The revenue of the layer-1 network of Ethereum has experienced a sharp decline, plummeting by 99% since March 2024.
This significant drop comes despite an increase in monthly users and rising daily transaction costs on Ethereum’s layer-2 solutions.
According to data from Token Terminal, the network fees reached their peak for the year on March 5, at over $35 million, shortly before the Dencun upgrade. This upgrade notably reduced fees for layer-2 transactions, altering the revenue structure for Ethereum’s base layer.
Ethereum L1 revenue is down 99% in the past 6 months pic.twitter.com/fdMo0bj1M2
— Token Terminal (@tokenterminal) September 2, 2024
Impact of Blobs on Layer-1 Revenue
The introduction of “blobs” in March has been a major factor in the declining revenue. Blobs, a scaling and efficiency update, allowed layer-2 solutions to process transactions more cheaply without relying heavily on Ethereum’s base layer for data availability (DA).
This efficiency has enabled layer-2 networks to offer reduced transaction costs, resulting in fewer fees being funneled back to the layer-1 network. Consequently, Ethereum’s layer-1 has seen a steep reduction in revenue as the use of its DA services has decreased significantly.
Shifts in Ethereum’s Fee Structure
In addition to reduced revenue, Ethereum’s fee structure has also undergone notable changes. The higher gas usage earlier in the year had led to an increased burn rate for ETH tokens, which kept the crypto deflationary.
However, following the introduction of blobs, the burn rate has declined, flipping ETH into an inflationary state.
This shift has raised concerns about the potential impact on ETH’s price, with some market observers calling for adjustments to blob fees. One Abstract Chain contributor suggested increasing blob fees to rebalance the relationship between layer-1 and layer-2 networks and to enhance ETH’s deflationary status.
Community Response and Staking Growth
The Ethereum community has responded to these developments with varying perspectives. Ryan Berckmans, an Ethereum validator, expressed support for the current state of layer-1 fees. He argued that the success of layer-2 solutions has made Ethereum’s base layer more accessible for larger entities.
Despite the revenue drop, Berckmans emphasized that fees are not the primary goal of Ethereum; instead, they are a byproduct of the network’s utility.
In related news, Ethereum’s staking ecosystem continues to grow, with 34 million ETH staked and over 1 million active validators by August 26, demonstrating strong participation in the network’s proof-of-stake model.
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