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

Ethereum’s layer-1 network has experienced a staggering 99% drop in revenue since March 2024, largely due to the impact of the Dencun upgrade.

This upgrade, which took effect on March 13, drastically reduced transaction fees for layer-2 solutions. Before the upgrade, network fees had soared to $35.5 million on March 5. However, by late August, these fees had dwindled to a mere $566,000, with a slight increase to $578,000 in early September.

The significant reduction in fees has fueled an explosion of layer-2 scaling projects. There are now 74 active Ethereum layer-2 solutions and 21 layer-3 projects. Adrian Brink, CEO of Anoma, suggests that the number of these layer-2 solutions is far beyond what the market requires, estimating that the industry has about ten times more layer-2 solutions than necessary.

This oversupply has intensified competition among these projects, driving fees even lower and diverting users from the Ethereum base layer.

As a result of the lower transaction costs, the demand for ETH, which is used to pay for network fees, has diminished. This has led to an increase in the supply of ETH and has undermined the deflationary effects intended by Ethereum Improvement Proposal (EIP) 1559, which burns a portion of transaction fees.