Ethereum’s layer-1 network has seen a staggering 99% drop in revenue since March 2024, a surprising decline given the concurrent rise in monthly users and the increasing costs of daily transactions on Ethereum’s layer-2 solutions. This sharp downturn highlights significant shifts within the Ethereum ecosystem, particularly following the network’s Dencun upgrade and the introduction of “blobs”—an efficiency update that has dramatically altered the revenue dynamics for Ethereum’s base layer.
March 2024 – A Peak Before the Plunge
According to data from Token Terminal, Ethereum’s network fees reached their highest point for the year on March 5, just before the Dencun upgrade, peaking at over $35 million. This upgrade, designed to reduce fees for layer-2 transactions, has inadvertently reshaped Ethereum’s revenue structure. While layer-2 solutions have thrived, offering users lower transaction costs, Ethereum’s layer-1 network has been left grappling with the consequences.
The Impact of Blobs on Layer-1 Revenue
The introduction of blobs has been a pivotal factor in this revenue decline. Blobs, part of Ethereum’s scaling strategy, have enabled layer-2 networks to process transactions more cheaply and efficiently by reducing their reliance on Ethereum’s base layer for data availability (DA). This advancement has allowed layer-2 solutions to offer significantly reduced transaction costs, diverting what would have been layer-1 fees to these secondary networks.
As a result, Ethereum’s layer-1 network has experienced a steep reduction in revenue, with the use of its DA services dropping off sharply. This shift has raised concerns about the sustainability of Ethereum’s current fee structure and its broader economic model.
Beyond revenue concerns, Ethereum’s fee structure has undergone significant changes. Earlier in the year, high gas usage led to an increased burn rate for ETH tokens, helping to maintain its deflationary status. However, the introduction of blobs has caused a decline in this burn rate, pushing ETH into an inflationary state. This development has sparked debate within the Ethereum community, with some market observers advocating for adjustments to blob fees to restore balance between layer-1 and layer-2 networks and to support ETH’s deflationary status.
Community Response and Staking Growth
The Ethereum community’s response to these changes has been mixed. Ryan Berckmans, an Ethereum validator, has expressed support for the current state of layer-1 fees, arguing that the success of layer-2 solutions has made Ethereum’s base layer more accessible to larger entities. Berckmans emphasized that fees are not the primary goal of Ethereum; rather, they are a byproduct of the network’s broader utility.
Also Read: Solana Secures $78.8M In NFT Sales For August 2024 – Second Only To Ethereum Despite Market Slump
Despite the revenue drop, Ethereum’s staking ecosystem continues to thrive. As of August 26, 2024, over 34 million ETH had been staked, supported by more than 1 million active validators, showcasing strong participation in the network’s proof-of-stake model.
The dramatic decline in Ethereum’s layer-1 revenue highlights the ongoing evolution of the network as it adapts to new technological advancements and market dynamics. As the Ethereum community navigates these changes, the balance between layer-1 and layer-2 solutions will likely remain a key area of focus, influencing both the economic model of the network and the future of ETH as an asset.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
About The Author
