TL;DR
- Ethereum’s Layer-1 (L1) revenue has dropped by 99% since March 2024.
- The Dencun upgrade has significantly reduced transaction fees for Layer-2 (L2) solutions.
- The use of L2 solutions has increased considerably, driving competition and further reducing transaction costs.
The dramatic drop in Ethereum’s Layer-1 revenue has been one of the most impactful news stories in the cryptocurrency ecosystem in recent months.
Since the implementation of the Dencun upgrade on March 13, 2024, transaction fees on Ethereum’s main network have decreased by a staggering 99%.
This drastic reduction in revenue is primarily due to the lowering of transaction fees for Layer-2 (L2) solutions, which now handle the majority of transaction volume.
Before the upgrade, transaction fees on Ethereum’s base layer had reached figures as high as $35.5 million on March 5.
However, by late August, these revenues had plummeted to just $566,000, with a slight rise to $578,000 in early September.
The Dencun upgrade has enabled greater adoption of L2 solutions by significantly lowering fees, which in turn has driven an increase in the use of these solutions.
With the exponential growth of L2 solutions, which now include 74 active projects and 21 in Layer-3, a significant shift in market dynamics has been observed.
Transaction fees on these solutions have decreased, and the number of daily transactions and monthly active users on L2 platforms has doubled.
This reflects a clear shift towards these scaling technologies, which have attracted a large number of users and increased their market share.
Impact on Ethereum Ecosystem
The decrease in demand for ETH to pay network fees has had a significant impact on the supply of ETH.
With fewer transactions on the base layer, the amount of available ETH has increased, which has weakened the deflationary effects intended by the EIP-1559 upgrade, which burns a portion of transaction fees.
This change has created an excess of ETH in the market, negatively affecting the economic stability of the network.
As competition among L2 solutions intensifies, fees continue to drop, and the appeal of Ethereum’s base layer diminishes.
Although the adoption of scaling technologies is an improvement for transaction efficiency and cost, the dramatic decline in base layer revenue poses significant challenges for the long-term economic sustainability of the Ethereum network.
Developers and users must adapt to this new landscape as Ethereum continues to evolve in an increasingly competitive ecosystem.
