Introduction
In the ever-evolving world of cryptocurrency, the debate surrounding Layer 1 (L1) and Layer 2 (L2) blockchain valuations continues to captivate investors and analysts alike. This report delves into the intricacies of blockchain economics, challenging the notion of an “L1 premium” and exploring the factors driving valuations across different networks. By synthesizing data from multiple sources, we aim to provide a nuanced understanding of the current state of L1 and L2 valuations.
Table of Contents
- Understanding Valuation Metrics
- Debunking the L1 Premium Myth
- Optimism’s Valuation Anomaly
- The Collective Strategy Success
- ZK Rollups: Margins and Potential
- Key Takeaways
- Conclusion
Understanding Valuation Metrics
Before diving into the analysis, it’s crucial to understand the key metrics used in blockchain valuations. According to a comprehensive thread by crypto analyst @0xtaetaehoho, these metrics include:
The analysis focuses on L2 profit, which is calculated as L2 revenue (base fees plus priority fees) minus on-chain operation costs. It’s important to note that this data is based on Last Twelve Months (LTM) figures for most networks, with some exceptions like Blast, which only has three quarters of data available.
Debunking the L1 Premium Myth
One of the most intriguing findings from the analysis is the challenge it poses to the widely accepted notion of an “L1 premium.” When comparing Fully Diluted Valuation (FDV) to revenue metrics, the data suggests:
- No clear “L1 premium” is evident when looking at FDV ratios.
- L2 networks like Arbitrum and Optimism show FDV/L2 revenue ratios between 100-250.
- Ethereum and Solana, both L1 networks, have FDV/REV ratios of 118-140.
However, when considering Market Cap (MC) instead of FDV, a different picture emerges:
There is a definitive “L1 premium” when comparing MC, suggesting that the float and token distribution strategies of L2 networks play a significant role in perceived valuations.
Optimism’s Valuation Anomaly
Among the L2 solutions analyzed, Optimism stands out with a significantly higher valuation multiple compared to its peers. The analyst notes:
Optimism trades at a multiple that is SIGNIFICANTLY higher than other comps. Investors seem to be pricing in the expansion of the collective favorably.
This premium valuation suggests that the market has strong confidence in Optimism’s future growth and its collective expansion strategy.
The Collective Strategy Success
The analysis reveals an interesting trend regarding Optimism’s collective strategy:
- The net profit to the DAO through collective profit share (15% of sequencer revenue / 2% of profit) in Q4 to date exceeds L2 revenue from OP itself.
- Base, a part of the Optimism Collective, has deposited approximately 9 million to the collective treasury.
These findings indicate that Optimism’s collective approach is proving successful in accruing value to its treasury, potentially justifying its higher valuation multiple.
ZK Rollups: Margins and Potential
The analysis also sheds light on the current state of ZK rollups:
- L1 verification costs for ZK Proofs (ZKPs) currently reduce margins for ZK rollups.
- The potential cost savings from state-diff have not yet been fully realized or passed down to users.
- Scroll, a ZK rollup solution, appears to be undervalued by the market, with investors not pricing in significant growth potential.
These observations highlight the nascent stage of ZK technology and suggest potential opportunities for growth and efficiency improvements in the future.
Key Takeaways
- The concept of an “L1 premium” is more nuanced than previously thought, with clear differences between FDV and MC comparisons.
- Optimism’s high valuation multiple suggests strong market confidence in its collective expansion strategy.
- ZK rollups face current margin pressures but hold potential for future efficiency gains.
- Token distribution and float significantly impact perceived valuations, especially for L2 networks.
- The success of collective strategies in accruing value challenges traditional valuation models in the crypto space.
Conclusion
This analysis challenges conventional wisdom surrounding L1 and L2 valuations, revealing a more complex landscape than previously understood. As the cryptocurrency market continues to evolve, investors and analysts must consider a broader range of factors when assessing blockchain valuations. The success of collective strategies and the potential of emerging technologies like ZK rollups may reshape the valuation landscape in the coming years.
What are your thoughts on these findings? Do you believe the “L1 premium” will persist, or are we witnessing a shift towards more nuanced valuation models in the crypto space? Share your insights and join the discussion below!
