Ethereum: Financials

Blockchain Financials

Network REV (Real Economic Value) is a standardized metric that tracks blockchain value accrual generated by user activity. REV consists of both in-protocol transaction fees and out-of-protocol tips that users pay for transaction execution. Therefore, it also measures the monetary demand to transact on a blockchain.

From the perspective of the token holders, REV is the "top line" metric of a blockchain as it represents the amount of value paid into the system that token holders are ultimately eligible to earn, net of any operating expenses.

The operating expenses, or Operator Payments, consist of the value allocated to the infrastructure providers responsible for running the network, such as miners or validators. The payments aim to cover the real-world costs of maintaining the network plus some margin to incentivize participation.

Therefore, Token Holder Net Income is the remaining value distributed to the token holders and is calculated as REV less any Operator Payments.

ETH Financials

From the perspective of ETH token holders, which is the aggregate position of both staked and non-staked tokens, REV is the "top line" metric of a blockchain as it represents the amount of value generated for transaction execution. Token holders ultimately receive a subset of REV, net of any operating expenses.

Total Economic Value

Network TEV tracks the exogenous (Network REV) and endogenous (ETH Issuance) value that is allocated between token holders and network operators. It is less useful as a comparative metric since the network controls token issuance, which is just a value transfer from non-stakers to stakers. Token Issuance generally outpaces REV in the early years of a blockchain's lifecycle.

Real Economic Value

Network REV = TEV less Token Issuance. It is a standardized metric that tracks blockchain value capture generated by user activity. REV consists of both in-protocol transaction fees and out-of-protocol tips that users pay for transaction execution. Therefore, it also measures the monetary demand to transact on a blockchain.

Ethereum REV consists of Blob Fees, Base Fees, Priority Fees, and out-of-protocol tips via MEV-Boost. Blob Fees are an additional cost for transactions that post data to "blobs," which are specialized data availability solutions for L2 blockchains. Base Fees are the minimum fee required for a transaction to be included in a block. Priority Fees are an additional fee to incentivize validators to prioritize and execute transactions. MEV-Boost Tips are the fees for using the out-of-protocol system that enables users to send transactions, or a bundle of transactions, to block builders for faster transaction execution, MEV capture, or MEV protection.

Operator Payments

Payments to operators refer to the portion of a blockchain's Total Economic Value (TEV) that is allocated to the infrastructure providers responsible for running the network, such as miners or validators. These payments generally cover the real-world costs of maintaining the network plus some margin to incentivize participation. These are independent operators with unique setups, so operator payments are not uniform across the operator set. Therefore, Operator Payments are the amount of value that does not flow to token holders.

In this model, inflation is not a cost in its entirety -- only the portion that does not flow to token holders is a cost given the portion that does flow to token holders is simply a value transfer from non-stakers to stakers. So from the perspective of the aggregate token holders (stakers and non-stakers), only the ETH issuance distributed to Operators is a cost to the token holders.

Staking Providers such as CEXs or enterprise validator operators charge a management fee on staking rewards earned on deposits. To estimate the aggregate Staking Provider take rate, we apply the stake-weighted average take rate to daily staking rewards for Priority Fees, MEV-Boost Tips, and ETH Issuance. Importantly, self-staked operators have no cost (i.e. 0% take rate) to the network as they are just token holders leveraging their tokens to earn yield.

Block Builders also take a small cut of priority fees from blocks, generally related to the builder having valuable private orderflow. In this example block, the builder (Beaverbuild) received 0.1853 ETH in priority fees from the block but only paid 0.1543 ETH to the proposer.

Token Holder Net Income

Token Holder Net Income = REV - Operator Payments. It measures the value that accrues to the token holders after considering payments to operators. Importantly, the Token Holders is the aggregate position of both stakers and non-stakers, and these positions have noticeably different return profiles. Stakers receive both token burn and staking payments, while non-stakers only receive token burn. Furthermore, the exact method a staker uses to stake will impact their return profile (e.g. native vs liquid staked).