Arbitrum Generates Over $100 Million in Annual Revenue, Making Layer-2 Incredibly Profitable

By 0xK2 On May 7, 2023

According to a recent tweet by James Ho, Co-founder of Modular Capital, the Arbitrum platform is doing $115 million in annualized revenue, with a net profit margin of 30-40% after calldata costs. Ho predicts that this profit margin will increase to 90-95% after the implementation of eip-4844/proto-danksharding.

In comparison, Ethereum is currently generating $3-5 billion in annualized fees, while Layer-2 are on their way to becoming incredibly profitable. Ho notes that while both Arbitrum and Optimism are on a similar trajectory, with Optimism generating roughly half of the ARB run rate, neither of the chains is currently using OP/ARB tokens to pay for gas or has explicit utility (such as protocol fees or burn).

1/ Arbitrum doing $100m+ in annualized revenue, which net 30-40% margins today (after calldata costs)

Will expand to 90-95% margins after eip-4844 / proto-danksharding

For perspective ETH is doing $3-5bn annualized fees

L2s on path to being incredibly profitable pic.twitter.com/xvMjmPH7DZ

— James Ho (@jamesjho_) May 6, 2023

Arbitrum is already doing half of Ethereum mainnet’s spot dex volumes, with $16B/month vs $32B, and parity in daily txns/active wallets. Ho believes it is only a matter of time before a layer-2 fully flips Ethereum in economic activity, with $1B+ in fees from a single layer-2 platform sooner than many think.

While these numbers may seem impressive, Ho points out that the biggest question for layer-2 value accrual is not whether substantial fees can be generated – they can and will be very profitable soon. Instead, it’s over what time frame will sequencers decentralize and will value be directed toward the layer-2 token.

In conclusion, it’s clear that the battle for supremacy in the cryptocurrency world is heating up, and layer-2 platforms such as Arbitrum and Optimism are positioning themselves to become major players. With impressive revenue numbers and the potential for even greater profitability in the future, it will be interesting to see how these platforms continue to develop and evolve in the coming years.

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