecosystem still show strong market speculation, and in April, when the overall liquidity shrank, the number of contract deployers on the Base network also quickly halved as the number of transactions and fee income continued to decline.
It is worth noting that although the overall popularity of the Base network has declined significantly in April, some fundamental signals about the "Base Season" are still strengthening. Starting in March, the Base network's USDC net circulation, as well as cross-chain asset value, began to climb rapidly, and this momentum shows no signs of slowing down significantly even as we enter April. With the improvement of market liquidity in the second half of the year, Base may become one of the most noteworthy ecosystems in the crypto industry.
Blast不温不火
As a representative of the new L2 forces, Blast has already been out of the limelight when it was first launched, but from the financial data of the past two months, Last's performance is not particularly ideal. After achieving a high performance in March, along with the entire crypto market, Blast was beaten back to its original form in April, with revenue down more than 60% from March and a gross profit of just $700,000.
One of the more interesting points is that Blast did not significantly reduce operating costs after the Cancun upgrade like other L2s, but instead remained at a high level, so that the gross profit margin of the network could not be broken.
However, Blast's predicament at the ecological growth level is more worrying than the gross profit margin, the number of contract deployers in Blast has declined sharply in the past month, and the number of daily active addresses and daily transactions have both stagnated after the decline in cross-chain fund inflows. Of course, Blast is a bit biased to use the April data generated against the backdrop of overall market weakness, but to be honest, Blast didn't perform much better in March.
Similar to Avalanche's situation, Blast's dilemma is also a wake-up call for the upcoming general-purpose L2s, that is, when the current stock market has been divided by the leading L2s, it is difficult for the new general-purpose L2s to achieve scale and get a piece of the market. Perhaps in this stock competition environment, the way out is to play differentiation and vertical fields, and to be a small and beautiful market.