Ethereum’s Base L2 Dominates Revenue with Priority Fees and DEX Activity

Base, the Ethereum layer-2 (L2) solution developed by Coinbase, has emerged as the top revenue-generating rollup, significantly outperforming its competitors. According to Galaxy Digital, over the past 180 days, Base has generated an average daily revenue of $185,291, dwarfing Arbitrum’s $55,025 and the combined $46,742 of 14 other leading rollups.

Base’s Sequencing Model

The economic success of Base can be attributed to its unique sequencing model. Transaction ordering on Base is influenced by when transactions are submitted and the fees paid relative to transaction complexity. This model mirrors the principles of Ethereum’s EIP-1559, creating a dynamic auction system where users can pay a priority fee for expedited processing.

The priority fee mechanism ensures that Base maximizes profitability by prioritizing transactions that offer the highest fee per unit of gas consumed. This approach contrasts with other models, such as Arbitrum’s first-come, first-served (FCFS) system, which focuses on latency rather than economic incentives.

Revenue Generation and DEX Activity

Base has achieved significant revenue generation, with a year-to-date total of $33.4 million. A major portion of this revenue, around 86.1%, is derived from priority fees, which have averaged $156,138 daily over the last 180 days. The high volume of decentralized exchange (DEX) activity on Base, accounting for 50% to 65% of DEX volume across L2s, further contributes to its revenue dominance.

DEX activity has driven a substantial amount of priority fee revenue, with transactions often competing for top block slots. Despite a recent decline in DEX swap priority fees due to increased competition and the implementation of Flashblocks, DEX activity remains a significant revenue source for Base.

Impact of Flashblocks

The introduction of Flashblocks by Flashbots has enhanced Base’s transaction processing speed by creating high-confidence pre-confirmations within blocks. This innovation allows high-priority transactions to be processed more efficiently, even if they appear in lower slots of the final block.

Flashblocks have helped maintain Base’s competitive edge in the L2 ecosystem, ensuring that transactions are processed swiftly and efficiently, thereby maintaining the chain’s revenue-generating capabilities.

Conclusion

Base’s success can be attributed to its innovative fee model and the thriving DEX activity on its platform. By transforming the competition for block space into an economically driven auction, Base effectively captures and monetizes transaction demand. The model allows Base to maintain a leading position in revenue generation among Ethereum layer-2 solutions.

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