From Airdrops to Ecosystems: How Ethereum L2 Networks Can Retain Users

Ethereum Layer 2 (L2) networks have emerged as vital solutions to blockchain scalability issues. As these networks compete for market share, incentive programs—primarily airdrops and grants—have become central to growth strategies. While the resources allocated are immense, their effectiveness remains under scrutiny.

The Scope of Research

This analysis focuses on two primary incentive mechanisms: airdrops and grants. Application-specific incentives, such as liquidity mining, are excluded to ensure a clear focus on L2 ecosystems. The data spans from 2021 to December 2024, with the primary metrics being:

1. Monthly Active Users (MAU): Reflecting sustainable user growth.
2. Revenue Generation: Evaluating the return on investment for incentive programs.

Key Observations

1. Incentives’ Impact on Monthly Active Users

A review of the MAU trends across major L2 solutions reveals significant disparities:

• Base demonstrated consistent growth, with an average MAU increase of 56% per month, significantly outpacing other L2 networks.
• Arbitrum and Optimism showed slight increases post-airdrop, aided by grants.
• Newer L2s such as zkSync Era and Starknet experienced sharp drops in MAU post-airdrop.

Key Insights:

1. The proliferation of new L2 solutions dilutes user activity across networks. For instance, zkSync Era’s MAU dropped by 32% within three months of its airdrop.
2. Ecosystems with robust grant programs—like Arbitrum and Optimism—retain users better, maintaining MAUs at 300,000+ over the last quarter.
3. Cultural factors, as seen with Base, play a pivotal role in sustaining engagement without token incentives.

2. Revenue vs. Incentive Costs

Analyzing the cost-effectiveness of incentives across L2s reveals stark contrasts:

• Base: For every $1 spent on incentives, $50 of revenue was generated, the highest among the L2s studied.
• Optimism: Maintained a positive revenue-to-cost ratio in its early stages but saw diminishing returns with successive airdrops.
• Arbitrum: Struggled to generate returns, with $100 of incentives yielding only $8 in revenue.
• zkSync Era and Starknet: Generated less than $0.10 for every dollar spent on airdrops, reflecting poor cost efficiency.

3. Per-User Incentive Costs

The cost per user across L2 networks shows three distinct patterns:

• Efficient Models: Base maintains a per-user cost below $0.10, primarily due to its lack of a token and strategic use of grants.
• Moderately Efficient Models: Optimism, with a cost of $304 per MAU, combines recurring grants with multi-stage airdrops.
• Inefficient Models: Starknet’s per-user cost exceeds $11,000, a result of rapid user drop-off post-airdrop.

Why New L2s Fail to Retain Users

1. Overreliance on Airdrops: Airdrops often attract short-term speculators rather than long-term users. For example, 65% of zkSync Era’s initial users ceased interaction within two months of its airdrop.
2. Lack of Ecosystem Development: New L2s often lack a robust application layer, making it difficult to retain users. In contrast, Optimism and Arbitrum host over 50 high-utility dApps, significantly improving retention.
3. Cultural and Community Factors: Base’s emphasis on community events and user experience has cultivated trust and engagement, even without token-based incentives.

Recommendations for Effective Incentive Strategies

1. Adopt Multi-Stage Airdrop Models: Following Optimism’s example, staggered airdrops tied to ecosystem participation can foster sustained engagement.
2. Invest in Grants for Builders: Directing resources toward developers helps create a thriving dApp ecosystem, as seen with Arbitrum’s support for GMX and Aave.
3. Focus on Cultural Development: Strong community narratives, as demonstrated by Base, can retain users even in the absence of direct monetary incentives.
4. Monitor Cost Efficiency: Regularly assess per-user costs and adjust strategies to optimize ROI. Base’s <$0.10 cost per user should be an industry benchmark.

Conclusion

The data underscores that effective L2 incentive strategies require a balance between short-term and long-term mechanisms. While airdrops are useful for initial user acquisition, grants and cultural investments are critical for retention. Networks like Base and Optimism exemplify this approach, offering valuable lessons for newer L2 solutions looking to build sustainable ecosystems.