Ethereum (ETH) on-chain activity reached new highs this year as mainnet transaction fees dropped by over 90%.
Token Terminal data showed that Ethereum (ETH) revenue has fallen by 99% since March, reaching one of the lowest levels in the blockchain’s history. This revenue is generated by fees for executing transactions on Ethereum’s main blockchain.
Simultaneously, ETH on-chain swaps soared to new all-time highs this year, according to L2Beat analytics. Syncracy Capital co-founder Ryan Watkins described these developments as bullish for Ethereum’s chain and decentralized finance.
Why are Ethereum L1 fees down but activity up?
Fees on Ethereum’s mainnet began declining after the implementation of the Dencun upgrade in March. Dencun introduced blobs and proto-danksharding technology to Ethereum’s ecosystem, allowing layer-2 networks to process more data and transactions.
The update enhanced L2 utility while also decongesting Ethereum’s main layer. As a result, sending transactions across Ethereum and its L2 networks became cheaper, leading to reduced revenue on Ethereum’s mainnet.
However, cheaper fees incentivized users to tap the second-largest blockchain after Bitcoin (BTC) more than ever. Before Dencun, high gas fees were a common pain point for regular ETH users, and increased activity, such as airdrops or token claims, often made the chain nearly unusable.
The drop in revenue and the rise in on-chain transactions also coincided with Ether capturing Wall Street’s attention.
After spot Bitcoin exchange-traded funds (ETFs) debuted in January, similar funds underpinned by ETH were approved by the U.S. Securities and Exchange Commission in July. At the end of August, investors had traded over $2 billion worth of spot Ether ETFs.
The long-term impact on spot ETH ETFs remains to be seen, and debates on whether the development aligned with Ethereum’s ethos continued.
