Ethereum Transaction Fees Hit 5-Month Low Amid Layer-2 Expansion

Daily transaction fees on the Ethereum network have fallen to their lowest level since September 2024, according to data from Token Terminal. On February 8, Ethereum generated just $731,472 in daily fees, marking the first time in five months that daily revenue dipped below $1 million.

Rising Supply and Layer-2 Migration Weigh on Ethereum

Ethereum’s fee revenue decline coincides with its growing supply, which has steadily increased since April 2024. This trend reversed the deflationary effect introduced by the Merge in September 2022, which eliminated mining-based issuance and aimed to curb supply inflation.

The London hard fork of August 2021 had introduced a fee-burning mechanism that made ETH deflationary during periods of high network activity. However, with congestion reduced due to layer-2 solutions, those burning periods have become less frequent.

Ethereum’s scaling strategy has been successful in lowering fees and congestion, but it has also diverted significant activity to layer-2 networks. Despite addressing network inefficiencies, these layer-2 solutions face interoperability challenges, sparking concerns over a fragmented ecosystem.

Competition and Internal Turmoil

Ethereum’s struggles have opened the door for competitors. Tron has gained traction as a stablecoin transaction hub, while Solana continues its rise as a decentralized finance (DeFi) platform, particularly in the memecoin market. Token Terminal data shows that both networks outperformed Ethereum in total fees generated over the past three months.

Adding to Ethereum’s challenges are internal conflicts at the Ethereum Foundation. In January, co-founder Vitalik Buterin assumed sole leadership after executive director Aya Miyaguchi faced criticism for alleged conflicts of interest involving researchers’ advisory roles at EigenLayer.

Despite these hurdles, Ethereum bulls remain optimistic. On February 7, accumulation addresses purchased 330,705 ETH, valued at approximately $833 million, marking the largest single-day inflow ever recorded, according to CryptoQuant.