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Calculating AEP license fees

This document will help you calculate your Arbitrum chain’s Protocol Net Revenue and AEP license fees.

Before we define “Protocol Net Revenue”, let's explain how fees work in a standard Arbitrum chain. From there, we can connect how each fee equates to a revenue or a cost.

Sequencing revenue​

In a vanilla Arbitrum chain (a chain without customizations, transaction ordering policies, or other add-ons), users and dApps will pay a single gas fee to submit their transactions. Under the hood, however, a user’s fee is allocated across four components used by the network in different ways. These four fee components are split as follows:

  • l2BaseFee: fees paid to execute a transaction on the Arbitrum chain (Orbit).
  • l2SurplusFee: surplus fees are charged in addition to the base fee when an Arbitrum chain (Orbit) is congested.
  • l1BaseFee: fees paid to cover the cost of an Arbitrum chain (Orbit) posting its settlement transaction to the parent chain.
  • l1SurplusFee: an additional surplus fee that can be configured to award extra fees to the batch poster.

Based on the above, we interpret that an Arbitrum chain’s revenue sources include all fee components: l2BaseFee, l2SurplusFee, l1BaseFee, and l1SurplusFee. However, one of these fee components is also a cost, l1BaseFee, as it is used to pay for parent chain settlement.

Assertion costs​

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As of June 6th, Assertion Costs will be removed from the AEP formula calculation.

The above fee system applies to an Arbitrum chain’s Sequencer and Batch Poster, but there is another important actor that is considered essential to the chain. These are the validators.

Additional revenue sources​

As the Arbitrum chain (Orbit) license allows chain owners to customize their Rollup, the AEP license accounts for revenue sources that could arise out of innovations. As such, it’s worth noting that the total calculation of revenue will also include:

  • Revenue from transaction ordering policies.
  • Revenue earned through fees on top of the bridge.
  • Broadly, any revenue earned in connection with your use of Arbitrum Nitro.

You can read the relevant legal terminology in Section 2 of the AEP Terms.

Calculating AEP fees​

We are now in a place where we can precisely define AEP fees. An Arbitrum chain’s obligation for AEP license is 10% of a chain’s Net Protocol Revenue. Net Protocol Revenue is broadly the difference between (i) gross revenue and (ii) settlement costs.

Based on our understanding above, we can calculate AEP fees as follows.

AEP_FEES = [(gross revenue) - (settlement costs)]*0.1
AEP_FEES = [(sequencing revenue + additional revenue) - (settlement costs)]*0.1
AEP_FEES = [(l2BaseFee + l2SurplusFee + l1BaseFee + l1SurplusFee) - (l1BaseFee)]*0.1
info

As of June 6th, Assertion Costs will be removed from the AEP formula calculation.

Special cases and exceptions​

Certain Arbitrum chain configurations and customizations require special handling of AEP fees. The following is a non-exhaustive list of applicable scenarios and how to ensure AEP compliance. If any of the following cases apply, the recommended approach for fee handling will require manual handling of a portion of or all AEP Fees.

L2-based custom gas tokens​

If you are an L3 or higher chain with a custom gas token, your custom gas token contract might be deployed on L2. If this L2 is not an Arbitrum chain, then the L2 token can't be transferred via the AEP Fee Router, as this would first require bridging down to Ethereum (impossible for L2-based tokens). In this instance, we recommend your chain pay fees in ETH by manually sending fees to an ETH-configured routing system.

Non-Ethereum L1​

If your Arbitrum chain is deployed on a non-Ethereum L1 (e.g., Solana, BNB Chain), your fees must be manually transferred to a Foundation-controlled address.

Novel fee-earning customizations​

As discussed above in Additional revenue sources, if you have customized your Arbitrum chain to earn revenue through any enshrined component, this revenue must be calculated as part of the AEP fees. In such cases, we recommend engaging with the AF to agree on a revenue model and reporting cadence and then manually send additional fees into the routing system as required.

Other cases​

If you are still determining if your Arbitrum chain configuration applies to the listed or unlisted special cases, we recommend engaging with the Arbitrum Foundation.