The real cost of Ethereum L2s: where your fees go

Every transaction you submit on Arbitrum, Optimism, or Base extracts a fee from your wallet. That fee does not vanish into the Ethereum protocol. It flows through a specific chain of custody, with multiple entities taking their cut before any data touches mainnet Ethereum.

Key takeaways

L2 fees split into base fee (data availability), priority fee (sequencer tip), and sequencer margin (profit)
Every major L2 runs a centralized sequencer controlled by a foundation or company
Post EIP-4844, sequencer margins increased as blob costs dropped but user fees didn't decrease proportionally
Arbitrum, Optimism, and Base generated hundreds of millions in sequencer revenue during peak periods
Token holders do not receive sequencer profits directly; revenue flows to operating entities

How L2 fees work

L2 fees serve a different purpose than Ethereum mainnet gas. Mainnet gas pays validators directly for block inclusion and execution. L2 fees pay a centralized sequencer that batches your transaction with thousands of others before posting compressed data to Ethereum.

User payment: what you see in your wallet

Your wallet displays a single fee denominated in ETH. This number represents the total extraction, but it obscures the actual cost breakdown. The L2 constructs this fee using several inputs: estimated L1 data costs, execution overhead, and a markup that varies by network.

Arbitrum and Optimism both implement dynamic fee algorithms that adjust based on L1 gas prices and network congestion. These algorithms include built-in overhead that exceeds actual costs. The gap between what you pay and what the L2 spends represents sequencer profit.

Sequencer operations: the middleman

The sequencer receives your transaction, orders it according to its own rules, and includes it in a batch. This process occurs off-chain with minimal transparency into ordering decisions.

Sequencer revenue comes from the spread between collected fees and operational costs. On a busy day, Arbitrum's sequencer might collect $500,000 in fees across all transactions. The actual cost to post that data to Ethereum might total $150,000. The remaining $350,000 represents gross margin.

Every major optimistic rollup runs a single sequencer controlled by a foundation or corporate entity. Arbitrum's sequencer is operated by Offchain Labs. Optimism's sequencer is operated by the Optimism Foundation. Base's sequencer is operated by Coinbase.

Data availability: the cost center

After batching transactions, the sequencer must post compressed data to a data availability layer. EIP-4844 introduced blob transactions in March 2024, reducing data availability costs by 90% or more.

The shift to blobs dramatically increased sequencer profit margins. Costs dropped, but user fees did not decrease proportionally. The surplus flows directly to sequencer operators.

L1 settlement

The final cost component covers proof submission to Ethereum. For optimistic rollups, this means posting state roots and handling fraud proof challenges. For ZK rollups, this means submitting validity proofs that require verification gas.

Sequencer revenue

Centralized sequencers and their margins

Every major L2 operates a centralized sequencer today. Decentralized sequencer designs exist in research papers and roadmap documents, but production networks rely on single operators.

Arbitrum generated over $80 million in sequencer revenue during 2024's peak months. Optimism generated approximately $40 million during the same period. Base, benefiting from meme coin speculation and Coinbase's distribution, generated over $100 million in certain quarters.

During low L1 gas periods following EIP-4844, margins exceeded 70% for some networks.

Where sequencer profits go

Profit distribution differs across L2 ecosystems. Arbitrum's sequencer revenue flows to Offchain Labs, a venture-backed company. The ARB token does not receive sequencer profits directly.

Optimism implemented a different model. Sequencer revenue partially funds retroactive public goods funding (RetroPGF), distributing value to ecosystem contributors.

Base operates as a Coinbase business unit. Sequencer profits contribute to Coinbase's quarterly revenue, reported in SEC filings. Base generated over $60 million in revenue during Q3 2024.

Arbitrum vs Optimism comparison

Fee structures

Arbitrum implements a fee algorithm called ArbOS that estimates L1 costs and adds execution fees. Optimism uses Bedrock, their modular stack, to calculate fees similarly. Base runs on the same Bedrock codebase.

User-facing fees on both networks typically range from $0.01 to $0.10 for simple transfers. Complex smart contract interactions cost more, scaling with computation and data requirements.

Revenue distribution models

Arbitrum retains sequencer revenue within Offchain Labs. The ARB DAO controls a treasury funded by initial token allocation, but sequencer profits do not flow to this treasury automatically.

The Superchain model, which Base participates in, includes revenue sharing agreements. Base pays a percentage of sequencer revenue to Optimism Collective, creating a franchise-like economic relationship.

Base and zkSync economics

Base: Coinbase's fee machine

Base represents the most commercially successful L2 launch in Ethereum history. Coinbase's distribution advantages created immediate user adoption. Base's sequencer revenue exceeds both Arbitrum and Optimism during high-activity periods.

zkSync and ZK rollup costs

ZK rollups face different economics than optimistic rollups. Proof generation requires specialized hardware and computation, adding costs that optimistic rollups avoid. User fees on zkSync typically exceed Arbitrum and Optimism for equivalent transactions.

ZK rollup economics may improve as proof systems mature. Hardware acceleration and algorithmic improvements reduce proving costs over time.

What this means for users

Every L2 transaction you execute generates profit for a centralized entity. This profit comes from the spread between your fee payment and actual operational costs.

You cannot avoid this extraction within current L2 designs. Choosing between Arbitrum, Optimism, and Base means choosing which entity profits from your activity.

Fee comparison tools help identify the cheapest option for specific transactions. The path toward reduced extraction requires decentralized sequencers and competitive fee markets, which remain absent from production systems.

See live data

Links open DefiLlama or other external sources.

Related Concepts

Ethereum price and fundamentals: Live data on the L1 that L2s settle to
Ethereum gas fee distribution: How L1 fees work and where they go
Sequencer revenue: How L2 operators capture value
Protocol revenue: Understanding fee flows and value capture
Fees vs revenue vs profit: The accounting framework for L2 economics

FAQ

Where do my L2 transaction fees actually go?

Fees split between the sequencer operator (profit margin), data availability costs (posting to Ethereum), and L1 settlement costs. The sequencer collects all fees, pays costs, and retains the difference.

Why are L2 fees still high after EIP-4844?

EIP-4844 reduced data availability costs by 90%, but sequencers did not pass all savings to users. Profit margins increased while user fees decreased less than costs did.

Do ARB or OP token holders receive sequencer revenue?

Not directly. Arbitrum's revenue flows to Offchain Labs. Optimism's partially funds RetroPGF. Neither token receives automatic dividends from sequencer profits.

Which L2 has the lowest fees?

Fees vary by transaction type and network conditions. Generally, Arbitrum and Base offer competitive fees for simple transactions. Use fee comparison tools for specific transaction types.

When will L2s have decentralized sequencers?

Most L2s have decentralization on their roadmaps but no production implementations exist. Shared sequencer networks and based rollups represent active research areas.

Cite this definition

Ethereum L2 fees flow from users to centralized sequencer operators who batch transactions, post data to L1, and retain the margin between collected fees and operational costs. Major L2s generate hundreds of millions in annual sequencer revenue, with profits flowing to operating entities rather than token holders.