- Dencun upgrade lowered Layer-2 transaction costs significantly, attracting more users to L2 networks like Arbitrum and Base.
- Amid drastic reductions in Layer-2 fees, users exited Ethereum, leading to a steep 99% drop in mainnet revenue.
- Arbitrum and Base dominate the Layer-2 space with the highest total value locked and monthly active users, drawing significant activity away from Ethereum’s mainnet.
- With Ethereum’s role shifting post-Dencun, it is now seen as a critical infrastructure layer for Layer-2 networks rather than a standalone value store.
The long-awaited upgrade to the Ethereum ecosystem, Dencun, was designed to reduce transaction costs and with that increase the network’s accessibility.
While the introduction of so-called blobs has drastically reduced Layer-2 fees by over 90% across various networks like Optimism, Base and Arbitrum, it also indirectly reduced Ethereum (mainnet) gas fees significantly. The low fees also led to less ETH burned, which increased the supply and put a damper on the price.
This possibly explains why L1 revenue has dropped by 99%, as per Token Terminal. Fees, as high as US$35.5 million (AU$52.8 million) in March, dropped to a mere US$578,000 (AU$859,877) in early September.
L2 Solutions Draw Users Away from Ethereum-Mainnet
Meanwhile, as Layer-2 networks have become cheaper – that is, transaction fees have gone down – their active user base and transaction counts have significantly increased.
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While there are currently 74 Ethereum L2s and 21 L3s, the vast majority of activity happens on just a few chains.
The largest L2 chains, measured in total value locked (TVL) – Arbitrum, with TVL of US$2.46 billion (AU$3.66 billion), and Base, with US$1.49 billion (AU$2.21 billion) – take out the top spots for monthly active users.
Base currently has 14.2 million of the 19.6 million active users while Arbitrum sees 3 million users, leaving OP Mainnet (1.1 million) and zkSync Era (778.4k) behind.
Data also shows that daily transactions on these networks have doubled since March.
Ethereum Revenue Model to Shift, Says Horizon Labs CEO
The Dencun upgrade is then widely regarded as costing Ethereum its status as a deflationary network, and shifts the focus away from a store of value toward decentralised applications, as CryptoQuant’s Ki Young Ju noted earlier this year.
Post-Duncun upgrade, $ETH lost deflationary status with reduced fees, departing from ‘ultrasound money’. Ethereum’s strength lies in DApps.
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Rob Viglione, CEO of Horizen Labs, believes that Ethereum’s strength will be as a settlement and security layer for L2s. Viglione told BeInCrypto:
Ethereum’s revenue model is set to shift from individual transaction fees to generating revenue as the settlement layer for L2 networks. This transition positions Ethereum as critical infrastructure for a diverse blockchain ecosystem.
Rob Viglione, Horizen LabsWhile ETH is struggling price-wise, there’s also more development in store for the no.2 crypto. The Pectra upgrade is scheduled for Q1 2025 and will focus on improvements in staking, security, smart contract functionality and scalability.
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