From Token to Team, Who is the Winner of Layer2?

Original author: Jake Pahor

Original translation: TechFlow intern

I researched all projects related to Ethereum’s second layer solutions, both broadly (Polygon) and application-specific (dYdX), and selected my top five from these great projects.

1. Is revenue generated?

Digging deeper into Token Terminal, I found some very interesting statistics. In the past 180 days, the total revenue (fees) earned were:

dYdX $212.2 million

Arbitrum $13.7 million

Polygon $8.8 million

Optimism $8.5 million

Loopring $2.5 million

As you can see in the chart, dYdX has an overwhelming advantage compared to the other projects. Arbitrum is in second place, but you can see that Polygon has been leading the pack and gaining momentum over the past month.

2. Allocation of Treasury Resources

The elements of studying this problem are divided into:

Do they have different assets, or just their native token (more risk)

How big is the national treasury and how much development space does it provide for the project?

Polygon: It is difficult to find any information about the size and contents of the Polygon treasury. However, we know that $1 billion was recently pledged to develop the ZK project, and we can assume that the total size of its treasury is much larger than this.

Optimism: 30% of the initial token supply (1.29 billion OP) will be allocated to the community fund (ecosystem fund + RetroPGF) = approximately $1.85 billion worth of OP tokens (based on the current price of $1.43).

dYdX: 5% of the initial token supply (50 million DYDX) was allocated to the community treasury. At today’s price ($2.27), this is approximately $113 million.

Loopring: 20% of the token supply (275 million LRC) is allocated to LEAF, worth approximately $110 million (based on the current price of $0.40).

3. Locked Funds

If a large portion of tokens remain locked in the vesting schedule, this could create significant selling pressure in the future.

Polygon: About 92% of the supply has been unlocked. The last 800 million tokens will be unlocked by May 2025. Current liquid supply = 9.18 million, while the total supply is 10 billion.

Optimism: ~5% of total supply has been unlocked via airdrops. Current circulating supply = 215M, total supply = 4.29B.

dYdX: ~11% of all supply has been unlocked. Current liquidity = 112M, total supply 1B.

Loopring: ~90% of all supply has been unlocked. Current circulating supply = $1.245 billion, while total supply is $1.374 billion.

4. Functions and Case Studies

Polygon: MATIC Token is used to pay transaction fees in the network. You can also stake your MATIC as a reward for ensuring network security.

Arbtirum: No token yet, but the network itself has huge utility and offers cheaper transaction fees and scalability while maintaining the security of Ethereum.

Optimism: Rights to block space are a sustainable source of revenue that drives the OP economic model and grows along with the network itself.

dYdX: Essentially a governance token, holders can also receive discounts on trading fees based on the size of their positions.

Loopring: Protocol fees are distributed to liquidity providers, insurers, and DAOs to incentivize good behavior of token holders.

5. Roadmap

Polygon just announced that they will implement the first EVM ZK L2. Sandeep also plans to achieve full decentralization of the blockchain within 2-3 years and develop some powerful products at the same time, including decentralized digital ID cards.

Arbitrum has not yet released a full roadmap, but some speculate that they will also release a native token via airdrop at some point.

Optimism lays out its roadmap in the chart below.

dYdX is planning to become fully decentralized with their V4 release by the end of 2022. This seems to be their main focus and will be a huge milestone for the project.

Loopring plans to make some big upgrades in 2022, such as Loopring Earn and zkEVM.

6. Section Category

All 5 projects on this list are very similar in nature. Polygon, Optimism, and Arbitrum are all vying for the same piece of pie, racing to be the best L2 scaling solution.

At this stage, Polygon is clearly number one from a market cap and "moat" perspective. However, Arbitrum and Optimism have much higher usage and are growing rapidly.

7. Team and Funding

Polygon has a not-so-anonymous team (Anurag Arjun, Jayant Kanani, Mihailo Bjelic, and Sandeep Nailwal), is backed by some of the most prominent investors in the space (Alameda, Binance Labs, Coinbase Ventures), and has raised $451.5 million in total funding. They have also recently announced a slew of partnerships (Disney, Reddit, Meta, Stripe, Draftkings), showing off their strong business development capabilities.

Arbitrum also has a well-known team and strong backers (Pantera, Alameda, Mark Cuban, Coinbase). Offchain Labs’ parent company has received a total of $123.7 million in investment.

Vitalik himself is a big fan of Optimism and expressed support for their new governance structure. They have received strong support from A16z, Paradigm and IDEO, and have received a total of $178.5 million in investment.

dYdX received $87 million in funding from some well-known investors, including Hashkey, Starkware, and A16z, whose team is also not anonymous.

Loopring received $45 million in investment from Kosmos ventures, G2H2, Neo, Fundamental Labs and Obsidian.

8. Conclusion

Based on my research and analysis, I gave each project a score between 1-10 in each category. As you can see, the clear winner is Polygon.

The project is the most established, has the largest market cap, and has really gained some attention recently due to the upcoming Ethereum merger. The other projects are also very promising and have great potential to succeed in the long run.

These are not buying recommendations for these projects, this is just my objective opinion and the research I did to learn more about L2. Please do your own research before you invest in any project.