Ethereum (ETH) has witnessed unprecedented levels of on-chain activity this year, driven by a significant drop in mainnet transaction fees, which have decreased by over 90%.
Decline in Ethereum Revenue
Data from Token Terminal reveals that Ethereum’s revenue has plummeted by 99% since March, marking one of the lowest points in the blockchain’s history. This revenue is primarily generated from fees charged for executing transactions on Ethereum’s main network.
Surge in On-Chain Swaps
Despite the revenue decline, ETH on-chain swaps have surged to new all-time highs in 2024, according to L2Beat analytics. Ryan Watkins, co-founder of Syncracy Capital, described these trends as a positive indicator for Ethereum’s blockchain and the broader decentralized finance (DeFi) ecosystem.
Ethereum onchain activity reaching new highs while fees are down 90% is bullish, not bearish.
The faster fees per txn trend towards zero the better.
The North Star is to onboard billions of people globally to cryptoeconomy with ETH as the programmable money at the center of it. https://t.co/J0FGmle5VL pic.twitter.com/ROPGz0hYkT
— Ryan Watkins (@RyanWatkins_) September 2, 2024
Why Are Ethereum’s Mainnet Fees Down While Activity Is Up?
The reduction in fees on Ethereum’s mainnet began following the Dencun upgrade, which was implemented in March. This upgrade introduced innovative technologies like blobs and proto-danksharding, significantly enhancing the efficiency of Ethereum’s layer-2 (L2) networks. These improvements allowed L2 solutions to process more data and transactions, easing congestion on Ethereum’s main layer.
As a result, transaction costs across both Ethereum’s mainnet and L2 networks have decreased, leading to a reduction in revenue generated by the mainnet. However, the lower fees have attracted more users to Ethereum, solidifying its position as the second-largest blockchain after Bitcoin.
Increased Activity Amid Lower Fees
Before the Dencun upgrade, high gas fees were a major pain point for Ethereum users. Events like airdrops or token claims often led to network congestion, making the blockchain nearly unusable at times. The reduction in fees has not only made transactions more affordable but has also driven a surge in activity across the network.
Ethereum’s Growing Appeal to Institutional Investors
The timing of the decline in revenue and the increase in on-chain transactions also coincides with Ether gaining attention from institutional investors. After the launch of spot Bitcoin exchange-traded funds (ETFs) in January, the U.S. Securities and Exchange Commission approved similar ETFs backed by ETH in July. By the end of August, over $2 billion worth of spot Ether ETFs had been traded.
The Future of Spot ETH ETFs
The long-term impact of spot ETH ETFs on the market remains uncertain, with ongoing debates about whether this development aligns with Ethereum’s core principles. As Ethereum continues to evolve, its ability to balance decentralization with growing institutional interest will be critical.
