Recent data from Token Terminal reveals a staggering 99% decline in Ethereum’s Layer 1 (L1) network revenue since March 2024, with daily earnings dropping from a peak of $35 million** to just **$200,000. This dramatic shift raises critical questions about Ethereum’s future sustainability and market valuation.
Key Drivers Behind Ethereum’s Revenue Collapse
1. The Rise of Layer 2 (L2) Networks
The Dencun upgrade in March 2024 drastically reduced L2 transaction fees, accelerating migration from Ethereum’s mainnet to L2 solutions like Base, Arbitrum, and Optimism.
- Impact: L2 networks now capture most transaction activity, leaving Ethereum with minimal fee revenue.
- Example: Coinbase’s Base generated $2.5 million** in August 2024 but paid only **$11,000 in settlement fees to Ethereum.
👉 Why Ethereum’s L2 Boom Could Reshape Crypto Economics
2. Structural Shifts Post-Dencun Upgrade
The upgrade prioritized scalability but inadvertently weakened Ethereum’s income model:
- Before Dencun: High mainnet fees supported revenue.
- After Dencun: Over 90% of transactions moved to L2s, slashing L1 earnings.
Market Reactions: Warnings of a "Death Spiral"
Analyst Kun’s Concerns
- Dominance Risk: L2 networks may eventually sideline Ethereum’s mainnet, especially for consumer apps.
- Call to Action: Ethereum must develop high-value mainnet use cases (e.g., institutional staking, decentralized identity) to retain relevance.
Fred Krueger’s Valuation Critique
- Current Stats: $200K/day fees → **$73M annualized revenue vs. $300B market cap**.
- Projection: Krueger suggests a 30x overvaluation, with a "realistic" cap closer to $30B.
FAQs: Addressing Critical Questions
Q1: Is Ethereum’s low revenue a sign of failure?
A: Not necessarily. It reflects success in scaling via L2s but highlights the need to monetize security and decentralization.
Q2: Can Ethereum recover its revenue streams?
A: Yes, through mainnet innovations like restaking, enterprise adoption, or premium data services.
Q3: Are L2s harming Ethereum?
A: They’re a double-edged sword—boosting usability while diverting fees. Ethereum’s long-term health depends on balancing both.
👉 How Ethereum Could Avoid a Valuation Crisis
The Path Forward: Ethereum’s Make-or-Break Moment
To avoid a "death spiral," Ethereum must:
- Monetize Security: Charge L2s for using Ethereum’s settlement layer.
- Boost Mainnet Utility: Attract high-value transactions (e.g., DeFi derivatives, RWAs).
- Reassess Valuation Models: Shift from fee-based metrics to network security premiums.
The next 12 months will be pivotal for Ethereum’s evolution—or decline.