Kraken has also entered the L2 field. How profitable is L2?

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jk
3 months ago
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Coinbase’s Base made $2.8 million in profit in August alone.

Original - Odaily

Author - jk

Kraken has also entered the L2 field. How profitable is L2?

On November 6, local time in the United States, Coindesk disclosed that “according to unnamed sources”,Kraken is considering companies such as Polygon, Matter Labs and the Nil Foundation to use their technology as the basis for Krakens new L2 network. The plans have not been publicly disclosed and conversations are ongoing.Coindesk mentioned in the news that there may be other teams in the discussion.

A Kraken spokesperson said: We are always looking to identify and solve new industry challenges and opportunities. We have no further information to share at this time.

Kraken has also begun recruiting a senior cryptography engineer. The job requirements clearly state that he needs to have the ability to design and implement L2 solutions. The job description reads: “We are passionate about open source, layer 2 technology, zero-knowledge proofs, multi-party computation, and constantly strive to explore the potential of on-chain scaling solutions. The team has recently begun exploring how to integrate more protocols and decentralized applications The program is integrated into Kraken.”

Kraken has also entered the L2 field. How profitable is L2?

Kraken job description. Source: Kraken official website

For readers who are familiar with blockchain, L2 is no longer a new term. Due to problems such as congestion and high gas fees in Ethereum, L2 solutions (also known as second-layer expansion solutions) try to build a network on top of the Ethereum main chain (represented by Layer 1), by processing some of the work of transactions and smart contract execution. Place it off-chain to improve Ethereum’s transaction throughput and reduce transaction fees faced by users. Among them, Rollups is a popular technology at present. It rolls multiple transactions together, processes them on L2, and then submits the data and final status changes back to the main chain. This technology significantly reduces transaction fees and enhances Ethereum’s scalability.

Currently, there are many well-known L2 projects: Scroll and zkSync use zkRollup technology to ensure the correctness of transactions through zkEVM; Arbitrum stands out with its high throughput and low-cost smart contract solutions; zkSync is based on StarkEx technology to improve transaction efficiency and privacy. ; Optimism attracts users with its low cost and fast processing capabilities; while Aztec Network focuses on encrypted transactions and provides privacy protection.

Together, these Layer 2 networks build an Ethereum ecosystem that is faster and more efficient while remaining decentralized and secure.

In August this year, one of Kraken’s biggest competitors, Coinbase, launched its own rollup solution, Base, built on Op Stack.This solution is designed to scale the Ethereum network, providing low transaction fees and efficient processing power. As an OP rollup chain, it targets Coinbase’s large user base and is already compatible with multiple major decentralized applications, showing Coinbase’s strategic intention to play a greater role in the Web3 and DeFi ecosystem. At present, Base has become one of the most famous L2 networks, and the killer application friend.tech has become popular in the entire currency circle. Compared with the major L2 networks of the previous period, it is not inferior at all. The reason is that Coinbases huge user base has brought huge traffic to Base, and for the network, traffic represents money.

Obviously, Kraken is stimulated by this brilliant record, so it is also in contact with different technology companies, trying to find its own Op stack so as to get a share of the lucrative L2 business.

How profitable is L2?

TVL

According to DefiLlama data, among all rollup chains, there are a total of 19 chains in the statistics. Artbitrum ranks first, with TVL reaching 1.9 billion US dollars and 24-hour transaction volume reaching about 440 million US dollars. Following closely behind is Optimism with TVL of approximately $600 million, the third largest one is Base, with TVL reaching US$294 million and 24-hour trading volume of approximately US$20.91 million. Ranked next are zkSync Era, Mantle and Linea, etc.However, Artbitrum’s mainnet was launched in September 2021, Op’s mainnet was launched at the end of 2021, and zkSync Era was launched in March this year (zkSync Lite was launched in 2020). Taking into account the accumulation time of these competitors, Base, which was launched in August this year, was able to form such a large-scale TVL in just a few months, and the large number of user conversions on the exchanges behind it were indispensable.

According to Backlinko data, Coinbase currently has about 56 million verified users, while on-chain data shows that the Base network has about 2.4 million users.A rough calculation shows that the conversion rate of Coinbases L2 network is about 4.3%; this is undoubtedly a huge attraction for Kraken, which has more than 9 million registered users.

Kraken has also entered the L2 field. How profitable is L2?

TVL of major L2 networks. Source: DefiLIama

Data on the chain

According to on-chain data from Dune Analytics, the profitability of the Base network is second to none:With 2.4 million users, total profits have now reached $4.97 million,Its total revenue is around $8.91 million, with impressive profit margins. If the impact of ETH price fluctuation is removed, based on monthly income,In fact, Bases profits have been shrinking month by month since August. In August, the income was 1,588 ETH, followed by 770 and 370 ETH in September and October.But even in October, which was the least profitable month, there was revenue equivalent to nearly US$610,000, indicating strong profitability. Referring to the trend of Arb and OP, which were strong at the beginning and then gradually contracted to a stable level, Bases future income will gradually stabilize, relying on the ecology of the chain to generate stable profitability.

Kraken has also entered the L2 field. How profitable is L2?

On-chain profits of major L2 solutions. Source: Dune Analytics

Based on the above data, it is not difficult to see why Kraken is also looking for an L2 network that relies on its own exchange size. This strategic shift by Kraken not only marks the expansion of its business, but also reflects the growing demand for L2 network technology in the entire cryptocurrency industry. As industry giants continue to explore and invest in these technologies, we can foresee that these networks will play an even more central role in the crypto economy in the future.

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