Ethereum Network Revenue Drops 99% Amid Layer-2 Competition

According to Cointelegraph, Ethereum's layer-1 network revenue has seen a significant decline of 99% since March 2024, despite a notable increase in layer-2 users and daily transaction costs. Data from Token Terminal indicates that network fees peaked at $35.5 million on March 5, 2024. However, following the Dencun upgrade on March 13, 2024, which reduced fees for Ethereum layer-2 transactions, network fees began to decline steadily. By August 31, fees had dropped to $566,000, with a slight increase to $578,000 by September 2, 2024. The reduction in Ethereum layer-2 fees post-Dencun upgrade has led to a surge in competing layer-2 scaling solutions. L2Beat reports that there are currently 74 Ethereum layer-2 scaling projects and 21 layer-3 projects. Adrian Brink, CEO of Anoma, suggests that the number of layer-2 solutions far exceeds market demand, estimating that there are about ten times more layer-2 scaling solutions than necessary. This competitive environment has resulted in a race to offer the lowest transaction fees, drawing users away from the Ethereum base layer and further reducing network fees. The lowered transaction costs introduced by the Dencun upgrade have countered the deflationary pressure from EIP-1559, an Ethereum improvement proposal that burns a portion of network fees. This reduction in fees has led to decreased demand for Ether (ETH), the currency used for transaction fees on the network. Consequently, the supply of ETH has been increasing since the Dencun upgrade. The historically low transaction costs and corresponding lack of demand have contributed to pushing the price of ETH below the $3,000 level.