⚡Introducing Chain GDP - Dynamo DeFi Pro Weekly

On-chain insights and DeFi strategies

Introducing Chain GDP

What is Chain GDP?

Recently, I’ve been developing a new on-chain metric that would appropriately capture economic activity on a blockchain. Like I often say, a helpful framework for analyzing blockchains is to think of them as digital economies:

• Incentives programs = stimulus

• Liquidity inflows = foreign investment

What, then is the best metric to measure this activity?

Current metrics have a number of problems:

TVL - Represents $, but not activity. Subject to changes driven by large deposits and not all TVL is equally productive.

TX Count - Represents activity, but not $. This makes it easy to game.

DEX Volume - Represents $ and activity, but only for a certain type of economic activity. Doesn’t capture activity on games or even other DeFi projects.

Enter Chain GDP. Chain GDP measures both $ and activity on the chain. In essence, this is the sum of all fees generated on applications on a chain. Note: this doesn’t mean only the fees of the chain itself.

Since only fees are counted (as opposed to raw transfer volume), it is more difficult to fake with wash trading or sybils. To fake Chain GDP, you would need to pay out large amounts of fees to a variety of dApps in the ecosystem.

Methodology

To pull data for this, I used DefiLlama’s Fees & Revenue API.

If you’re unsure of the difference between Fees and Revenue:

• Fees = $ paid by the user

• Revenue = Fees that accrue to the protocol or token holders

For example, fees paid to liquidity providers are not revenue, but fees that go to governance token staking rewards are.

As far as actually pulling this data, one could either iterate through the protocols, pulling their total fees by chain, or iterate through the chains, calculating total fees for protocols on that chain. I chose to iterate through the chains and use the /overview/fees/{chain} endpoint because, when pulling fees by chain, the TotalDataChart attribute shows the sum of fees for all protocols on that chain—exactly what we’re looking for.

Two main decisions had to be made at this point:

1. Fees or Revenue?

2. Group Layer 2s with their Layer 1 or keep them independent?

Fees vs revenue was a straightforward decision. Revenue is largely a function of tokenomics. Take a protocol like Uniswap, for example. Despite being one of the largest hubs of economic activity in crypto, only Uniswap Labs revenue would contribute to Ethereum’s GDP if we counted revenue instead of fees. Furthermore, past analysis I’ve conducted has consistently found that fees are a better predictor of market cap than revenue.

Deciding whether to group Layer 2s with their parent Layer 1 was more difficult. And let’s be honest, this is mostly relevant to Ethereum. I chose to keep them separate for several reasons:

1. More granularity in data. Combining Arbitrum, Base, etc with Ethereum provides less information than separating them out. Anyone who wishes to count them together can easily do so; however, grouping them by default obscures meaningful shifts that are happening in the on-chain economy.

2. Industry standard. Like it or not, by default most data providers like DefiLlama and Artemis break out L2s as their own chains for comparisons.

3. On-chain economics. Economic activity on a chain is, in part, downstream from liquidity inflows to that chain. Liquidity inflows to and from L2s, at least at the moment, behave similarly to flows between chains.

By popular request, I’m planning to post the full scripts I used on GitHub, so that others can test them out for themselves, but I’ve never posted there before (my background is in finance/economics, not software).

Chain GDP Data

Alright, now, let’s look at the data.

Ethereum is the clear leader on Chain GDP (no surprise there). In recent days, Ethereum has had around $10-15M in GDP on most days, compared to around $6-7M on Solana, the second largest chain by this metric.

That being said, Solana is the clear breakaway winner of the year. While most major chains peaked in March and have suffered from declining economic activity since then (recessions?) Solana has held steady and even grown, putting space between it and its nearest competitors and approaching the GDP of Ethereum itself.

Another notable trend is Base, which, despite a downtrend in recent weeks, grew its GDP from rank 8 out of these chains to rank 3 for a brief moment in time and rank 6 now.

For those of you that wish to dig into other chains and time periods, here is an excerpt of the data export from 07/12/2024. For this spreadsheet, I included data since the start of 2024 for over 50 chains.

Let me know what you think about this new metric and what other views you’d like to see. I’m planning to provide views of this data in future newsletters and possibly even create a place to access it online.

In the rest of this newsletter:

1. Market Outlook

   1. Market Health - as determined by metrics

   2. Category & Chain Trends - which categories and chains are growing?

2. On-Chain Metrics

   1. On-chain Highlights - Curated charts from the past week showing fast-growing DeFi protocols

   2. On-chain Milestones - Chains and protocols that hit on-chain milestones, such as breaking their ATH in TVL

3. Current Crypto Strategies - DeFi strategies and the Dynamo DeFi portfolio