About this metric

What does Onchain Profit tell you?

Onchain Profit is a key metric for assessing the financial viability of scaling solutions. It quantifies profitability by comparing the revenue generated from L2 gas fees collected to the costs associated with data & proof posting onto the Ethereum blockchain. L2 profitability can increases for two reasons: firstly, when there is high demand for L2 blockspace, enabling an auction of the available blockspace for a premium. Secondly, if the operator (who controls the sequencer) increases the base fee scalar. This metric can be used to gauge the health and success of Layer 2 solutions.

How is Onchain Profit calculated?

At growthepie, we calculate Onchain Profit by analyzing both the revenue generated from L2s (gas fees collected + mev) and the expenses incurred from posting transaction data and verification states onto Ethereum as well as costs towards alternative DA Layers. We subtract the costs from the chain revenue. This provides an accurate measure of the net onchain profit generated by the L2. Important to note: this metric does not include offchain costs such as operational expenses or development costs.

How can Onchain Profit be gamed?

The main angle to game Onchain Profit is through providing gas fee subsidies, which can artificially inflate revenue figures. Therefore, it's important to interpret this metric alongside other indicators of network health and adoption.

How to interpret Onchain Profit?

A positive onchain profit indicates that the Layer 2 is generating more revenue than it is spending on data posting, suggesting a sustainable business model. Conversely, a negative profit may signal financial challenges or inefficiencies in the L2's operations. However, offchain costs and fees subsidies are not included in this metric and should be considered separately when evaluating overall profitability.