Are Layer 2s Becoming Too Profitable? Ethereum Faces New Questions on Value Capture Post-Dencun

Ethereum’s enduring ambition to scale via Layer 2s (L2s) is now a reality, delivering speedy and low-cost transactions to users.

Yet, while rollups like Base amass millions of transaction fees, a new discussion is underway: are these L2s getting too rich — and thereby making the base layer more extractive?

Cointelegraph recently interviewed Tanay Ved, a researcher at CoinMetrics. The interview highlights the increasing tension in the Ethereum ecosystem, with Layer 2 (L2) networks reaping most of the profits while the Ethereum mainnet itself is underpriced—”A problem of substrate token economics,” Ved describes it. Data from CoinMetrics showing L2s’ financial returns relative to those of mainnet Ethereum reveals the depth of this tension. Ved’s interview with Cointelegraph is our key insight this week.

The turning point for the Ethereum L2 ecosystem came with the March 2024 Dencun upgrade. With the upgrade, Ethereum introduced “blob” transactions, which allow rollups to post data much more cheaply and efficiently. The cost of L2 data availability has effectively been slashed over 90%. This change was widely celebrated as something to really scale up the Ethereum L2 ecosystem. But with this new kind of efficiency that we have now gained, there is another issue that we have to look at.

Dencun has been a turning point for Base and other rollups. Since then, Base has charged its users around $98 million in transaction fees. Of that, it has returned to Ethereum just $4.9 million, or about 5% of total fees. This leaves around $94 million for Base — a healthy sum, considering that it’s paying to use Ethereum’s security infrastructure.

The implication is that Ethereum is allowing huge business models to be built on it — while managing to capture only a tiny sliver of the economic value those models are generating.

This is not just a theoretical issue. To be sustainable over the long term, and especially in the post-merge, fee-driven security model, Ethereum’s base layer must achieve sufficiently high economic returns to pay for the rewarding of validators, as well as the ongoing maintenance of the network.

The Ethereum community is now focused on the economics of rollups and is asking some tough questions. Should Ethereum impose a form of “tax” or a mandatory revenue-sharing model on L2s? Or is it better to let the market sort out how value flows through the ecosystem?

Some individuals assert that rollups should provide more back to the base layer they rely on, especially as their profitability increases. They note that without the Ethereum validator set and consensus mechanisms, L2s would not have the kind of trust guarantees they do have. They advocate the charging of higher protocol-layer fees or the implementing of some kind of fee-sharing system that could funnel money back to the base layer.

Ethereum’s success in the long run necessitates trying to ensure that Layer 2 (L2) solutions are innovative, competitive, and decentralized. This should be aligned with the Ethereum road map, which seeks to ensure that fees, when necessary, are market-driven — judgment made on the basis of competition and innovation, not pricing decisions made by a central authority. But what if it were decreed that L2s had to pay for what Ethereum produces? Would that impose disincentives on rollups in favor of, say, on-ramps and off-ramps for the trial and error necessary to figure out the best L2 solution?

CoinMetrics’ latest ‘State of the Network’ report and Tanay Ved’s research underscore this core tension: Ethereum wants to scale *with* L2s, not at their expense — but it also has to make sure it doesn’t become a utility that operates without generating revenue.

The anticipated Pectra hard fork, which may not occur until late 2025, might reshape the economic situation once again. Pectra may increase blob capacity from 3 to 6 blobs per block, with some speculative expectation of being able to go as high as 9 — meaning that rollups can post even more data, and do it with greater efficiency. That could increase total throughput, reduce gas prices further, and enhance L2 user experience. But it could also considerably dilute Ethereum’s revenue from L2s unless new mechanisms are put in place.

Nonetheless, the course is unmistakable: Ethereum is all in on its rollup-centric future. Projects such as Base, Optimism, Arbitrum, and others are central to that vision. The big thing to get right going forward is rebalancing incentives between the base layer and the L2s riding on top of it.

Ethereum’s maturity depends on the network not only growing in user base and developer interest but also ensuring that governance issues are resolved in a way favorable to the network’s continued health. Empowering Layer 2s is one possibility. Ensuring that these Layer 2s send value back to Ethereum is another one. Ethereum has to walk this, in some ways, quite difficult line.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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