The Real Economic Value (REV) metric, introduced in 2024 by Blockworks Research, offers a new framework for evaluating blockchain revenue. It expands traditional calculations to include not just base transaction fees but also priority fees and validator tips, particularly those related to Maximal Extractable Value (MEV). This approach aims to capture the true monetary demand for a protocol's blockspace, sparking renewed discussion in the long-standing Fat Protocol versus Fat App thesis debate.
What Is REV?
Understanding the REV Metric
REV, or Real Economic Value, is a standardized method for calculating a blockchain protocol's revenue. It accounts for:
- Base fees: The fundamental cost required to execute any transaction.
- Priority fees: Additional fees paid within the protocol to prioritize transaction processing.
- Validator tips: Off-chain payments, such as Jito Tips on Solana, made directly to the validator responsible for the next block, often to capture MEV opportunities.
By aggregating these revenue streams, REV provides a more comprehensive view of the economic activity generated by a blockchain. On networks like Solana, these additional tips have grown significantly, representing over 56% of total fees collected in less than a year. This redefinition challenges traditional revenue rankings and influences how Layer 1 (L1) blockchains are evaluated economically.
The Connection to MEV
REV intentionally references MEV (Maximal Extractable Value), a concept once known as "Miner Extractable Value" in Proof of Work systems like early Ethereum. MEV refers to the value validators can extract by reordering transactions within a block. It encompasses:
- Toxic MEV: Harmful practices like front-running or sandwich attacks that degrade user experience.
- Useful MEV: Beneficial activities such as arbitrage between decentralized exchanges (DEXs) or liquidations in DeFi that improve market efficiency.
REV treats MEV-related tips as legitimate revenue, arguing they reflect real economic demand for blockspace. This perspective shifts MEV from an externality to be minimized to a key performance indicator for blockchain protocols.
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Fat Protocol vs. Fat App Thesis
Core Concepts
The Fat Protocol Thesis, proposed by Joel Monegro in 2016, suggests that blockchain protocols (L1s) capture more value than the applications built on them—inverting the traditional internet model where applications (like social media platforms) capture most value while protocols (like TCP/IP) remain lean.
Conversely, the Fat App Thesis argues that applications and rollups will ultimately capture more economic value than their underlying infrastructure, mirroring the internet's evolution.
REV plays directly into this debate by potentially inflating L1 revenue figures through inclusive accounting, thereby supporting the Fat Protocol perspective.
Ethereum's Approach
Ethereum's development roadmap increasingly aligns with the Fat App Thesis. Its focus on rollups—which handle execution off-chain—positions Ethereum as a neutral base layer similar to TCP/IP. The ecosystem's approach to MEV through tools like Proposer-Builder Separation (PBS) and MEV-Boost aims to mitigate negative impacts and protect users rather than maximizing protocol-level revenue capture.
This philosophy prioritizes application growth and user protection over protocol revenue, accepting that value accumulation may shift to higher layers.
Solana's Strategy
Solana embraces a more monolithic architecture, concentrating execution and value capture at the L1 level. This design allows the protocol to absorb MEV directly and redistribute it to validators and stakers. REV complements this approach by highlighting revenue from tips and priority fees, portraying Solana as a "fat" protocol.
However, this strategy risks misaligning incentives between the protocol and its applications, as value generated by apps may primarily benefit the base layer rather than the applications themselves.
The Shift Toward Fat Applications
Emerging Trends
Data indicates a growing shift toward the Fat App Thesis. Studies show applications capturing over 40% of revenue on major blockchains like Ethereum and Solana—a significant increase from 10% just four years ago. Notable examples include:
- Pump.fun, which generated nearly $600 million in revenue in one year, sometimes exceeding Solana's daily protocol revenue.
- Jupiter, announcing its own Layer 1 (Jupnet) to capture MEV from its activity.
App-Specific Sequencers (ASS)
App-Specific Sequencers (ASS) enable applications to control transaction ordering themselves, capturing the MEV they generate rather than ceding it to L1 validators. This approach:
- Enhances application sovereignty.
- Protects users from toxic MEV.
- Redistributes value to applications rather than the base layer.
Projects like Sorella Labs advocate for this model, further challenging the Fat Protocol Thesis and REV's relevance.
Proprietary Infrastructures
Some applications are developing their own infrastructure to maximize value capture:
- Pump.fun introduced its own Automated Market Maker (AMM) to reduce reliance on Raydium.
- Jupiter's Jupnet aims to redirect MEV to its validators instead of Solana's.
These moves reduce applications' dependence on underlying L1s, potentially undermining REV's protocol-centric valuation model.
Interoperability and Chain Abstraction
Advancements in interoperability—driven by projects like Across, Twine, and Skate—threaten the Fat Protocol Thesis by making the underlying L1 less visible to users. Chain abstraction and liquidity hubs allow users to interact with applications without caring which blockchain they run on, reducing the "attention premium" for any single L1.
Valuation Challenges for Layer 1 Blockchains
REV's expanded revenue definition aims to justify higher valuations for L1s capturing significant MEV. However, this approach faces fundamental questions about sustainability:
- L1s often trade at revenue multiples exceeding 600x, compared to 5–20x for applications.
- Solana's market cap has surpassed that of Nasdaq operator despite handling far less volume and incurring higher infrastructure costs.
As value shifts toward applications and interoperability improves, L1s may face a valuation glass ceiling. The growth of application revenue and user focus on functionality rather than underlying chains could erode L1 valuation premiums.
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Frequently Asked Questions
What is the main goal of the REV metric?
REV aims to provide a more comprehensive measure of blockchain revenue by including base fees, priority fees, and MEV-related tips. It seeks to reflect the true economic demand for blockspace and support the Fat Protocol Thesis by highlighting L1 value capture.
How does MEV impact blockchain revenue?
MEV represents value extracted by validators through transaction reordering. While toxic MEV harms users, useful MEV improves market efficiency. REV incorporates MEV-related payments as legitimate revenue, arguing they indicate real economic activity.
Are applications really capturing more value than protocols?
Data shows applications increasing their revenue share from 10% to over 40% on major blockchains in recent years. Examples like Pump.fun and Jupiter's Jupnet demonstrate applications capturing value traditionally accrued to L1s.
What are App-Specific Sequencers (ASS)?
ASS allow applications to control their transaction ordering, capturing the MEV they generate instead of leaving it for L1 validators. This enhances application sovereignty and supports the Fat App Thesis by redistributing value to the application layer.
How does interoperability affect L1 valuation?
Improved interoperability and chain abstraction make underlying L1s less visible to users. If users can interact with applications without caring which blockchain they use, L1s may lose their "attention premium" and face valuation pressure.
Is REV relevant for investors?
REV offers a broader view of protocol revenue, but investors should consider whether value accumulation is shifting toward applications. Understanding both REV and the Fat App Thesis provides a more complete picture of blockchain economics.
Conclusion
REV provides a valuable perspective by incorporating MEV into revenue calculations, supporting the view that L1 protocols capture significant economic value. However, emerging trends—including rising application revenue, App-Specific Sequencers, proprietary infrastructures, and improved interoperability—suggest a shift toward the Fat App Thesis.
Blockchains face a strategic choice: embrace extractive models that capture maximum value at the protocol level or cede value to applications to maintain ecosystem relevance. As the space evolves, REV may represent either a lasting metric for protocol valuation or a temporary illusion in the broader redistribution of on-chain value.