- Ethereum’s L1 transaction revenue has dropped to $100,000 due to record-low gas fees, making transactions cheaper but reducing fee-generated burns and increasing ETH supply.
- While this benefits L2 networks like Arbitrum and Base, it raises concerns about Ethereum’s long-term revenue model and sustainability.
Ethereum’s Layer 1 (L1) network has seen a significant decline in transaction revenue, with fees from direct transfers dropping to just $100,000 over the past 24 hours. This marks a stark contrast to previous periods when Ethereum transactions were notoriously expensive. While this shift has made the network more accessible, it also raises concerns about Ethereum’s long-term revenue model and sustainability.
Ethereum’s Gas Fees Hit Historic Lows
One of the key reasons for Ethereum’s lower revenue is the dramatic reduction in gas fees. Recent data shows that Ethereum gas prices have dropped below 1 gWei, allowing regular transactions to be processed for as little as $0.02, while decentralized exchange (DEX) swaps cost around $0.28. This is a massive decline from previous highs, where users often had to pay $28 or more for basic operations like token swaps or NFT transactions.
The Impact of Lower Fees on Ethereum’s Activity
The drop in transaction fees coincides with Ethereum trading under $2,000, though the price recently recovered to around $2,069.51. Despite the lower costs, the network has experienced a slowdown in user activity, with weekly active users declining to around 1.8 million. Additionally, meme coins and AI-driven market activities, which previously contributed to high transaction volumes, have cooled down, leading to lower on-chain engagement.
Moreover, with fewer users executing transactions, Ethereum’s transaction burn rate has also plummeted. Currently, ETH transfers burn around 30 ETH daily, while blob fees, which previously burned over 80 ETH in February, now account for just 10 ETH per day. The reduction in burn rate increases Ethereum’s supply, contributing to an annual inflation rate of approximately 0.72%, adding nearly 1 million ETH to circulation.
L2 Networks Benefit at the Expense of Ethereum L1
The lower gas fees have significantly benefited Layer 2 (L2) protocols like Base and Arbitrum. These networks have retained their active user base while enjoying virtually cost-free transactions. As a result, L2 protocols no longer contribute revenue back to Ethereum’s mainnet, further limiting its fee generation. For the first time, major L2 protocols have paid nearly zero blob fees due to Ethereum’s favorable gas conditions.
Cheap Gas Spurs Smart Contract Activity
Despite the challenges, the lower gas fees have revitalized certain smart contract activities. The Lightchain Protocol AI has emerged as the top gas consumer, burning 10.34% of Ethereum’s total gas. Additionally, BC.Game, a popular Ethereum-based casino, has burned around 6% of all gas, overtaking even Tether’s (USDT) contract in activity. However, this trend may be short-lived if gas prices return to previous levels.
While the drop in Ethereum’s L1 revenue signals success in reducing transaction costs, it also raises questions about sustainability. With reduced transaction burns, increasing ETH supply, and revenue shifting to L2 solutions, Ethereum must find new ways to maintain its economic model. Whether this low-fee environment will attract new users or lead to further stagnation remains to be seen.
