Ethereum Revenue Plummets 99% Since March as Layer-2 Solutions Proliferate

Ethereum network revenue has seen a dramatic 99% decline since March, driven by the rise of layer-2 solutions that have significantly reduced transaction fees. The surge in layer-2 projects has created an oversupply, intensifying competition and further lowering fees, leading to a decrease in demand for ETH.

Ethereum Revenue Crashes 99% Since March as Layer-2 Solutions Surge

Ethereum’s network revenue has experienced a staggering 99% decline since March, as the growing adoption of layer-2 solutions continues to reshape the blockchain landscape. This dramatic drop follows the implementation of a significant upgrade on March 13, which aimed to reduce transaction fees for layer-2 solutions—a goal it achieved with remarkable effectiveness.

Before this upgrade, network fees had reached a peak of $35.5 million on March 5. However, by late August, these fees had plummeted to just $566,000, with only a slight uptick to $578,000 in early September. This drastic reduction has been a catalyst for the rapid proliferation of layer-2 scaling projects on Ethereum.

Currently, there are 74 active Ethereum layer-2 solutions and 21 layer-3 projects. While these solutions have contributed to lower transaction costs and increased network efficiency, the sheer number of these projects has led to what some experts describe as an oversaturated market. Adrian Brink, CEO of Anoma, noted that the industry now has about ten times more layer-2 solutions than necessary.

This oversupply has resulted in fierce competition among layer-2 projects, driving fees even lower and diverting a significant portion of user activity away from the Ethereum base layer. Consequently, the demand for ETH, which is required to pay for network fees, has diminished. This decrease in demand has led to an increase in the overall supply of ETH, thereby weakening the deflationary effects that were intended by Ethereum Improvement Proposal (EIP) 1559, which introduced a mechanism to burn a portion of transaction fees.

As layer-2 solutions continue to evolve and attract more users, Ethereum’s core network may face ongoing challenges in maintaining its revenue streams. The shift towards more efficient, lower-cost alternatives could reshape the future of the Ethereum ecosystem, prompting further innovation and adaptation within the broader blockchain community.

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