For years blockchains were judged on token prices and hype. Now banks and asset managers are looking at revenue, margins and earnings instead. Brendan Ma, Head of Investment Strategy at the Arbitrum Foundation, explains why Standard Chartered and WisdomTree have started covering the network as a business. He walks through its revenue streams, the licence fee paid by chains built on its technology, and what the Robinhood chain launch showed the market. He also shares what he heard from banks, wealth managers and family offices at round tables in Lugano and Milan, and where institutions are actually putting tokenization to work.
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Standard Chartered started covering Arbitrum in September and looked at it through its revenue. Why does it matter when a major bank analyses a blockchain like a business?
Financial institutions are leaning into digital assets because they believe we are at the beginning of a tokenization supercycle, and we believe Arbitrum is uniquely positioned in it, with the most tokenised assets of any blockchain and support for launches from LG to Robinhood to Cross River Bank. In its report, Standard Chartered said tokenization could be a multi-trillion dollar opportunity within the decade and that tokenised assets could grow by up to 250 times. When they look at Arbitrum today, with five revenue streams, one of the highest margins in the blockchain industry, and more revenue last quarter than every layer one blockchain besides Ethereum and Tron, they see something attached not just to news headlines but to the underlying business model of the network.
WisdomTree also published research valuing Arbitrum on its earnings and not on its token price. What does that say about how institutions now judge blockchains?
WisdomTree, a renowned asset manager, told its clients to expect future enterprises to look to Arbitrum to launch their own blockchains. When they think about the revenue and earnings profile, we have over 90% gross margins across these revenue streams. And an asset manager like WisdomTree thinks about the ability to earn not just on transaction velocity but also off the assets on the network.
Arbitrum earns money when other chains use its technology and pay a licence fee. How does that work?
Most blockchains make money from transactions on their own chain, and Arbitrum does too. But over the last year a licence fee arrangement has emerged from what we call Arbitrum chains. These are blockchains developed by the Robinhoods of the world and by other enterprises, and they create a 10% fee share back into the Arbitrum ecosystem. Enterprises can launch on the main blockchain or create their own custom chain. In the last month we also announced a landmark partnership with Paxos around stablecoin balances, which lets the ecosystem earn from the yield on those assets too.
Robinhood chain went live in July and became a major source of income. What did that launch prove to the market?
It proved that a fintech of that scale and user base could create the fastest growing blockchain in history using the Arbitrum chain stack. We have seen a lot of interest from other enterprises thinking along the same lines across equities, credit and bonds. It also showed institutions that in the quarter Arbitrum earned more revenue than every layer one blockchain besides Ethereum and Tron, with significant growth going back into the balance sheet of the Arbitrum treasury. That creates the business model and flywheel most investors look for.
You presented to banks, wealth managers and family offices at round tables in Lugano and Milan last month. What surprised you most?
We had over 800 billion euros of capital represented across a couple of round tables, talking about how big the tokenization opportunity could be and the role Arbitrum plays in it. What surprised me is how advanced many of these institutions are. One private bank is extremely advanced in tokenising assets across its product portfolio, and in trading and investing across tokens on its own balance sheet, not just client capital, and it is able to underwrite the revenue and profit and loss models behind these networks.
What was the biggest takeaway?
Digital assets are growing into an industry with core financial markets infrastructure in the tokenization buildout that can earn real revenue and support real, high margin business models. Wall Street and financial analysts are very familiar with that pattern from other disruptive technology, and it is now happening in digital assets too.
Behind the tokenization headlines, what real institutional activity are you seeing?
This is not a story about an institution wanting to tokenise for tokenization's sake. They are trying to solve problems for customers, like reducing costs, increasing liquidity and creating instant settlement. Robinhood became the fastest growing blockchain in history with our technology. We just announced that Cross River Bank in the US is exploring tokenised loans across its lending book, and partners including LG and SBI are exploring different forms of tokenization.