Blockchains like Solana and Aptos still thrive despite high revenue-to-expense ratios
Most on-chain activity is inefficient, with networks spending more for incentives than they receive in fees. Aptos, an early-stage L1 network, is the most inefficient, though it managed to grow its user base in 2024.
As 2024 draws to a close, the yearly revenues and expenses for leading chains are becoming clearer. The incentive structure of some chains suggests much more incentives paid out while subsidizing apps that generate value.
Blockchains in 2024 showed different levels of efficiency when comparing their expenses in the form of block rewards to their total revenues from apps and transactions. This metric is a relatively recent tool to gauge the most promising platforms with viable products.
In the second half of 2024, most chains got a boost from active users and hosted highly active fat-fee apps. Despite this, most chains remain relatively inefficient, posting a net loss each month as they pay out validators.
The expense side of the ratio is tied to block rewards and validator payouts. For some chains, the incentives are key to build security and reliable validator presence, so it is a difficult decision to cut expenses. However, some chains achieve much better ratios between their revenues and expenses.
A ratio of high expenses is not necessarily disqualifying for a blockchain. In some cases, this is due to the chain’s commitment to achieving extremely low fees. The low fees in turn attract various apps and activities, which are not prohibitive to regular users.
Why is Aptos still posting losses?
The reported loss of Aptos is just a reflection of its incentives to validators. The network is actually producing value for those key participants – similar to Bitcoin paying out to miners, or Ethereum’s payouts to its current list of validators.
In November, Aptos posted a loss of more than $55M, with revenues of $160K from transactions and other use cases. The high expenses also include network inflation, which is above 7%. Aptos has to support 151 validator nodes, spread across 22 countries and 49 cities. Validators are also striking a balance between their APT rewards, and the need to stake tokens to improve their voting influence.
In the year to date, Aptos spent $494M for incentives, to produce $1.38M in revenues from network usage. For some, this result is highly inefficient, but it is also a subsidy of network growth. In 2024, Aptos started off with 124K daily active users, and is getting closer to 1M daily active users after rapid growth in H2.
The high issuance of APT tokens is mitigated by staking, where users are not immediately incentivized to sell their tokens. As a result, APT keeps a range between $6 and $17 for the past year, with three distinct rallies. Additionally, unstaking APT can take up to 30 days, further delaying mass selling.
Deflation makes TRON more efficient
TRON is the only L1 network with net earnings in 2024. One of the reasons is that TRX is a deflationary token, burning more than it produces. While validators are paid in TRX, the issuance is slowing down at a predetermined pace, with the occasional larger burn.
Networks that are currently inefficient are still in their early stages. In the case of Aptos, the chain is now building up its stablecoin supply. TRON, on the other hand, carries more than 61.7B USDT, accruing fees from the stablecoin usage.
Ethereum (ETH) relies on small inflation. Even with incentives, Ethereum is close to breakeven, paying out $1.14 for each $1 in revenues. It must be noted that some Ethereum apps retain or distribute their revenues to their own ecosystem, with only partial payments to Ethereum.
Aptos is lagging, since it is on an accelerated issuance schedule. Only around 41% of the supply are unlocked, with additional inflows at regular intervals. Similar early-stage networks also have a high cost of each dollar earned.
For Solana, the recent expansion of meme tokens is helping the bottom line. At the same time, Solana spends more than $7 for each $1 in revenues. Outside the L1 bottom line, Solana apps are mostly in the green.
Even older networks like Avalanche spend more than $62 for each $1 in revenues. Fantom, a mid-range network, spends more than $29 for its revenues. In general, L2 chains are also burdened by paying a rent to Ethereum, especially after the recent competition for blob fees.
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