Ethereum’s layer-1 network has experienced a significant decline in revenue, dropping by a staggering 99% since March 2024. According to data from Token Terminal, network revenue reached its peak at over $35 million on March 5, but by Sept. 2, daily revenue had plummeted to a yearly low of around $200,000.
The decline in revenue can be attributed to the rise of layer-2 (L2) networks and the March Dencun upgrade, which resulted in lower fees for L2 transactions and reshaped Ethereum’s revenue structure. Token Terminal noted that the lower transaction fees on L2s have increased usage but also driven down revenue on the layer-1 network.
Following the upgrade, transaction activity has shifted from Ethereum’s mainnet to L2 networks, leading to a surge in daily transactions and active users on these platforms. However, this migration has had a significant impact on Ethereum’s fee revenue. For example, Coinbase’s L2 network, Base, generated $2.5 million in revenue in August but only paid $11,000 to settle on the mainnet, highlighting the shift in value from Ethereum’s base layer.
Crypto analyst Kun has warned that if this trend continues, L2 networks could dominate and potentially abandon Ethereum’s mainnet, especially for consumer applications. He emphasized the importance of Ethereum developing valuable use cases on its mainnet to avoid a severe valuation issue.
Bitcoin investor Fred Krueger has also raised concerns, suggesting that Ethereum could enter a “death spiral” if its low revenue situation persists. He pointed out that Ethereum’s current fee revenue of $200,000 per day translates to $73 million annually, which is insufficient to sustain its market cap of $300 billion. Krueger believes that a more realistic valuation for Ethereum might be closer to $3 billion, highlighting the disparity between the network’s fee income model and its market valuation.
In conclusion, Ethereum’s layer-1 network has seen a drastic decline in revenue, primarily due to the growth of L2 networks and the impact of the March Dencun upgrade. The network must focus on developing valuable use cases on its mainnet to avoid losing its relevance in the rapidly evolving blockchain ecosystem.