Key Points
- Ethereum (ETH) transaction costs have dropped to a five-year low due to decreased protocol traffic.
- The drop in gas fees comes amid increased activity on Layer-2 networks and after the Ethereum Dencun upgrade.
The cost of sending an Ethereum (ETH) transaction has significantly reduced, indicating a decrease in traffic on the protocol.
Specifically, the median price for an Ethereum blockchain transaction has dropped to 1.9 gwei, with low-priority transactions even dropping below one gwei. This is the lowest it has been in five years, a development that coincides with an increase in activity on Layer-2 networks.
Dencun Upgrade and Gas Fee Reduction
Data from Dune Analytics shows that the median gas price dropped on August 10, a level not seen since mid-2019. This represents a nearly 98% drop from its year-to-date high of 83.1 gwei recorded in March. The Ethereum Dencun upgrade, which included nine Ethereum Improvement Proposals (EIPs), occurred in the same month.
One of these EIPs introduced proto-dankshrading, a feature designed to lower transaction costs for Layer-2 blockchains. Along with proto-dankshrading, the Dencun upgrade aimed to substantially reduce Ethereum gas fees.
Data from Dune Analytics in April also revealed that Ethereum’s gas fees had dropped to their lowest level in three years.
The Ethereum ecosystem is increasingly focusing on scaling Layer-2 solutions (L2s), which can process transactions more economically. This is achieved through abstraction away from the layer-1 Ethereum blockchain, with the L1 still used to verify that transactions have taken place.
Martin Köppelmann, co-founder of Gnosis, commented on the drop in Ethereum gas fees on August 10, stating, “Ethereum needs to get more L1 activity again.”
Köppelmann believes a gas fee of at least 23.9 gwei is necessary to fund staking rewards, which are payouts given to those who help validate blockchain transactions. He suggested that raising the gas limit could be a strategic move, despite the low rates.
High Performance of Ethereum L2s
In general, the activity on Ethereum’s L2 is much higher than on the Base blockchain from Coinbase Global Inc (NASDAQ: COIN).
Data from L2Beat shows that Base recorded over 109 million transactions in the last 30 days, compared to Ethereum’s 33 million. These figures for Base come almost a year after Coinbase launched it, and in March, the crypto exchange announced plans to move its customer and corporate USDC stablecoins to Base.
Layer-2 solutions like Arbitrum and Taiko saw an additional 97 million combined transactions over the last 30 days.
Currently, less Ethereum is being used in transactions or as payouts to stakers, leading to a significant increase in its supply. Nearly 13,400 ETH, worth approximately $34.1 million, have been added to the Ethereum supply in the last seven days.
