Ethereum $2,296.85’s revenue has dropped significantly. According to Galaxy Research, Ethereum’s Layer 1 (L1) protocol revenues have fallen to almost zero following the Dencun upgrade. This was noted as a significant development in Ethereum’s scaling strategy. The platform took to its social media account to discuss the current situation in detail.
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Reasons for the Decline in L1 Revenue
Galaxy Research noted that the decline in Ethereum’s L1 revenues is due to several factors. In this context, the dominance of L2 solutions such as zk-rollups, Arbitrum, and Optimisim plays a major role. These L2 solutions process transfers off-chain, performing settlement and rollup operations on Ethereum’s L1. Before the Dencun upgrade, Ethereum L1 still earned revenue from transfer fees related to these settlements.
However, after the Dencun upgrade, L2 solutions started to show more efficiency in interacting with L1. This improvement minimizes costly L1 interactions. The Dencun upgrade optimized communication, especially around rollup costs and data availability. In this context, L2 solutions currently consume much less than the fees paid to Ethereum’s L1 protocol.
Risks to the Long-Term Security Model
While this change provides convenience by reducing transfer fees, it has significantly reduced Ethereum L1’s direct revenue from L2-based operations. The near-zero L2 revenue reflects the increasing dominance of L2 solutions. These scaling solutions handle a large portion of Ethereum’s transaction volume, effectively outsourcing most of the activity on the mainnet.
One of the main concerns brought about by this change is the sustainability of Ethereum’s layer-1 security model. According to Galaxy Research, Ethereum relies on transfer fees to reward validators and maintain security. With L2s carrying the additional transfer burden, the long-term sustainability of the security model could be at risk if alternative revenue sources or incentives are not found.
On the other hand, the reduction in transaction costs thanks to the Dencun upgrade can be considered a positive development for users. However, the effects of this development on Ethereum’s economic model should be monitored carefully.
The Ethereum community and developers should consider developing new strategies to offset this situation. If alternative revenue sources and incentive mechanisms are not established, the security and sustainability of the network may be at risk.
For the future growth and security of Ethereum, it is important to carefully evaluate such developments and take the necessary precautions. This is a critical step to ensure a balanced ecosystem for both users and validators.
Disclaimer: The information contained in this article does not contain investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
