Standard Chartered Calls for Taxation of Excess Profits Earned by Ethereum Layer-2s

On Monday, Standard Chartered called for the taxation of excess profits earned by Layer-2 blockchains operating on Ethereum ETH/USD, warning that without such measures

Standard Chartered is calling for the taxation of excess profits earned by Layer-2 blockchains operating on Ethereum (CRYPTO: ETH), a move the bank believes is necessary to prevent further declines in the world’s second-largest cryptocurrency’s price and market cap.

In a new research note on Monday, the British multinational bank proposes that a portion of the profits reaped by these secondary chains—specifically highlighting Base, a Layer-2 developed by Coinbase (NASDAQ:COIN) (CRYPTO: CBI )—should be channeled back to the Ethereum Foundation to mitigate the implications of increased scalability.

"The solution would be to tax Layer 2 super-profits in the same way governments sometimes charge super taxes for foreign-owned mining companies that extract excess profits," said Geoffrey Kendrick, Standard Chartered's Global Head of Digital Assets Research.

The report highlights how the significant rise of Base has had a substantial impact on Ethereum's market cap. As Base retains a majority share of its fee revenue—estimated at 80%—for Coinbase, only a small percentage is returned to the Ethereum network for Layer-1 settlements.

This dynamic, in the context of Ethereum's own upgrades like the 2022 merge to proof-of-stake and the 2024 Dencun update, has led to increased scalability and reduced fees, it has also commoditized Ethereum within its own ecosystem, enabling Layer-2s to dominate revenue generation.

"Changes made to Ethereum over the past few years, while perhaps necessary, have been value destructive," Kendrick added. "The merge removed ETH's unique proof-of-work status among smart contract peers, and the Layer 2 concept gave away value for free. Dencun then gave Layer 2s even more power and created super-profits for them."

The analysis introduces the concept of blockchain "GDP" to measure value generated within Ethereum's ecosystem, comparing it to national economic output. This metric reveals that a growing share of transaction activity—and profits—are occurring off the Ethereum mainnet, especially on Base, further supporting the case for intervention.

While other Layer-2s like Arbitrum (NYSE:ARB) (CRYPTO: ARB) and Optimism (CRYPTO: OP) do not extract profits externally in the same way, the report singles out Base as a source of market cap erosion. The Base chain, which Standard Chartered describes as "explosively growing," now accounts for the majority of new addresses among major Layer 2s, suggesting that this trend could accelerate unless corrective action is taken.

Standard Chartered argues that only a proactive shift from the Ethereum Foundation—such as implementing a tax on Layer 2s—can reverse the current trajectory. Without it, the bank sees Ethereum's performance relative to Bitcoin (CRYPTO: BTC) continuing to deteriorate in the coming years.

Standard Chartered has revised its Ethereum price target downwards, now forecasting ETH to reach $4,000 by the end of 2025, a sharp cut from the previous $10,000 estimate. The ETH-BTC price ratio is also expected to fall, hitting 0.015 by 2027—its lowest since early 2017.