Ethereum’s layer-1 community has witnessed a drastic decline in income, plummeting by 99% since March 2024.
Knowledge from Token Terminal reveals that community income peaked at over $35 million on March 5. Nevertheless, by Sept. 2, each day income had plunged to a yearly low of round $200,000.
Market observers attribute this decline to the progress of layer-2 (L2) networks and the March Dencun improve, which diminished charges for L2 transactions and reshaped Ethereum’s income construction. Token Terminal acknowledged:
“Key metrics that show how lower transaction fees on L2s have increased usage, but also driven down the revenue on the L1.”
Put up-upgrade transaction exercise has shifted from Ethereum’s mainnet to L2 networks, resulting in elevated each day transactions and lively customers on these platforms.
Nevertheless, this migration has considerably impacted Ethereum’s price income. As an example, 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 probably abandon Ethereum’s mainnet, particularly for client functions. He emphasised the necessity for Ethereum to develop worthwhile use instances on its mainnet or danger a extreme valuation subject.
He added:
“ETH L1 needs valuable use cases on mainnet that cannot be sieged or you have to hope that L2 usage is so big that basically you need 100000 times the usage on L2 to get the same value you did on mainnet with a tiny fraction which then creates a valley of valuation issues.”
‘Death spiral’
Bitcoin investor Fred Krueger has echoed these issues, suggesting that Ethereum might face a “death spiral” if its low income scenario persists.
He identified that Ethereum’s present price income of $200,000 per day equates to $73 million yearly, removed from ample to maintain its market cap of $300 billion.
Krueger argues {that a} extra lifelike valuation may be nearer to $3 billion, underscoring the disconnect between Ethereum’s price revenue mannequin and its market valuation. He stated:
“[Ethereum is] not equivalent to a company making $73 million a year in profit, or even a company making $73 million a year in revenue. That $73 million is not even sufficient to buy back all the inflation that naturally comes to ETH validators.”