The fresh analytical data indicates a significant dip in Ethereum’s revenue. As per Galaxy Research, the L1 protocol revenue of Ethereum from L2 solutions has plunged to almost zero following the Dencun upgrade, marking a prominent development in the scaling strategy of Ethereum. The platform took to the social media account thereof to discuss the current scenario in detail.
Ethereum L1 protocol revenue from Layer 2s is almost zero since the Dencun upgrade. pic.twitter.com/mvoyaOn718
— Galaxy Research (@glxyresearch) September 7, 2024
L1 Revenue of Ethereum Plunges to Nearly Zero Following Dencun Upgrade
Galaxy Research noted that the slump in the L1 revenue of Ethereum results due to some factors. In this respect, L2 solutions like zk-rollups, Arbitrum, and Optimisim’s dominance play a significant role. The respective L2s focus on processing transfers off-chain, settling and batching them on the L1 of Ethereum. Before the Dencun upgrade, the L1 of Ethereum still made revenue from transfer fees concerning these settlements.
Nonetheless, following this Dencun upgrade, it seems that L2 now displays additional efficiency in interaction with L1. The respective development reportedly minimizes the massive cost-consuming L1 interactions. The Dencun upgrade potentially optimized the communication between L1 and L2s, especially around the rollup costs and data availability. In this respect, L2s currently consume considerably less in fees recompensed to the L1 protocol of Ethereum.
Although this shift facilitates by decreasing the transfer charges, it has extremely reduced the direct revenue of Ethereum L1 from L2-based operations. The almost zero L2 revenue denotes the L2 solutions’ rising dominance. The respective scalability solutions tackle most of the transaction volume of Ethereum. Hence, they effectively outsource a majority of the mainnet activity.
This Development Poses Risks to the Long-Term Sustainability of Ethereum’s Security model
One of the chief apprehensions that this shift brings about deals with the sustainability of the layer-1 security model of Ethereum. According to Galaxy Research, Ethereum depends on transfer fees to benefit validators and ensure security maintenance. With L2s bearing additional transfer load, the respective security model’s long-term sustainability could face risk in the case of no substitutive revenue sources or incentives.