Original author: @poopmandefi

Original translation: Luccy, BlockBeats

This article summarizes the views of cryptocurrency KOL @poopmandefi on social media platforms, as compiled by BlockBeats:

A successful Rollup generates significant profit

zkSync has accumulated revenue of $20 million (excluding costs) using Rollup technology

Arbitrum has generated revenue of approximately $11.87 million

Optimism has generated revenue of approximately $8.9 million

Base has generated revenue of approximately $5.14 million

How does Rollup generate revenue?

We will discuss this from 5 perspectives:

1. What is Rollup

2. Three participants in Rollup economics

3. Rollup costs

4. Rollup revenue

5. Summary of Rollup economics

Let's delve into the blockchain scaling solution Rollup.

What is Rollup?

First, Rollup is a scaling solution that involves moving some transaction data from the main chain (such as Ethereum) and processing it on a sidechain or Layer 2, only submitting the final results to the main chain when necessary. This method helps reduce the transaction load on the main chain. Currently, there are two popular types of Rollup: Optimistic Rollup and ZK Rollup.

Although they differ in the proof methods, they share a common goal: balancing the cost and revenue of Rollup. To understand how they achieve this, we first need to have a basic understanding of Rollup economics.

The Three Participants in Rollup Economics

Firstly, there are three main participants in Rollups: users, operators, and Ethereum/base layer. Each of these participants represents a portion of the value flows within Rollup.

The survival of Rollup depends on users who pay gas fees on the Rollup/Layer 2 to execute transactions, which is one of the main sources of Layer 2 revenue. Detailed information about revenue will be discussed in the following sections.

The fees paid by users will flow to the operators of the Rollup, who are responsible for sorting, bundling, batching, or computing transactions that require proof of validity.

Finally, compressed transactions or messages from the Rollup need to be settled on the base layer, which is the most expensive part of all the steps. At the same time, running a system inevitably incurs costs and generates revenue, and these costs and revenue incentivize each participant to work.

In just 3 months, zksync has paid over $13 million in Data Availability (DA) and Proving costs, followed by $8.3 million for Arbitrum and $6.5 million for Optimism. But what are the sources of these costs? The three main factors contributing to these costs include:

- Operator costs

- Data availability costs (DA)

- Proving costs

Rollup Cost

Operator Cost: Costs related to bulk transaction processing, sorting, transaction verification, block generation, etc. As most Rollup operators are currently centralized, these costs are borne by the protocol itself or its partners.

Data Availability Cost: DA cost is the cost of batch submission. Once the operator accumulates enough data, it publishes the data in the form of "CALLDATA" to the underlying layer. The cost of publishing data is borne by the underlying layer, and the market price of the data is governed by EIP-1559.

Verification Cost: In zkRollup, nodes on L2 need to submit proofs of validity to prove the correctness of changes. This process incurs verification costs whenever a state change is required.

Rollup Revenue

Now that we understand the main costs of Rollup, there must be corresponding revenue to offset these costs. Rollup's revenue depends on two main areas:

• Transaction Fees

• Token Issuance

Transaction Fees: A certain fee is charged from each transaction when users transact on Rollup. In addition, Rollup can generate revenue through congestion fees (in the sequencer) and MEV (Miner Extractable Value) extracted from transactions.

Token Issuance: Launching native Layer 2 tokens can be an important source of revenue for the team. Tokens help cover infrastructure costs and incentivize cooperation between operators and investors, as well as promote decentralization in shared services (the future of Layer 2).

Excluding token issuance and fundraising income, zkSync still generates approximately $20 million in revenue from transaction fees, with a profit of $6.87 million after deducting costs, ranking first. At the same time, Base and Arb both earn $3.5 million in profit, tied for second place.

Rollup Economics Summary

Rollup involves three main participants: users, operators, and the base layer (L1).

The costs of running this system include operator costs, data availability costs, and verification costs (which dominate in zkRollup). To offset these costs, Rollup's revenue relies on transaction fees and token issuance.

A deeper understanding of the value flow between users and operators can be summarized by the following equation:

User fees = L1 data availability costs + operator costs + L2 congestion fee

Operator costs = L1 data availability costs + operator maintenance costs

Operator revenue = L2 user fees + MEV in sequencer

Operator profit = Operator revenue - Operator costs

Through these basic mathematical calculations, we can estimate the profitability of different operators in Rollup.

Given this, maintaining budget balance or surplus remains the primary goal of each L2. Therefore, many L2s are trying different economic designs, including:

• Reducing the cost of sending to L1 through strategic means

• Optimizing congestion fees on L2

Conclusion

So far, we have only scratched the surface of Rollup. There is much more to discuss about Rollup economics. For a deeper understanding, it is recommended to read "Understanding rollup economics from first principles".

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