Ethereum's layer-1 network revenue has nosedived by a staggering 99% since March 2024, despite a significant uptick in monthly users and daily transaction costs on layer-2 solutions.
Ethereum's layer-1 network revenue has nosedived by a staggering 99% since March 2024, despite a significant uptick in monthly users and daily transaction costs on layer-2 solutions. This comes in the wake of the highly anticipated Dencun upgrade, which went live on March 13, 2024.
On March 5, 2024, Ethereum network fees peaked at $35.5 million, marking the highest level for the year. However, following the Dencun upgrade, designed to substantially reduce fees for Ethereum layer-2 transactions, network fees entered a steep decline. By August 31, they had plummeted to a mere $566,000, with a slight uptick to $578,000 on September 2, 2024.
The Dencun upgrade's success in slashing layer-2 fees has triggered an explosion of competing scaling solutions. L2Beat, a data resource for layer-2 projects, currently lists an impressive 74 Ethereum L2 scaling projects and 21 layer-3 projects.
This hypercompetitive environment has sparked a race to the bottom, with rival L2s vying to offer the lowest transaction fees. The resulting competition has not only drawn users away from settling directly on the Ethereum base layer but has also created a self-reinforcing mechanism that further depresses fees on the network.
The dramatic reduction in fees has had far-reaching consequences for Ethereum's tokenomics. It has effectively offset the deflationary pressure introduced by EIP-1559, an earlier upgrade that implemented a fee-burning mechanism. The lowered transaction costs have translated into decreased demand for Ether (ETH), the native currency required to pay transaction fees on the network. Consequently, the supply of ETH has been steadily growing since the Dencun upgrade went live.
This shift in supply and demand dynamics has not been kind to ETH's price, pushing it below the psychologically important $3,000 level. ETH is currently trading at $2,519, down 5.98% over the past week.
This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators.
This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice.
The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap.
