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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

How Arbitrum and Optimism Made Millions in 2022

Dalmas Ngetich
Dalmas Ngetich
2 years ago
3 mins read
Profits Arbitrum and Optimism

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Arbitrum and Optimism raked millions in profit despite the extended bear market that hammered decentralized finance (DeFi) activities and Ethereum (ETH) valuation in 2022.

Arbitrum And Optimism Win Big

Per on-chain data shared on Twitter, Arbitrum, and Optimism, general-purpose Ethereum layer-2 platforms, made 2,906 ETH and 2,086ETH, respectively. In USD terms, it translates to around $4.6 million and $3.3 million for each protocol.

L2s are amazing businesses

Arbitrum made 2,906ETH ($4.6M) of profit in 2022

Optimism made 2,086ETH ($3.3M) of profit in 2022 pic.twitter.com/ViOkPA0Juv

— Kofi (@0xKofi) January 17, 2023

Based on user activity and the number of dApps launched on Ethereum, solid statistics show that developers prefer the first smart contracting over competitors. Since launching, the network has become a hub of activity, spearheading exciting innovations in decentralized finance (DeFi), NFTs, metaverse, and gaming. 

Related Reading: Ethereum-Based Frax Finance (FXS) Is Up 64%, Is There Still Opportunity?

Trackers in mid-January 2023 state that the total value locked (TVL) in Ethereum stands at $26.88 billion, representing more than half of the assets locked across DeFi. The drop in TVL mirrors the fall in ETH prices in 2022.

Ethereum price action 2022
Ethereum price, daily chart | Source: ETHUSDT on TradingView.com

In essence, Ethereum dominates with DeFi activity over the Binance Smart Chain (BSC), trailing at less than a quarter of the TVL of the leading platform, at $4.65 billion.

Despite this dominance, Ethereum’s scaling problem directly impacts Gas fees. As demand picks up, Gas fees fluctuate, leading to as much as $50 on this blockchain to post a simple transaction. Deploying smart contracts cost much more, sometimes upwards of $80, when the network is congested. As an illustration, the average transaction fees on Ethereum stood at $0.63 on January 17. However, on May 1, 2022, this figure stood at over $23.

Related Reading: Ethereum Layer-2 Platform, ZKSync, Releases New SDK in Swift

Ethereum layer-2 protocols are part of the scaling attempts made by developers to relieve the mainnet. By routing transactions off-chain, layer-2 solutions can help scale Ethereum but, most importantly, reduce Gas fees by several magnitudes. 

In Ethereum’s layer-2 realm, Arbitrum and Optimism dominate. According to L2Beat statistics, Arbitrum and Optimism had TVLs of $2.52 billion and $1.45 billion, with a market share of 52% and roughly 30%, respectively. 

Popular Ethereum L2s by TVL
Ethereum Layer-2 Protocols | Source: L2Beat.com

Riding on Network Effects

Although associated fees in Arbitrum, Optimism, and all other layer-2 networks are negligibly low, these protocols can profit based on activity. For every transfer or smart contract execution of Arbitrum and Optimism, there is an associated fee. 

Arbitrum and Optimism charge $0.11 and $0.23 for simple transfers, payable in ETH. If a smart contract is deployed, the fees rise to $0.30 and $0.35. They make more fees as more users deploy smart contracts or initiate transfers. Accumulating these amounts over months translate to a tidy profit for the protocol operator. 

In 2022, Ethereum layer-2 TVL fell roughly 40% from $7.45 billion to $3.3 billion in July 2022. Outflows were lower compared to layer-1 DeFi. As the market recovers, layer-2 operators may likely post higher revenue as users move assets to dApps launched on these scalable and low-fee protocols.

Featured image from Flickr, Charts from TradingView.com.
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Dalmas Ngetich
Dalmas Ngetich

Dalmas Ngetich

Dalmas, a seasoned crypto reporter, brings a unique perspective to the industry. His specialization in NFTs, blockchain, DeFi, and blockchain news for NewsBTC, combined with a background in mechanical engineering and over a decade of experience in journalism, has allowed him to craft over 10,000 news and feature articles over the past eight years. His diverse range of topics, including technology, Forex, and finance, reflects his comprehensive understanding of the crypto landscape.

Read more

His technical expertise and analytical skills have been recognized and featured by leading news outlets such as Investing.com, CoinTelegraph, Entrepreneur, Forbes, and other authority sites. Notably, he broke key news, including the Ripple and MoneyGram partnership, cementing his position as a thought leader in crypto.
The news exploded. Over 100,000 people devoured this meticulously crafted report, from seasoned investors to curious newcomers. His analysis wasn't just dry facts and figures; it crackled with insight, dissecting the implications of the partnership and its potential impact on the future of finance.

His deep understanding of the financial markets, technological advancements, and blockchain developments has made him a respected voice in the industry.

Dalmas is also the founder of BTC-Pulse, a crypto news site, further demonstrating his commitment to the field. He firmly believes that DeFi and NFTs are here to stay and will continue to drive financial inclusion.

Coming from Nairobi, Kenya, it is easy to see the source of his inspiration: Across Africa, millions lack access to traditional banks. Remote villages, limited documentation, and high minimum balances create insurmountable barriers.

DeFi, not just Maker or Aave, for example, but think of Bitcoin and USDT, cuts out the middleman. Forget banks with their limitations.
Even so, DeFi isn't a magic solution. The continent still struggles with reliable internet access, and educational campaigns highlighting the benefits of this wonderful solution are insufficient. Moreover, even for those interested, understanding DeFi can look like learning a new language.

Dalmas is here to help make the tech easy to understand and digestible, even for beginners.
The story of DeFi in Africa is still being written. Challenges abound, but the promise of a more inclusive financial future is a powerful motivator. With innovation and collaboration, Dalmas firmly believes that DeFi could become the key to unlocking Africa's full economic potential.
This possibility and its immense value motivate Dalmas to continue breaking key DeFi innovations and more across the globe. His engineering background further enhances his ability to deliver well-thought-out pieces that blend technical insight with clear, impactful reporting.

Beyond his professional achievements, Dalmas is deeply passionate about technology and politics. Policies drive adoption, and being at the forefront and keeping up with how they evolve is crucial for the sphere to mature.

When Dalmas is not closely monitoring the latest crypto events, he can be found in nature, exploring the picturesque countryside, and traveling with his family and friends. His love for adventure and discovery perfectly complements his investigative and reporting skills.
You can connect with Dalmas on X: @Dalmas_Ngetich, or contact him on Telegram @Dalmas_Ngetich.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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