Some time ago, the industry criticized projects with high valuations but no business models. This article will study a low-key but highly stable cross-chain project in the past two years: Orbiter Finance, also known as Little Flying Saucer in the community, to explain the secret of Orbiter Finance's high income to readers.
TL;DR
Orbiter Finance is a project with both narrative and stable cash flow
Orbiter's revenue depends mainly on the number of transactions rather than the transaction amount, taking advantage of the loophole that users are insensitive to Gas, but this model lacks barriers and is unsustainable.
The most worth learning about Orbiter is its idea of starting a project from centralization, using a centralized solution to quickly launch and verify product requirements, and then gradually iterating into a decentralized version. This may be a wiser path for future Crypto project entrepreneurship.
Orbiter Finance has a solid financing background and clear airdrop expectations.
The platform has announced and completed two rounds of financing, including a seed round in late 2022 and a Series A round in early 2024, the latter led by OKX Ventures, with a valuation of $200 million. It is worth noting that its competitor Owlto Finance recently completed a $150 million financing, which may mean that Orbiter Finance's market valuation has grown significantly, considering Orbiter's extremely high market share.
At the same time, Orbiter Finance has announced plans to issue tokens within the year and upgrade its brand from a cross-chain bridge to the ZK-based Orbiter Rollup to solve the problems of L2 Rollup liquidity fragmentation, lack of interoperability and composability; provide a secure, low-cost, low-latency cross-chain communication infrastructure, focusing on improving interoperability and capital efficiency.
In addition to the grand narrative, Orbiter Finance also performs well financially. In the current cryptocurrency market, the community is increasingly inclined to support projects with stable cash flow and practicality, and Orbiter Finance's monthly revenue can reach millions of dollars, the business is stable and continues to grow, and the overall revenue scale will develop with the development of the L2 ecosystem, with great room for growth.
What is Orbiter Finance?
Orbiter Finance was launched around the end of 2022 and the beginning of 2023, and quickly gained a place in the market with its excellent user experience and fast and cheap cross-chain effects.
The core function of Orbiter is to focus on the cross-chain bridge of the Ethereum ecosystem, solving the problem of users' difficulty in transferring assets between Layer 2. The traditional cross-chain method requires users to withdraw assets from L2 to L1 first, and then withdraw from L1 to another L2. This process is time-consuming and costly. For Orbiter users, there is almost no need to learn, and it only takes a few minutes to complete the cross-chain.
Orbiter's overall business is growing very fast. According to data disclosed by Orbiter in January 2024, since its launch, Orbiter has processed more than 12 million transactions with a total amount of US$7.8 billion and more than 3 million users; and as of July 18, 2024, the latest data shows that Orbiter has processed more than 25 million transactions with a total amount of more than US$20 billion and more than 4 million users; at the same time, Orbiter supports cross-chain transactions of 42 chains, including Solana, TON and a number of BTC Layer2s. At the beginning of this year, it only supported 19 Layer 2s.
With the support of its own airdrop expectations and the craze of L2 airdrop farming, Orbiter has attracted a large number of users' attention and use with the temptation of killing two birds with one stone. Orbiter's data can basically reflect the user's movements between L2s and the popularity of each L2.
The Mechanism Behind Orbiter — On-Chain Exchanges
Before introducing the cross-chain mechanism of Orbiter FInance, we can first briefly talk about the cross-chain methods of users other than cross-chain bridges, as well as the common cross-chain bridge principles, so that you can better understand the differences of Orbiter.
In addition to cross-chain bridges, the most common cross-chain method for users is to complete it through centralized exchanges. For example, users can deposit ETH on Optimism into an exchange, and then withdraw ETH to the Arbitrum chain through the exchange's withdrawal function. This operation is based on the fact that centralized exchanges have corresponding asset reserves on each supported chain. Users actually deposit their ETH into the exchange's wallet on the OP chain in exchange for the exchange's ETH on the Arbitrum chain, while the exchange's total ETH holdings remain unchanged. Although this method is simple to operate, it has many disadvantages, such as (1) complex user experience, requiring multiple deposits and withdrawals (2) requiring a long wait time (3) decoupling from the chain, making it difficult to meet the needs of long-term cross-chain interoperability.
Traditional cross-chain bridges adopt the "lock-mint-destroy-unlock" model. Users lock assets on the original chain, and the cross-chain bridge mints an equal amount of tokens on the target chain. When the user needs to transfer the assets back to the original chain, the tokens on the target chain are destroyed. The advantage of this method is that cross-chain operations can be performed without relying on token reserves, and the interoperability between chains can be expanded in the future, but it also brings challenges in security and cost: (1) Security is limited to the less secure of the original chain and the target chain. Any contract on either side will threaten the security of user assets (2) The cost of cross-chain is high because contract operations such as locking and minting usually consume more gas. Some of the largest thefts in the history of Crypto development are related to cross-chain bridges.
Orbiter is a significant improvement on the exchange model . In Orbiter's cross-chain solution, funds only flow in the form of transfers between the "Sender" address controlled by the user and the "Maker" address controlled by Orbiter. The entire cross-chain process does not involve any contract interaction, such as casting, locking, and destruction. Therefore, Orbiter's cross-chain cost is low, the speed is fast, the security risk is small, and the scalability is strong. Even in extreme cases, security incidents will have a relatively small impact on user assets.
For example, if user A wants to cross-chain 0.1 ETH from Ethereum L1 to Base Chain, Orbiter's cross-chain process only requires 3 steps:
1) User A transfers 0.1 ETH to Maker on Ethereum L1
2) Maker confirms receipt of 0.1 ETH
3) Maker transfers 0.1 ETH to user A on the Base chain
Initially, Maker was centrally controlled by Orbiter. The main cost in the entire process was the Gas cost of the two transfers on the mainnet and Base. Users borne the transfer costs on the original chain (mainnet), and Maker paid the transfer costs on the target chain (Base), which would be charged to users when they transferred on the target chain.
Compared with the cross-chain model of CEX, Orbiter retains all the advantages of the CEX model while greatly simplifying the user operation process. Users do not need to repeatedly recharge and withdraw coins on the exchange and the chain, which improves efficiency and simplifies operations.
Orbiter’s revenue focus – number of transactions
The biggest charm of Orbiter Finance is not its cross-chain mechanism, but its business model. A deep understanding of Orbiter's business model will help us understand its design principles and predict its future development.
Among many people who the author has communicated with and who are familiar with Orbiter or cross-chain bridges, there is a common view that Orbiter, as a cross-chain bridge, earns transaction fees, and its income is most correlated with the amount of cross-chain transactions. The more cross-chain amounts, the higher the cross-chain income. Orbiter usually charges transaction fees between 0.02% and 0.2%.
However, this view is slightly biased. Transaction fees are the surface business model of Orbiter, but they are not the essential reason for its high income. Recalling that the article initially mentioned that Orbiter had several million dollars in revenue every month, if the revenue was calculated based on 0.05% transaction fees, Orbiter would need to process more than 2 billion dollars per month to achieve this level of revenue. Since its launch, Orbiter has only processed about 20 billion dollars. Could it be that the revenue is only 10 million dollars? This is not the case.
To clarify Orbiter’s business model, we need to combine its fee structure with the actual situation of on-chain transactions. Orbiter charges users mainly in two parts:
1) Transaction fees, which represent the fees paid by users to the platform and Maker, are charged as a percentage of the transfer amount.
2) Withholding fee, which is used to pay the Gas required by Maker to transfer to the target chain. Therefore, when the target chain is L1, the withholding fee is high; when it crosses to L2, the withholding fee is low.
Judging from the product model and Orbiter's official statement, transaction fees are part of the Orbiter platform's revenue, while withholding fees are part of the operating costs. But in fact, the seemingly unavoidable hard cost expenditure - withholding fees, is the main source of income for Orbiter. The income of the Orbiter platform does not depend on the total processing amount, but on the total number of cross-chain transactions. Users frequently use Orbiter for cross-chain operations in order to brush airdrop points, which is an important way for Orbiter to generate income. Orbiter is one of the few projects that converts users' frequent operations into a source of income rather than just as data traffic, and makes users willing to pay all the time.
This conclusion is based on the author's research on Orbiter on-chain transactions.
Take a transaction from L1 to Base chain as an example. Usually Maker will charge 0.0015 ETH for each transaction to offset the Gas cost of L2. Depending on the fluctuation of ETH price, this fee is about $3 to $5. Although this price is not low, it is not an exaggerated price for many L2 operations, because when the contracts involved are complex, before the implementation of EIP-4844, it is not uncommon for an on-chain operation to cost $2 to $5 in gas, and users will not be overly sensitive to this.
However, the actual situation is not the case. If this value is really intended to offset the cost, then when EIP-4844 is implemented and the L2 cost drops significantly, the advance fee should also be adjusted, but at present it has not.
In actual operation, Orbiter will package transactions according to usage. Taking this transaction as an example, before the implementation of EIP-4844, the average cost of each transaction on the Base chain was between $0.2 and $0.5, and the cost of pure Transfer type transactions was even lower. In this transaction, Orbiter actually used 0.0004E (less than $2) to complete 9 cross-chain transactions, but charged a total of 0.0135E "Gas cost", and the actual cross-chain amount was 0.113E, and the actual handling fee ratio exceeded 12%.
For a protocol like Orbiter that is mainly aimed at small-amount cross-chain users, each cross-chain transaction costs 0.0015E. If it only relies on a 0.02% handling fee, the single cross-chain amount needs to reach 7.5E to achieve the same level of income. This explains why both Orbiter and its competitors such as Owlto can easily launch cross-chain activities with 0 handling fees, because the handling fees are not important at all, and the "cost" that users think of is the actual "profit".
However, with the implementation of EIP-4844, the average cost of each L2 transaction has been reduced to between $0.02 and $0.05. In this context, the prepayment fee charged under the name of "Gas cost" is extremely unreasonable; if users or potential competitors are aware of the problem, its "cheap, fast, and secure" product advantages may be questioned, and the opposite will be "profiteering" and "deception". Therefore, whether from the perspective of long-term development or the current situation, Orbiter should be prepared for transformation.
In the context of this highly profitable business model, Orbiter lacks the motivation to issue tokens too early. Otherwise, its revenue is likely to decrease after the issuance, and it will have to use tokens to incentivize users to continue trading. Once Maker fees are lowered, it will be extremely difficult to recover costs from transaction fees alone. After all, Maker's revenue is currently expected to account for 90% of Orbiter's monthly revenue.
The Future of Orbiter — Enabling Cross-Chain Interoperability Between L2s
Currently, Maker is basically run by Orbiter itself or Orbiter’s whitelisted users. The amount of Maker’s funds limits the amount of cross-chain funds that Orbiter can handle as a cross-chain product. Imagine if Maker only has 50 ETH in the address, and the user wants to transfer 100 ETH to the target chain, then Orbiter can’t do anything.
In the future, if Maker is open to the public and if Orbiter can maintain its current charging model, Maker will likely be a way for users with sufficient liquidity to earn a stable income.
As mentioned above, there are currently only two roles in the Orbiter system: Sender and Maker. However, this mechanism may face the challenge of centralization threats at any time, such as front-end failure caused by censorship or bans. Although the contract is decentralized, users cannot access and call it from the front-end. Orbiter plans to introduce two new roles, Dealer and Submitter, to encourage the community to provide a decentralized front-end. Dealer is responsible for providing a front-end for users to access, and Submitter is responsible for calculating the profit sharing between Dealer and Maker.
Full-chain wallet - the ultimate answer to achieve L2 cross-chain interoperability
Orbiter's further goal is to build a full-chain wallet around ZKP proof, and then truly achieve cross-chain interoperability. It is expected to launch zkProver in the fourth quarter, which can effectively solve the current high gas consumption of AA wallets.
Summarize
Orbiter Finance is a very smart project that cleverly uses the centralized mechanism to avoid many potential risks of cross-chain bridges. This idea is actually similar to the early development of L2. For users, the actual meaning of decentralization is vague.
Compared with decentralized projects that have huge security risks and require additional costs for decentralization, users seem to prefer projects that use centralized mechanisms to achieve rapid online iterations, are cheap, and have low security risks.
For future Crypto projects, it may be a wiser path to use centralized solutions to quickly launch and verify product requirements, and then gradually iterate into decentralized versions.
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