Ethereum's Layer 1 community has seen a drastic drop in income, falling by 99% since March 2024.
Knowledge from Token Terminal reveals that community income peaked on March fifth at greater than $35 million. Nonetheless, by September 2, every day gross sales had fallen to a yearly low of round $200,000.
Market watchers attribute this decline to the expansion of Layer 2 (L2) networks and Dencun's March improve, which lowered L2 transaction charges and reshaped Ethereum's income construction. Token Terminal mentioned:
“Key metrics displaying how decrease transaction charges on L2 elevated utilization but in addition lowered income on L1.”
Put up-upgrade transaction exercise shifted from the Ethereum mainnet to the L2 networks, resulting in a rise in every day transactions and lively customers on these platforms.
Nonetheless, this migration has considerably affected Ethereum's price earnings. For instance, Coinbase's L2 community, Base, generated $2.5 million in income in August however paid solely $11,000 to determine itself on the mainnet, underscoring the shift in worth from Ethereum's base layer.
Cryptoanalyst Kun warned that if this development continues, L2 networks may dominate and probably depart Ethereum's most important community, particularly for shopper functions. He careworn the necessity for Ethereum to develop beneficial use circumstances on its mainnet or danger a critical valuation drawback.
added:
“ETH L1 wants beneficial use circumstances on mainnet that may't be ringed, or you must hope that L2 utilization is so large that you simply mainly want 100,000 occasions extra on L2 to get the identical worth you had on mainnet with a small fraction , which then creates a valley of valuation issues.”
“Dying Spiral”
Bitcoin investor Fred Krueger echoed these considerations, suggesting that Ethereum may face a “loss of life spiral” if the low-income state of affairs persists.
He identified that Ethereum's present price earnings of $200,000 per day equates to $73 million per yr, which is way from sufficient to maintain its $300 billion market cap.
Krueger argues {that a} extra sensible valuation may very well be nearer to $3 billion, highlighting the mismatch between Ethereum's price earnings mannequin and its market valuation. He mentioned:
“(Ethereum is) not equal to an organization that has a revenue of $73 million a yr, or perhaps a firm that has a income of $73 million a yr. The 73 million are not even sufficient purchase again all of the inflation that naturally involves ETH validators.”
