Ethereum Fees Drop Signals Low On-Chain Demand

Glassnode reports that Ethereum’s 90-day simple moving average for daily total fees has dropped below 300 ETH, indicating low on-chain demand and increased Layer 2 activity.

This decline affects Ethereum’s fee revenue and validator income, prompting a shift in demand towards Layer 2 solutions.

The Ethereum network is experiencing a historic drop in transaction fees, with the 90-day simple moving average falling below 300 ETH per day. Analysts attribute this decline to a significant migration of activities to Layer-2 solutions. As noted by Glassnode, "The 90-day simple moving average (SMA) for Ethereum’s total transaction fees has dropped below 300 ETH, signaling a multi-year low for on-chain demand."

The primary entities involved include Glassnode, which provides analytics on ETH fees, and the Ethereum Foundation. Validators and DeFi protocols on Ethereum Layer-1 face reduced income due to lower transaction activity and fees.

The immediate impact is seen in reduced Ethereum validator income and decreased Layer-1 DeFi protocol activity. Fee compression also reduces the effect of ETH burn under EIP-1559, affecting Ethereum’s deflationary dynamics.

The financial implications extend to Layer-1 DeFi tokens, reliant on high transaction volumes for revenue. More activities are shifting to Layer-2 networks, signaling structural changes in the Ethereum ecosystem.

Ethereum’s current situation mirrors past events, like 2017's low-fee era, before DeFi and NFT booms. Declines reflect a mature ecosystem’s adaptation to evolving Layer-2 technologies.

The shift to Layer-2 might reshape Ethereum's economy, potentially decreasing Layer-1 fee dependency. Historical trends and on-chain data indicate a sustained focus on improving transaction efficiency and enhancing Ethereum’s scalability. Further analytics from sources like Glassnode offer detailed insights.