Between a Rock and a Hard Place: L2 Economics

Key Insights

• Ethereum’s pivot back to scaling its L1 refocuses its economic center on mainnet, putting direct, structural pressure on Ethereum L2s for blockspace demand, liquidity, and users.
• Aggregate fee revenue across the Ethereum ecosystem is in decline. With Base now capturing roughly two‑thirds of all L2 fees, most L2s have stalled in growth.
• Despite falling revenues and, in many cases, persistent operating losses, L2 tokens trade at extreme valuation multiples, signalling a serious disconnect between price and fundamentals.
• Traditional growth levers, such as token incentives and horizontal distribution deals, deliver diminishing returns; even Optimism’s partnership with Base nets modest revenue once acquisition costs are included, while other corporate L2s generate immaterial fees.
• Three strategic paths remain: tightly scoped distribution partnerships for captive user flows, deep specialization in a high‑value niche, or a decisive pivot to Bitcoin’s comparatively open, non‑competitive L2 landscape, where first‑mover advantage and untapped BTC liquidity offer the most asymmetric upside.

This report focuses on the effects of Ethereum’s roadmap on the L2 landscape. For a more holistic view of Ethereum’s roadmap and its implications for Ethereum, please read our report here.