L2 adoption - let's look at the data

Transcript

[Music] GM GM come. Thank you all for getting up early and uh getting in here for some uh onchain data. We're going to take it fairly slow and easy today so we're not overwhelming your morning and uh we'll look at L2 adoption and what the data tells us about how people are using these systems um actually. And so basically we'll go

through uh three main questions for today's um talk. So what L2s are people actually using? Uh are L2s eating L1's lunch which is the hot hot topic of the day in many ways. And which product categories are people actually using on chain? And uh I also forgot to mention that I'm uh Frederick, CEO and co-founder of Dune, which is crypto's uh biggest data product. So let's get into it. Um so only 15% of transactions are now on Ethereum L1. So 85% of all

transactions in the Ethereum ecosystem has moved on to L2s. So big big shift from not that long ago the L2 sort of shift has really happened. Um so around sort of fairly stable over the last year around uh 20 million uh transactions are happening on Ethereum L1 monthly. Um and as you can see here the biggest market share of the L2s is base and then polygon arbitum and uh then you have Ethereum L1 in terms of number of transactions and it's fairly evenly spread across many different uh L2s but this is number of transactions.

Um the value transferred in these systems still is massively dominated by Ethereum L1. So while the number of transactions have gone to lower cost environments, the big bucks are still moving on Ethereum L1. In fact, 85% is still dominating uh on on Ethereum L1. Um if you look at value transfer inside of the L2s, you have um basically base and arbitrum uh leading. So, arbitum and base have about 30% market share of the L2s in terms of how much

volume is being moved um on these systems. So, as you can see, you know, it's actually fairly competitive here as well. And all over L2s have earned in the last 12 months $150 million in transaction fees. So that's sort of the scale of the business if you will. Um and $150 million. Okay. How much how much is that? Well, it gives you a mansion in Bair. That's roughly what you can get for $150 million. So in a sense, that's a lot of money as a whole industry. Maybe it's

not that much money. It's just one house. Um but if we we double click on this a little bit um you can see that on the fee side base is really really dominating. So uh even if val value transferred is fairly evenly spread across the L2s base really dominates on uh getting fees from what they're doing. So they actually have 80% market share in terms of L2 revenue and this is up from about 30% just about a year ago. So BAS has really really captured a lot of the business opportunity of being in L2

if you will. Um this is maybe a dynamic similar to like Apple and the iPhone where Apple has like an outsized share of the profits of the smartphone industry even if there are a lot of other players doing a lot of big volumes. Um and so the run rate for for base if you take their main revenue it was about 6 million. So that gets you like a 70 million annualized revenue run rate for uh operating their L2. And so basically, you know, you have the Captain Phillips meme. Base has really just uh become the captain of the L2 uh business landscape. And what's also interesting is obviously this has also

been a big debate, but you can really see that the the cost of settling to L1 has gone basically to zero. So, you know, if you were a VC and wanted to invest in sort of or like some kind of investor and wanted to invest in Ethereum L1, uh you know, this chart is looking pretty good uh for a while. It's like a perfect hockey stick almost up to about $40 million monthly in in revenue from L2 settling on L1 and then it's gone, right? So the blobs introduced in March 2024 virtually removed the cost uh for settling to L1.

So dramatic shift in in the dynamics here. Um and this is obviously hotly debated and you can really really see it in the numbers. Um and then our question of like is 150 million a lot for operating L2 uh business in the revenue side. uh you get to an interesting um dynamic because basically all the money they make from from running an L2 is now profit. So that's a pretty interesting business to be in. There's not many businesses where you can operate at a 100% margin uh more or less like literally in in May uh Bass had a 98.3% profit which is is pretty astonishing.

Um, so really, you know, the the the costs have disappeared for the L2s and they get to keep all of their revenue. And so then there's a question of, okay, is this like really, you know, nonsensical from an Ethereum L1 perspective that you don't get to capture any of these fees for all the activity moving on to L2s? And at the face of it, it seems like kind of like a bad business decision, but it might not be that simple. Um so I think one big question is will Jven's paradox play out here and so let me explain what what that means. So Joven's paradox um is from a British economist um and the

concept is basically it occurs when technological advancements make a resource more efficient so basically cheaper to use. Um however as the cost of the the resource drops the result in overall the result is overall demand increasing and essentially causing the total resource resource consumption to go up. So this is a little bit of a mouthful but essentially it says that when something gets cheaper you would expect probably that there's less use of that resource because it it's cheaper to do it. But actually making it cheap drives up the demand and uh means that there's more resource consumption. And

this has really played out uh with a lot of the technology industry where for instance you had the big fiber build out uh in the late '9s for the internet. And famously in the early 2000s that was just sort of just abundant resources and bad investments. But it turns out over time there was demand and new use cases generated and suddenly you do have an increase in in resource consumption of sort of internet infrastructure. Um there's a similar question going on in AI with like a massive massive data center build out and there's a question oh will there be enough demand? Uh but some people argue that yes there will be so many more news new new use cases that all of this infrastructure will be

useful. So this is also a key question I think for Ethereum L1 is making this stuff super super cheap. Will that allow new use cases to emerge? And frankly I think one can argue that you should make things cheaper because this is how the technology industry evolves. You make ch things in abundance cheaper better to to operate with. And if you're trying to just sit in some kind of status quo and just sort of protect your current status or current environment, you will probably be out competed by someone that does want to drive the cost down. So, it's not obvious that it's a bad thing for Ethereum to uh allow all of these L2s to be great businesses and have

cheap settlement. So, but let's look at the data now of like are we actually getting onchain adoption? So, Dex transactions grew about 100 a little over 100% year-over-year. So, fairly decent um growth rate. Uh this is then trading activity. So, basically went from 60 million monthly transactions to about 130 million monthly transactions year-over-year. But let's look at the even more interesting number which is uh oh first let's look at just like the share of this. So again, this is really dominated by L2s. 95% of DEX activity transaction count happens on L2s. So again, it's

it's all shifted to L2s. Um, and again, Bass is really dominating. So B has about 50% market share of number of DEX transactions across the Ethereum ecosystem. And then um if you look at volume which is arguably the most interesting metric um it has also uh doubled. So it went from about 100 billion monthly to 200 billion monthly in trading volume over the last year. And you can see there's a little bit of a little bit of a trend where last year uh it was around 100 billion and this year it's been you know several months touching close to 200 billion.

Um, also interestingly, you know, we've seen this dynamic so far in the in the data where a lot of the volume is still dominated on L1. Um, but in this case on DEX's base just recently flipped Ethereum L1 as the leader in volume. So now base is actually doing more trading volume dex trading volume than ethereum L1. So um that's also interesting that the value is really coming now to to L2s not just the activity per se.

And you know what's uh also interesting is obviously to compare all of this to Solana. There's like this big debate and competition if you will between the Ethereum ecosystem and the Solana ecosystem. Um so if we take a look at DEX trading in between those two ecosystems um you basically have uh transaction count is absolutely dominated by Solana right um so uh as you can clearly see here there's a lot higher frequency of activity uh on Sana which kind of makes sense in in in the what they're trying to do and just be extremely high throughput and you have all of these meme coins and whatnot. being generated very quickly and so you do get a lot of

activity from that. Um and um if you look at the volume uh and so here here they're stacked but you can see that both of these fluctuate a lot. So this is trading volume on Sana versus uh trading volume on Ethereum. And there's no clear sort of runaway uh ecosystem. uh there are different spikes and uh things sort of go up and down. If you look at this as market share though, you do see that Sulana has been um growing or taking market share from um the Ethereum ecosystem in terms of uh value transferred. So you see that

Sulana is coming from sort of in certain periods is actually dominating and and more than 50% around the the middle of the chart here with the green bar you know coming quite quite far down. Um so you know it's not just that Sana is doing more activity which maybe could be fine but you can also see it in the actual volumes which is uh quite interesting I think for for Ethereum sake that Solana is also eating more into the value transfer uh metric.

Okay let's look at take a quick look at NFTs. So NFTs uh the volume for NFTs really really fluctuates a lot. Um it's been up to a billion monthly trading volume over the last year twice but now it's around 155 million and most of the months it's it's in this order of magnitude so a little less than 200 million. Um it's worth noting that in the peak of 2021 um NFT trading trading volumes were at five billion. So while most other use cases have sort of had a dip and then come up again, uh NFTTS are still 5x lower like at the current peaks than the 2021 um

peak. So, uh, NFTTS are basically the only major use case from 2021 that really hasn't seen, um, the same level of of, uh, heights as as other categories. Um, and interestingly, 90% of NFT volume remains on Ethereum L1. So, the most valuable NFTts um, clearly still sit on uh, Ethereum L1. All right. And then let's look at one of the hot new categories. So, stable coins and RWAS. Arguably not super new, but but definitely hot. Um, so stable coin supply grew about 50 55% year-over-year

uh on Ethereum in the Ethereum ecosystem. So now sitting at about 150 billion total supply. Um, and you can see it's been growing nicely. You can also see that uh it's uh you know only recently that non Ethereum L1 uh sort of venues are are getting adoption. Um so if you look at the market share uh there's a little bit of blue uh coming here in the in the top right corner but all over stable coins are also predominantly happening on on Ethereum L1. Um if we look at real world assets uh that's grown even more. So now at about 60 no 6 billion in the Ethereum ecosystem that's

a 3x over the last year. Um and here the dominance of Ethereum L1 is a little bit less. So it's 83% for Ethereum L1. Uh so very exciting new category. There was like a big uh Robin Hood announcement yesterday. I believe that's happening on arbitum with um OpenAI and uh SpaceX stocks going on chain. Um so this is like a very very cool looking chart uh needless to say up and to the right. Um and uh here we have more the different ecosystems really um also being part of it. Uh so polygon is is the current leader in in this uh segment and then

arbitum is second but of course still dominated by L1. So just to sum up what we've learned today uh essentially L2s capture basically all the fee revenue um and most of the activity count in the Ethereum ecosystem. L1 still captured the majority of value moved and transferred. So in and out of DEX trading, stable coin transfers, all of these things, there's really really dominated by Ethereum L1 still. Um, and we have stable coins and real world assets really happening predominantly on Ethereum L1. So still the mass majority

of value comes there. Um and then we have seen that DeFi, stable coins and RWAS are growing and they're growing past their 2021 peaks. NFTTS on the other hand has not really reached the same heights as in 2021. And so with that I'll do the concluding slide and this is just a little bit of a different shame shameless plug uh that uh June launched a new developer product last week. It's a new indexing tool that let you super fast do super fast back fills. You can write in solidity what kind of data you want. Uh it's zero devops. You get a custom API for exactly the data you need for your app. Uh and

you can stream this also into your database and get all historical data. So uh you should check this out. Um and with that I think there's time for like one or two questions. Thank you so much. [Applause] question over here I think or yeah oh I I think there's someone in the back that hi uh great talk uh I'm wondering because you are the graph genius news uh do you have one with the impact of mica

on a stable coin Oh, is it really that bad? Yeah. Um, good question. Um, I mean, we're first and foremost focused on the onchain data. I don't know how easy it is to spot. I guess you could do some kind of like, you know, point in time analysis. If you really zoom in on on when this happened and see if you can spot any changes in the activity, but I don't have that sort of analysis at hand. But um maybe if you could see when the regulation hits that some some big shift in in activity then maybe you could spot it. But but I don't have it but luckily on June everything all of these charts are open. You can look at the SQL you

can change the time frames you can do whatever you want to to modify it. So uh if anyone's keen to do the analysis please please do and can help help get it shared. Hello. Hi. Uh, the stable coin dominance on the Ethereum network, how much is that due to the way that the coins are deployed? What do you mean by that? Well, is some on the Ethereum network and then bridged into the L2s?

Uh, good question. Um, I don't know exactly how how the stable coins are uh sort of on the L2s, whether they're natively deployed there. I would guess they mostly are. I wouldn't expect a lot of the L1 um stable coins to be bridged out. Uh I think we have uh the some folks that know this data even better on our stand. Uh so might if if you're curious about that, I I'd maybe go ask at the Dune stand. up up on the second floor.

Okay, I think that's time. So, thank you. Thank you so much. Have a great day. [Music]