Original title: Is Base “stealing” Ethereum’s GDP?
Original author: Michael Nadeau, founder of The DeFi Report
Original translation: xiaozou, Golden Finance
Standard Chartered Bank released a report titled Ethereums Midlife Crisis last month, which sparked heated discussions. The report estimated that Base caused Ethereums market value to evaporate by $50 billion and took away GDP, so it lowered ETHs year-end target price from $10,000 to $4,000. This leads to a core question: Did Standard Chartered misjudge ETH at the bottom of the L2 J curve? Or will the structural recession continue?
In this article, we will re-examine Standard Chartered Bank’s conclusions and offer our own insights.
1. Base and Ethereum’s “Partnership”
Suppose you are Ethereum and I am Base. We are both building critical infrastructure for web3. One day I proposed to you: instead of building another L1 to compete, why not work together?
As a Base, my cooperation requirements are:
Shared Ethereum security and settlement layer (it’s too expensive to build your own validator)
Build a native cross-chain bridge to access Ethereum users and assets
Shared liquidity and developer ecosystem
Reduce operating costs
Compatible with EVM and surrounding infrastructure
As an Ethereum, you wish to:
Acquire new users through Coinbase
Increase ETH demand (transactions and on-chain services)
Get enterprise-level customer feedback
Generate fee income for validators
Improve throughput and user experience
The two parties have formed a synergistic effect of 1+1>3. Now two years have passed, let us verify the results with on-chain data.
2. Base Economy and On-Chain Data
User fees
Since its inception, Base has generated a total of $24.8 million in base fees and $81.9 million in preferred fees. In 2024, Base revenue ($74 million) accounted for 1.1% of Coinbases total annual revenue.
Base is currently the fastest growing and most profitable Ethereum L2, launched two years later than its biggest competitor Arbitrum.
Base GDP
Base’s on-chain applications have generated a total of US$768 million in fees (cumulative “GDP”), with major contributors including DeFi protocols such as Uniswap and Aerodrome.
“GDP” measures the fees paid by end users to use on-chain applications (excluding gas fees).
Average new addresses per day
In the past 30 days, Base has added an average of 412,000 new addresses per day. Since its launch in August 2023, Base has attracted a total of 155 million address interactions. Base is attracting new users to the Ethereum ecosystem.
Base bridges ETH
Currently, there are 1.917 million ETH (including LST) on the Base chain, accounting for 1.6% of the circulation, creating new demand for ETH.
Average daily bridge assets
Through the native cross-chain bridge, $50-200 million worth of assets flow between L1/L2 every day (ETH accounts for 80%). In the past 30 days, $503 million worth of assets flowed back from Base to Ethereum. In the past 90 days, $3 billion worth of assets flowed back from Base to Ethereum, proving that Ethereum is still a cross-chain hub.
Stablecoin Supply
The stablecoin stock on the Base chain reached 4.2 billion US dollars (USDC accounted for 91%), with a total locked value of 9.9 billion US dollars, of which 6 billion were native assets and 3.3 billion came from Ethereum cross-chain. This has created more application scenarios for Ethereum.
Base is currently valued at $9.9 billion. $6 billion of that is “native” assets, meaning they are issued on Base. $3.3 billion is “canonical” assets, meaning they are bridged from Ethereum. $600 million is considered “external” assets, meaning they are bridged from other chains.
Likewise, Base creates net new demand for ETH through its native tokenized asset.
In summary, in less than two years, Base has used Ethereum to:
• Became the largest and fastest growing L2, earning $106 million in user fees.
• Introducing 157 million new addresses to Ethereum (including some L1 user migration).
• Build an application ecosystem that generates $768 million in costs.
• 1.91 million ETH cross-chain, creating additional demand for on-chain services.
• Added $4 billion in stablecoin value (Coinbase holds approximately 50% of USDC).
• Issued $6 billion in native assets and introduced $3.3 billion in Ethereum assets.
We believe that Ethereum has achieved the cooperative value of 1+1=3. But how does Ethereum itself benefit?
3. Base’s contribution to Ethereum’s “security franchise”
Base has paid a total of $4.5 million in blobs and settlement fees to L1 (which were destroyed), with an on-chain profit margin of 91% in the last six months (excluding off-chain costs). Note that Base paid a total of $24 million in L1 fees, 80% of which occurred before the implementation of EIP 4844 (cheaper blobs), and our analysis does not include the previous call data stage.
Currently, Base processes an average of 93 TPS, effectively expanding Ethereums capacity.
Since Base went online in August 2023, Ethereums weekly GDP has increased by 75%, but it is still 80% lower than the peak in early 2022. Currently, the daily GDP of L1 applications is US$57 million, while the average weekly GDP of Base applications is US$6.8 million.
Back to the core question: Does Base steal Ethereums GDP?
The answer is yes!
This is exactly what the L2 roadmap is all about. Top applications (such as Uniswap, Aave) are expanding to Base, and new projects (such as Aerodrome) are directly choosing Base instead of L1. Users migration to L2 has led to a decrease in L1 fees and ETH burn, and Ethereum is moving towards a more enterprise/B2B business model.
This would only constitute a bug in Ethereum if L2 is unable to fill the gap through blob fees in the future.
4. Base growth forecast and ETH value capture
Based on current data, we believe that Ethereum is investing in the long-term future through the L2 roadmap, sacrificing GDP, transaction fees, and ETH burn in the short term, and expects Base to expand its scale, establish a replicable template (traditional finance?), and promote the positive development of the ecosystem.
Current situation analysis:
• L2 currently processes approximately 165 TPS in total and needs to compete for blob space.
• 3-4 L2s continue to occupy the current 3 target blobs per block (maximum 6). Whenever this happens, L2s bid against each other, raising fees.
• The target blobs/block is currently 3 (maximum 6), but will increase to 6 (maximum 9 blobs/block) via a Pectra upgrade next month. Therefore, in the initial scenario analysis, we assumed a target of 6 blobs and a maximum of 9 blobs.
• We use the Blob simulator created by Tim Robinson.
As can be seen from the above figure, the current status has little impact on the Ethereum economy, with an average L2 fee of $0.0002
A 5x increase in Base TPS would result in slightly higher L2 fees while bringing more value to Ethereum L1 ($24.5 million annualized).
A 10-fold increase in Base TPS will cause L1 annualized revenue to surge 200 times to $4.9 billion (which validators will like). But we also create another problem: the average L2 fee will rise to $0.35 (unacceptable).
PeerDAS and Fusaka upgrades (expected in Q3/Q4 this year) will increase the number of blobs/blocks to 12 (the final goal is 48, the maximum limit is 72). Assuming that Base TPS is increased by 10 times and the initial Fusaka upgrade is completed:
• L2 average fee can be controlled at $0.0018
• L1 annualized revenue of $48.9 million
If Arbitrum and Optimism also achieve 10x expansion in the same period:
• L1 annualized revenue could reach $17.7 billion (nearly double the 2021 peak)
• But once again, we’ve created a bottleneck and the average L2 cost/transaction has risen to $0.64. This is not feasible.
Lets optimistically estimate that the target blobs will increase to 24 after one year:
• L1 annualized revenues fell to $9.6 billion
• The average L2 fee is still $0.17
To keep the average L2 fee below $0.02, a target of 33 blobs/block is required, at which point the annualized L1 revenue would be only $1.4 billion, which is exactly the same as the actual revenue in the past 365 days.
summary:
We try to simplify the analysis model to clarify two core mechanisms: 1) the impact of L2 transactions per second (TPS) on blob pricing; 2) the transmission effect of the increase in L1 target blob/block number on the Ethereum economic model and L2 user fees. In fact, we fully recognize the dynamic and unpredictable nature of the market environment - in the near future, there may be hundreds of L2s competing for blob space at the same time.
We are confident that L1 will continue to carry a large amount of on-chain activities, continue to generate fee income and promote ETH destruction. However, the specific application scenarios and transaction scale are still unclear.
According to the simulator simulation results (assuming that the three major L2s all reach 10 times the TPS of the current Base), when the total TPS of L2 reaches 2,790, even if the Pectra technology upgrade is completed, the Ethereum network will still face overload pressure (at this time, the cost of a single L2 transaction is US$0.35).
In comparison, Solana has been processing 1,078 TPS steadily over the past 90 days, with an average fee of only $0.016 (including basic fee + priority fee), and the actual user fee is lower - because its network adopts a dynamic pricing mechanism based on transaction type, and its performance upgrade solution Firedancer has not yet been officially launched.
5. Conclusion
“There is no perfect solution, only trade-offs” is particularly applicable here. Base started quickly through the L2 model and has achieved ideal returns, but it also tied itself to the uncontrollable Ethereum expansion route and may face the risks of “vendor lock-in” and technical debt.
Ethereum seems to have gained enterprise-level customers by sacrificing L1 fees, creating new demand for ETH and a better user experience. However, it is questionable whether the long-term economic relationship is sustainable - scenario analysis shows that expansion bottlenecks may continue to exist. If L2 cannot expand rapidly, it may be necessary to issue additional ETH to maintain validator income (after EIP 4844, ETH supply has changed from deflation to possibly exceeding BTC).
We believe that Base is satisfied with the current status quo, but if Ethereum blobs fail to scale, it may seek alternatives such as Celestia. Ethereum urgently needs to shift its culture from value recognition to a security as a service business model for enterprises.
Back to the original question: Did Standard Chartered misjudge the bottom of the L2 J-curve? We believe that the structural decline of Ethereums fundamentals will continue in the short term. Although market sentiment may improve as traditional finance goes on-chain, there is a lack of fundamental catalysts for improvement. The figure below shows that there is still a long way to go.
