Ethereum: Assessing reasons behind decline in daily revenue on network

Fees paid to process transactions on the Ethereum [ETH] network are at their lowest in a year, data from IntoTheBlock revealed. This can be mainly attributed to the movement of transactions. These were previously run on the Ethereum mainnet for Layer 2 (L2) scaling solutions.

At the time of writing, the total fees paid to use the Ethereum network were 1,490 ETH. A year ago, this was 5,280 ETH. After recording a high of 81,750 ETH as total fees on May 1st, Ethereum saw a drop in fees paid.

Source: IntotheBlock

Deriving its security from the Ethereum Mainnet, L2 scaling solutions are designed to aggregate many smaller transactions and send them to the Ethereum Mainnet (Layer 1).

With L2s, network congestion on the Ethereum core network is reduced and transaction throughput is improved.

Congestion on Ethereum’s core network leads to an increase in gas tariffs for transaction processing. Thanks to L2, even transactions are grouped into a single transaction to the main Ethereum network. In doing so, reducing gas tariffs for users.

While offering benefits, how have L2’s activities impacted the Ethereum network since the beginning of the year?

Year-to-date analysis of Ethereum mainnet fees

Aside from the drop in total fees paid for using the Ethereum network on a daily basis, the average fees paid per transaction also dropped significantly.

At press time, on average, it costs $ 2.55 to run an Ethereum mainnet transaction. On a Year-to-Date (YTD) basis, average fees paid per transaction decreased by more than 90%. As of January 1, this number was $ 26.39.

Source: IntotheBlock

To process transactions faster on Ethereum, miners are incentivized through a hint function to prioritize the transaction order.

This is referred to as the average priority fee. As more businesses moved to L2, less of these fees have been paid since January.

Also, at the time of writing, the average priority fee on Ethereum was $ 0.000005556, a 70% drop from $ 0.000018631 paid as a mid-priority fee to miners earlier in the year.

Source: IntotheBlock

And the miners?

Miners’ rewards on the main Ethereum network have steadily declined since the beginning of the year.

This is made up of the transaction fees and the blocking subsidy. According to IntoTheBlocktransaction fees refer to the dynamic fee charged on a blockchain transfer, while the bulk subsidy is the reward that miners earn from issuing the blockchain’s native token.

Both have decreased by 89% and 4% respectively since the beginning of the year.

Source: IntotheBlock

In addition to a drop in miners’ rewards, Token terminal revealed that over the past year, the Ethereum network had recorded approximately $ 20 million in losses per day.

In addition, daily revenues on the network have experienced a sharp decline since the beginning of this year.

Source: Coin operated terminal

With the merger just weeks away, most of the attention has been on staking ETH in anticipation of the network’s transition into a proof-of-stake consensus mechanism. At the time of going to press, Glassnode’s data showed that 13,334,442 ETH had been staked so far.

Source: Glassnode

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