The age-old investment advice to "follow the smart money" finds a powerful application in the world of public blockchains. Thanks to the transparency of on-chain data, we can now track capital movements with unprecedented clarity.
As the infrastructure connecting different blockchains continues to improve, achieving strong network effects and durable economic moats within any single network may become increasingly challenging. This reality has led us to investigate the net flow of funds between the top 15 Layer 1 (L1) and Layer 2 (L2) networks. Our goal is to precisely identify where value is moving across the public blockchain landscape, and we are now ready to share these insights.
Key Winners in Net Capital Inflows
Our analysis of the past 90 days reveals a clear set of leaders in attracting new capital:
- Arbitrum emerged as the dominant winner, with a net inflow of over $2.3 billion from other blockchains.
- Optimism secured the second position, drawing nearly $800 million in net new capital during the same period.
- StarkWare took third place with net inflows exceeding $700 million.
- Base ranked fourth, attracting close to $600 million in the past three months.
- Sui rounded out the top five with $423 million in inflows. Notably, it was the only non-EVM (Ethereum Virtual Machine) chain to see significant capital movement into its ecosystem.
Networks Experiencing Significant Outflows
On the other side of the equation, some networks witnessed considerable capital leaving their ecosystems:
- Ethereum saw a net outflow of more than $3.6 billion over the past 90 days. However, it's crucial to contextualize this: over $4.4 billion entered the broader Ethereum ecosystem via its L2s in the same period. Since L2s pay settlement fees to Ethereum L1, a significant portion of this capital isn't truly "leaving" Ethereum but rather moving within its layered structure.
- zkSync experienced an outflow of over $1 billion.
- Avalanche had more than $500 million exit its ecosystem.
Where Did Arbitrum's Inflows Come From?
A deeper dive into Arbitrum's substantial inflows shows that the vast majority (70%) originated from Ethereum L1. Of this incoming capital, roughly 25% was in stablecoins, while other tokens made up the remaining 75%. This trend aligns with the expectation that capital will continue to migrate from Ethereum L1 to its most popular scaling solutions.
A more surprising finding was that nearly $500 million moved from the Avalanche ecosystem directly to Arbitrum. Recalling that Avalanche was one of the largest net losers, with $543 million leaving its ecosystem last quarter, a staggering 84% of that total found a new home on Arbitrum.
Which Projects on Arbitrum Are Capturing This Value?
While we cannot definitively pinpoint which specific dApps are capturing these inflows, we can look at which projects consumed the most gas on Arbitrum over the last quarter, indicating high user activity.
When observing 90-day trends, RabbitHole, a gaming application, stands out with a massive 1,147% increase in gas consumption.
Another interesting observation on Arbitrum is the performance of Pyth Network. After the leading Solana-based data oracle expanded its support to Arbitrum, its gas consumption on the network increased by 600% in the past quarter.
A Closer Look at Major Outflows
Beyond Avalanche, zkSync, an Ethereum L2, lost over $1 billion in the past 90 days. The destinations for these funds were:
- $328 million to Optimism
- $313 million to Ethereum L1
- $232 million to Arbitrum
- $37 million to Base
The key takeaway: all the capital that left zkSync remained within the broader Ethereum ecosystem.
For Ethereum itself, we know $1.6 billion went to Arbitrum. Where did the rest go? The majority of Ethereum's net outflows also stayed within its ecosystem, moving to other L2s like Starknet, Base, and Optimism.
Sui was the largest non-EVM beneficiary of Ethereum's outflows, receiving $452 million. Additionally, Solana saw a net inflow of $152 million from Ethereum.
Summary of Key Findings
As the public blockchain space matures, we anticipate the total amount of capital within the entire technology stack will continue to grow. We also expect the market to eventually consolidate around 3-5 major L1s, potentially accompanied by a long tail of less dominant chains.
However, with the maturation of cross-chain infrastructure and account abstraction, value is likely to flow even more freely between various networks and ecosystems. This increased fluidity could make it more difficult for any single network to build an impenetrable economic moath.
Our analysis of capital flows between major L1s and L2s has yielded several critical conclusions.
The Ethereum Perspective
The largest L1 has indeed seen significant capital outflows, but it has been recaptured at the L2 layer. This is arguably a positive sign for Ethereum. A major red flag would be if capital was leaving Ethereum L1 and the entire ecosystem, which we are not observing today.
Furthermore, despite the net outflow of over $3 billion, Ethereum's Total Value Locked (TVL) actually increased by 60% in the past three months. This highlights a key limitation of TVL as a performance metric, as it is highly sensitive to the volatile prices of underlying assets and can be susceptible to manipulation.
The Solana Momentum
Solana registered a net inflow of just $169 million from the other top 15 L1/L2 networks over the past three months. Yet, its TVL grew from $1.4 billion to $4.5 billion in the same period—a 221% increase.
This apparent contradiction can be explained by several internal factors:
- The price of SOL rose from $100 to $171 (a 77% increase).
- More SOL is being added to liquid staking solutions (Marinade, Jito, BlazeStake).
- Several major projects within the Solana ecosystem, such as Jito, Pyth, Jupiter, and Tensor, conducted token launches. These events created billions of dollars in new wealth, much of which remained within Solana's DeFi ecosystem.
- Memecoin mania on Solana has persisted for months, driving immense trading volume and "locked value."
Solana's TVL growth appears to be largely driven by this internal, organic activity within its own ecosystem rather than large-scale capital imports from other chains.
The Rise of Sui
Sui stands out as the biggest winner among the newer generation of "high-throughput" blockchains. Its net inflow of $423 million, predominantly from Ethereum, served as the primary catalyst for its TVL surge from $220 million to its current level of $660 million.
The Role of Cross-Chain Bridges
As mentioned, the maturation of cross-chain infrastructure will likely accelerate value movement between networks. This could push value away from any specific L1 and potentially towards the cross-chain bridges themselves. While we are not observing this significantly at present, it remains a critical trend to monitor.
Wormhole is one of the largest cross-chain bridges operating today, providing interoperability between Solana, Ethereum, Arbitrum, BNB Chain, Avalanche, Optimism, NEAR, and Polygon. The recent launch of its native token, which reached a Fully Diluted Valuation (FDV) of over $10 billion, signals strong market interest. This valuation brings it close to those of major Ethereum L2s, underscoring the significant market signal for robust cross-chain infrastructure.
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Frequently Asked Questions
What are net capital inflows in blockchain?
Net capital inflows refer to the total value of assets moving into a blockchain ecosystem from other chains, minus the value of assets moving out. It's a key metric for gauging a network's relative attractiveness and economic activity compared to its peers.
Why is Ethereum's TVL rising despite capital outflows?
TVL is denominated in the native asset's value (ETH). A rising ETH price can inflate TVL figures even if the actual amount of locked ETH remains static or decreases. Furthermore, new capital flowing into Ethereum L2s can contribute to the overall ecosystem's health and perceived value, which is often reflected in L1 metrics.
How can a chain like Solana have high TVL growth with low net inflows?
This indicates strong internal economic activity. Factors like native token price appreciation, new project launches, token generation events, and vibrant meme coin trading can create and lock value entirely within the chain's own ecosystem without requiring significant capital from external blockchains.
What is the difference between a bridge and an L2?
A bridge is a protocol that enables the transfer of assets and data between two separate, independent blockchains (e.g., Ethereum to Solana). An L2 is a secondary framework or protocol built on top of an L1 blockchain (like Ethereum) that benefits from its security but processes transactions off-chain to improve scalability.
Are large capital outflows always bad for a blockchain?
Not necessarily. In a multi-chain ecosystem, outflows can simply represent capital rotating to new opportunities within the same broader ecosystem (e.g., from Ethereum L1 to Arbitrum). Outflows become a concern only if capital is permanently leaving the ecosystem for a competing one with no return.
How reliable is on-chain data for tracking capital flows?
On-chain data is highly reliable for tracking verifiable transactions between addresses and across bridges. However, interpreting this data requires context. For example, large movements to custodial exchanges or between addresses owned by the same entity don't always represent meaningful economic shifts.