Ethereum’s layer-1 community has witnessed a drastic decline in income, plummeting by 99% since March 2024.
Information from Token Terminal reveals that community income peaked at over $35 million on March 5. Nevertheless, by Sept. 2, every day income had plunged to a yearly low of round $200,000.
Market observers attribute this decline to the expansion of layer-2 (L2) networks and the March Dencun improve, which lowered charges for L2 transactions and reshaped Ethereum’s income construction. Token Terminal said:
“Key metrics that present how decrease transaction charges on L2s have elevated utilization, but in addition pushed down the income on the L1.”
Submit-upgrade transaction exercise has shifted from Ethereum’s mainnet to L2 networks, resulting in elevated every day transactions and energetic customers on these platforms.
Nevertheless, this migration has considerably impacted Ethereum’s price income. As an illustration, Coinbase’s L2 community, Base, generated $2.5 million in income in August however paid solely $11,000 to choose the mainnet, underlining the shift in worth from Ethereum’s base layer.
Crypto analyst Kun warned that if this development continues, L2 networks might dominate and doubtlessly abandon Ethereum’s mainnet, particularly for client purposes. He emphasised the necessity for Ethereum to develop useful use circumstances on its mainnet or danger a extreme valuation subject.
He added:
“ETH L1 wants useful use circumstances on mainnet that can’t be sieged or you must hope that L2 utilization is so huge that principally you want 100000 occasions the utilization on L2 to get the identical worth you probably did on mainnet with a tiny fraction which then creates a valley of valuation points.”
‘Demise spiral’
Bitcoin investor Fred Krueger has echoed these considerations, suggesting that Ethereum might face a “dying spiral” if its low income state of affairs persists.
He identified that Ethereum’s present price income of $200,000 per day equates to $73 million yearly, removed from enough to maintain its market cap of $300 billion.
Krueger argues {that a} extra sensible valuation may be nearer to $3 billion, underscoring the disconnect between Ethereum’s price earnings mannequin and its market valuation. He mentioned:
“[Ethereum is] not equal to an organization making $73 million a yr in revenue, or perhaps a firm making $73 million a yr in income. That $73 million is not even enough to purchase again all of the inflation that naturally involves ETH validators.”
