Ethereum’s L2 Success Story Has a Revenue Problem
TREE NEWS reports: ARK Invest researcher Lorenzo Valente recently drew an analogy comparing Ethereum, Solana, and Hyperliquid to McDonald’s, Chipotle, and In-N-Out respectively. The core observation: Ethereum has built the most successful Layer 2 (L2) ecosystem, yet in doing so, it has ‘forgotten to collect rent’—a strategic oversight that could have long-term economic consequences.
The Analogy Explained
Valente’s comparison highlights three distinct approaches to blockchain scalability:
- Ethereum (McDonald’s): Ubiquitous, massive ecosystem, but franchises (L2s) operate with significant independence, and the parent company captures relatively little of the revenue generated by its ‘stores’.
- Solana (Chipotle): High-throughput, integrated experience—a single chain that captures most of the value from its own activity.
- Hyperliquid (In-N-Out): Niche, high-quality, focused—a specialized chain (in this case for perpetuals) that retains tight control and benefits directly from its users.
While Ethereum’s rollup-centric roadmap has been wildly successful in scaling transaction throughput and reducing fees, it has inadvertently created a value capture problem. L2s like Arbitrum, Optimism, and Base process the bulk of user transactions, paying only minimal settlement costs to Ethereum (L1) in the form of blob fees. Meanwhile, the vast majority of user fees, MEV opportunities, and network effects accrue to the L2s themselves.
Value Capture vs. Scalability
This is not just a philosophical debate—it has tangible financial implications. Ethereum’s fee revenue has declined significantly as activity has migrated to L2s. In 2024, L2s consistently outperformed Ethereum in terms of transaction volume, yet Ethereum’s burn mechanism (EIP-1559) has seen reduced activity, leading to lower ETH supply deflation and potentially weaker demand for ETH as a ‘yield-bearing’ asset.
ARK’s critique suggests that Ethereum’s leadership may have over-optimized for adoption and decentralization at the expense of sustainable economic value. In contrast, Solana’s monolithic approach ensures that all economic activity directly benefits the base chain, making it more akin to a traditional business that owns its entire supply chain.
Looking Ahead: Can Ethereum Adjust?
The question now is whether Ethereum can recalibrate its economic model without alienating its L2 partners. Proposals like danksharding and improved blob fee markets could help, but they may not be enough. There is also growing discussion about ‘L2 rent’—mechanisms that could return more value to Ethereum, such as mandatory MEV burn or higher settlement fees.
From an investment perspective, this analysis is crucial. If Ethereum cannot capture more value from its ecosystem, its long-term revenue potential may be capped, affecting its valuation relative to competitors like Solana. The ‘forgot to collect rent’ metaphor is a stark reminder that in blockchain networks, as in business, growth without revenue is not a sustainable strategy.
For now, Ethereum remains the most secure and decentralized settlement layer. But as ARK suggests, it may need to rethink its relationship with L2s to ensure that the ‘franchisees’ don’t leave the ‘franchisor’ with an empty till.
