- Ethereum’s daily L2 transactions surged from 1M to 11M by mid-2024, marking a scaling milestone for the network.
- Ethereum’s fees hit a three-year low, reflecting its success in scaling and making blockchain use more affordable.
- ETH demand could shift from transaction fees to DeFi and staking protocols, driving long-term growth beyond L2 networks.
Ethereum’s Layer 2 (L2) network growth continues to reshape the blockchain sector, according to the latest report by Coinbase Institutional. The report highlights Ethereum’s scaling success, shifting fee dynamics, and evolving demand. As L2 solutions emerge as the key driver behind Ethereum’s future, these developments mark a turning point for the network.
Daily Transactions Surge on L2 Networks
The majority of Ethereum’s activity now takes place on L2s. Daily transactions on L2 networks soared from 1 million in early 2023 to over 11 million by mid-2024. This jump highlights the technical success of Ethereum’s scaling roadmap.
Notably, L2s play a significant role in processing transactions more efficiently. The ability to scale without overburdening the main chain demonstrates the strength of Ethereum’s scaling efforts. However, these changes bring with them new challenges regarding demand and profitability.
Fee Reduction and the Shifting Dynamics of Ethereum’s Economy
Despite the surge in transaction volume, Ethereum’s total fees dropped to a three-year low. This reduction isn’t solely due to L2 adoption but reflects broader scaling progress. With more blockspace available at a lower cost, Ethereum is becoming more affordable for users.
However, critics have raised concerns about L2s reducing ETH demand. The report counters that such a fee reduction is inevitable, whether scaling occurs on Layer 1 or L2. Moreover, Ethereum’s utility within decentralized finance (DeFi) and staking protocols may eventually outweigh the impact of lower transaction fees.
ETH Demand and Sequencer Profitability
Ethereum’s demand could shift away from transaction fees as the network scales further. Over time, the growing utilization of ETH within DeFi, staking, and other applications may drive greater demand for the cryptocurrency.
Sequencers, responsible for bundling and ordering L2 transactions, capture some profit through fee differentials. Yet, this remains minor when compared to staking and other application-driven growth.
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