In a recent analysis published by the DeFi Report, Ethereum’s network fees generated $261 million in Q3-2024, down 47% compared to the last quarter. Ethereum’s layer 1 fees in Q3 were the lowest the network has seen since Q4 of 2020.

Ethereum’s Fee Decline in Q3-2024

The ETH Report: Q3-24, published on Oct. 16, highlighted that Ethereum (ETH)’s layer 1 fees in Q3 of 2024 were the lowest since 2020. The DeFi Report attributes this decrease to the growth of layer 2 networks, the introduction of EIP 4844, and a decline in new crypto users during Q3.

Impact on Total Value Locked and Token Issuance

The report also revealed that Ethereum’s Total Value Locked (TVL) dropped by 14% in the quarter but saw a 133% increase over the past year. The token itself declined by 21% this quarter, with more tokens being issued than burned on the network.

Factors Contributing to the Decline

The DeFi Report predicted the dip in Ethereum’s fees due to the added EIP4844 update, the introduction of the modular data availability network Celestia, and the emergence of new, cheaper data availability networks. The launch of Uniswap Labs’ latest layer 2 solution, Unichain, could also contribute to Ethereum’s loss.

“The optics don’t look great. Fees are down. Inflation is up. Uniswap (controls 20% of gas fees to Ethereum validators) is now building their own L2,” said the DeFi Report in their latest analysis.

Potential Revenue Loss for Ethereum Validators

Michael Nadeau, founder of the DeFi Report, commented that Ethereum validators could use this opportunity to increase transactions and burn more tokens by driving down fees. This strategy could boost token demand and generate more profit for the network.

“We view this as a win, win, win for app developers, users, and ETH validators or holders. With that said, as L2s scale, we expect that there could be a period where L1 validator revenues drop until the new supply of block space is ultimately filled by new use cases coming to market,” he wrote in The Ethereum Investment Framework.

Earlier this week, Nadeau mentioned that Ethereum validators and token holders could lose around $368 million in settlement fees paid by Uniswap with the launch of Unichain. Instead, these funds will go to Uniswap Labs and potentially Uniswap token holders.

ETH token holders could also face losses due to the protocol burning less ETH and the allocation of settlement fees going to UNI token holders instead.

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