1. Suggestions on ecosystem incentive activities Execute a multi-stage airdrop strategy: Follow Optimism's multi-round airdrop model to maintain long-term user stickiness. This approach helps retain users after the initial token issuance and encourages long-term participation in the ecosystem. Allocate significant resources to grant programs: Use part of your incentive budget to fund developers and builders. This medium-term approach helps build a strong Dapp ecosystem, which is critical for user retention and sustainable growth. Then, implement a strong monitoring system to track key metrics and analyze the impact of incentives. This will enable data-driven adjustments and continuous optimization of the grant program. Focus on reducing the average cost per user in the long term: The goal as the network matures is to reduce the average cost per monthly active user (MAU). Optimism's approach of combining recurring grants with strategic airdrops has resulted in a relatively low cost per MAU of $304. Set a long-term goal of achieving similar or better efficiency within 12-18 months. Prioritize ecosystem development before token issuance: Consider Base’s approach, which focuses on culture, builder stickiness, and ecosystem development, all without the need for a token. Allocate resources in the form of targeted microgrants to founders and projects whose goals align with the ecosystem vision, rather than relying solely on token incentives. Balancing short-term and long-term incentives: The goal is to maintain a balance between short-term incentives (such as airdrops) and long-term incentives (such as donation grants and ecosystem funds). This balance can both attract initial users and maintain long-term growth. Implement user retention strategies other than economic incentives: Develop a strong community culture, focus on successfully attracting and retaining developers, create engaging experiences and activities, and improve user experience similar to Base. This will help maintain user stickiness even without continued economic incentives.
2. Introduction Layer 2 (L2) networks have emerged as a key solution to blockchain scaling challenges. As these networks compete fiercely for market share, incentive programs (particularly grants and airdrops) have become a key element of each network's growth strategy. Given the sheer amount of resources invested, let's take a step back and examine their effectiveness through the analysis in this article. ( 1 ) Research scope Here we focus on two main incentive mechanisms: grants and airdrops. The analysis excludes application-level incentives such as liquidity mining or yield strategies to better maintain a clear focus on L2 blockchains. The data used in our research ranges from 2021 to September 2024. ( 2 ) Key performance indicators We considered two main metrics to evaluate the performance of incentive plans: Revenue Generation: Ideally, revenue growth should offset at least some of the costs of the incentive program, showing a positive ROI and indicating that it is a successful program. User acquisition + retention: Achieve sustainable short/mid-term user growth at the lowest possible cost. Therefore, we will track the evolution of Monthly Active Users (MAU).
Revenue generation and user acquisition are closely linked. More MAUs increase network activity and transactions, which in turn increases sequencer revenue. Higher revenue means this is a valuable network that is able to attract and retain users, which in turn increases revenue. This positive feedback loop is critical to long-term success. By closely tracking these numbers, we can get a clear picture of the incentive activity of each chain and its impact on these two metrics. ( 3 ) Understand the relevant background and constraints before in-depth research As with any in-depth study of complex data, it is important to note certain constraints: Layer 2 lacks a clear incentive dashboard that shows grant details, such as dates and exact token amounts. Different ecosystems view airdrops and grants differently. For example, some ecosystems consider private investments in tokens or equity as grants. However, in our research, we do not classify these as grant programs. The lack of transparency and multiple definitions of grants and airdrops make this data particularly difficult to collect. The Optimism Superchain and ZK stack are not considered, only the main chain is considered. Base receives grants from Optimism, but this grant is not taken into account. The definitions of grants and airdrops can overlap, especially in the context of Optimism. Incentives can also impact other metrics like protocol TVL or number of applications, but we chose to focus on MAU and chain revenue as the primary metrics for evaluating L2 incentives. These metrics were chosen because they are easy to quantify and the data is readily available from public sources. While MAU and chain revenue are correlated, they also provide valuable insights into the short-term and long-term impacts of incentives. In the end, it’s best to stick to 2-3 metrics to keep the analysis easy to understand. While MAU and revenue are closely related, other factors also play a crucial role. Community culture, narrative, marketing, technological advances, and macroeconomic conditions all have a significant impact on the results. However, this study takes a simplified approach and examines the impact of incentives in a more isolated way. The incentive cost is calculated based on the USD value of the tokens on the token issuance date. Data on recent L2s like Starknet, Blast, or ZK Sync Era are all recent, so it’s hard to draw conclusions in the short term.
After understanding the relevant background, let’s conduct an in-depth analysis. 3. The impact of incentives on MAU (monthly active users) Let’s start with a simple chart showing the number of monthly active users for each L2. The figure shows: Base is the only chain that has continued to grow its monthly active users by an average of 56%, and its retention rate has not dropped significantly, while the number of users of other chains has been declining in recent months. All other L2s have experienced a decline in user numbers in recent months. After the airdrop event, the monthly active users of the latest chains such as ZK Sync Era, Blast, and Starknet decreased, while the monthly active users of L2 solutions such as Optimism and Arbitrum increased slightly.
We believe there are four main reasons: Recently, we have seen an increasing number of L2 solutions coming online. As a result, the number of users has been diluted between these L2s and their respective airdrop campaigns. This trend may explain why new L2s have difficulty retaining users after airdrops. Another explanation could be the grant programs of Arbitrum and Optimism, which are effective strategies for long-term user retention. The upward trend after the airdrop suggests that these projects have successfully maintained user stickiness, unlike emerging L2 solutions that have difficulty maintaining a user base. Based on this, we can assume that this is due to the lack of grant incentives and/or the small ecosystem with few applications. As chains become more mature, culture is a key differentiator for L2. Optimism, Arbitrum, and Base may have an advantage in this regard because they have been around longer. The same is true for security/decentralization, with two of the chains (Arbitrum and Optimism) still in stage 1 according to "L2beat". Base has no tokens. People are looking forward to airdrops and not leaving Base because it is the last large L2 without a token; people enjoy Base’s culture and activities; and trust Base because Coinbase is behind it.
However, MAU is not the only metric to consider. Let’s also look at the impact of incentives on revenue. 4. The impact of incentives on revenue Now, let’s move on to the second metric we’ll discuss in this article — revenue. To analyze the second metric, we reviewed the total incentive distribution (in USD) and compared it to the total revenue generated by the chain (in USD). Since chains usually start incentive campaigns immediately after launching on mainnet, it is impossible to compare the presence or absence of these campaigns. We decided to divide the cumulative revenue of each L2 by its cumulative incentives to get a more comprehensive data. The following points can be drawn from this analysis: There are two chains that have higher earnings than their incentives spent: Base is performing very well, with low incentives and high activity leading to high earnings. For every dollar spent on incentives, about $50 in earnings is generated. Optimism also maintained a net positive earnings before the first round of airdrops through the grant program. Chains that airdropped generated less revenue than incentives spent: for every $100 spent on incentives, Blast, Arbitrum, zkSync, and Optimism generated $5, $8, $11, and $27, respectively. It is worth noting that among the chains that provided the most grants, Optimism and Arbitrum have seen an increasing number of monthly active users over time. In contrast, the number of monthly active users of other chains remained flat, and these chains had almost no grant activity.
We can draw the following two conclusions: In the short term, airdrops hinder net benefits (benefits in USD terms greater than the cost of incentives) for each L2. Based on available data, older chains that actively and frequently provide grants to builders tend to reduce the per-user incentive cost over time.
5. Incentive cost per user The chart below shows the total cost per user for each L2 chain and shows three main patterns. For the first L2s like Arbitrum and Optimism, the cost per user rises significantly due to airdrops. This cost drops significantly over time as incentives such as airdrops or grants decrease, but the impact of these incentives does not disappear, with more users joining the network. Arbitrum and Optimism have effectively managed their cost per user to keep it at a stable level, $560 for Arbitrum and $304 for Optimism (latest values). Their strategy includes recurring grants and multiple rounds of airdrops (in the case of Optimism), which maximizes user retention and maintains a stable user base after the airdrop ends. This success is also due to a strong ecosystem and numerous dApps (such as Gmx, Aave, Velodrome, etc.) that are able to maintain user stickiness for a long time. The second pattern is that the incentive cost initially spikes due to the airdrop, and then continues to grow, not because of more incentive activities, but because of a rapid decrease in monthly active users. This happens because users have been "farming" before the airdrop distribution and then abandon the chain, resulting in a decrease in the number of users and a higher cost per user, as shown in Figure 3. Due to the high valuation of the token generation event (TGE) and the rapid user exit after the airdrop, the cost per user of ZK Sync, Starknet, and Blast is $1,102, $11,486, and $2,000 respectively. At the same time, Base’s costs are very low, less than 10 cents per user. This high efficiency stems from two key factors: Base does not issue its own token, and the chain has attracted a large number of users. Base has not officially announced any airdrops. They do have incentives such as grants of over $1 million to builders using ETH or stablecoins, but this is minuscule compared to other chains. This is 362x less than the total incentives distributed by Blast and 633x less than ZK Sync Era. Even if you ignore airdrops and focus only on the grant program, it is still 100x less than Optimism’s grants.
Across the six chains analyzed, costs were approximately $2,577 per MAU. 6. Key Insights Airdrops primarily reward users who interact with the platform before the airdrop, stress-test the network, and generate revenue. In contrast, grant programs are designed to bootstrap a protocol, retain users for the long term, create a culture, and build a flywheel ecosystem (token gravity). Over 90% of all incentives are airdrops, with the remainder being long-term grant campaigns for developers and builders. Most Layer 2s do not have a net positive return because their expenses exceed their returns, mainly due to large airdrops allocated at high token launch valuations.
- The incentive goal is not to generate profits above costs. - Base is the only L2 that generates more revenue than incentives due to many factors: developer onboarding, culture, airdrop speculation, Coinbase reputation, competitive transaction fees. - Older L2s have lower per-user costs due to: Historical security (time-tested and multi-audited…); Network effects: recurring grant programs foster network effects on these L2s. Over time, they attract builders and applications, thereby fostering a unique community around the L2, creating a self-sustaining innovation growth loop. Base is a unique, isolated case. They focus on providing relatively small, traceable grants to founders, prioritizing culture over incentives. Aside from Base, Optimism is currently the chain with the lowest monthly active user cost at $304. This can be explained by multiple rounds of airdrops and builder grants, which help retain users and bootstrap on-chain use cases.
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