The post Ethereum Layer-1 Revenue Drops 99% Despite Growing Layer-2, Here’s Why appeared on BitcoinEthereumNews.com.

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…

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Filed under: News - @ September 3, 2024 5:23 pm