As Ethereum’s native cryptocurrency, Ether (ETH), climbs toward multi-year highs—recently revisiting levels last seen in 2021—the network’s transaction activity tells a surprisingly different story. Back in May 2021, when ETH hit $3,800, sky-high gas fees became a hallmark of the bull market. Users routinely paid upwards of $100 per transaction, often without hesitation, as speculative gains outweighed cost concerns.
Fast forward to 2024, and history is repeating itself—just not in the way many expected. Despite ETH reclaiming those peak price levels amid growing optimism around spot Ethereum ETF approvals, gas fees on the Ethereum mainnet remain strikingly low. In fact, current average transaction costs are only slightly above the depths of the 2022 crypto winter.
This divergence raises an important question: Why is on-chain demand failing to heat up even as price rallies?
The answer lies in a combination of technological advancement, shifting user behavior, and the explosive growth of Ethereum’s Layer 2 ecosystem.
The Rise of Layer 2 Networks: Efficiency at Scale
One of the primary drivers behind declining mainnet gas fees is the mass migration of activity to Layer 2 (L2) scaling solutions such as Arbitrum, Optimism, and Base. These networks offer full compatibility with Ethereum’s smart contract environment while drastically reducing transaction costs and confirmation times.
While L2s still rely on Ethereum’s mainnet for final settlement and security—a model known as “rollups”—they batch thousands of transactions off-chain before submitting compressed data back to Layer 1. This means users enjoy near-instant transactions at fractions of a cent, while only minimal gas is consumed on the primary network.
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Since early 2024, activity across major L2 platforms has surged to all-time highs. Daily active addresses, transaction volume, and total value locked (TVL) have all seen exponential growth. As more decentralized applications (dApps), NFT marketplaces, and DeFi protocols deploy or migrate to these efficient environments, pressure on the Ethereum mainnet continues to ease.
This shift doesn’t mean Ethereum is losing relevance—it’s actually a sign of maturity. The network is evolving into a secure settlement layer, while innovation and user interaction increasingly happen off-chain.
Dencun Upgrade: A Game-Changer for Data Costs
In March 2024, Ethereum implemented the Dencun upgrade, one of its most impactful protocol improvements in recent years. Central to this update was the introduction of proto-danksharding, which introduced “blobs” to store temporary data from L2 transactions.
Before Dencun, posting rollup data to Ethereum was relatively expensive and inefficient. Now, with blob-carrying transactions, L2s can submit their batched data at significantly lower costs—reducing fees by up to 90% on some networks.
This technical enhancement directly contributes to lower mainnet congestion. With fewer high-cost data submissions competing for block space, average gas prices across Ethereum have stabilized at historically low levels—even during periods of strong price momentum.
Developers continue to optimize core components like fee markets and execution efficiency, further improving user experience without overloading the base layer.
Ethereum’s Economic Model at Risk?
Low gas fees are great for users—but they raise concerns about long-term sustainability.
Ethereum operates under a deflationary monetary policy through its EIP-1559 fee-burning mechanism. Every time a transaction occurs, part of the gas fee is burned (permanently removed from circulation), while the rest goes to validators. When more ETH is burned than issued as rewards, the total supply contracts—creating deflation.
This dynamic became particularly effective after The Merge in September 2022, which slashed new ETH issuance by over 80%. For a period, consistent network usage kept burn rates high, leading to net deflation and reinforcing ETH’s value proposition as a scarce digital asset.
But now, that trend is reversing.
Over the past month alone, due to weak on-chain activity and minimal fee burn, Ethereum’s supply has **increased by over 50,000 ETH (worth ~$190 million)**. If current trends persist, analysts project that ETH could enter a phase of **0.5% annual inflation by 2025**, adding roughly $2.2 billion worth of new supply to circulation.
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Such a shift would challenge Ethereum’s economic design. Persistent inflation could reduce incentives for stakers—those who lock up ETH to secure the network—especially if rewards fail to offset dilution. After all, assets that constantly expand in supply tend to encourage spending rather than holding or staking.
Is Ethereum Too Efficient?
Paradoxically, Ethereum may now be too efficient. By enabling ultra-low-cost transactions through Layer 2s and optimizing data usage via upgrades like Dencun, the network has solved its scalability issues—but potentially at the cost of mainnet revenue.
While this benefits end-users and promotes mass adoption, it creates uncertainty around whether Ethereum can maintain its deflationary mechanics without sustained high demand for block space.
However, there are counterarguments:
- The broader ecosystem is healthier than ever. More users are interacting with Ethereum-based applications than during previous bull runs—just not directly on Layer 1.
- Security remains robust. Even with reduced fee income, validator rewards are still sufficient under current conditions.
- Future upgrades like full danksharding could further scale L2s while preserving decentralization and security.
Ultimately, Ethereum’s role is transforming: from a congested general-purpose blockchain into a foundational trust layer for a multi-tiered web3 infrastructure.
Core Keywords
- Ethereum gas fees
- Layer 2 networks
- ETH price surge
- EIP-1559 burn
- Dencun upgrade
- Ethereum deflation
- Blockchain scalability
- On-chain activity
Frequently Asked Questions
Q: Why are Ethereum gas fees so low despite rising ETH prices?
A: High asset prices don’t always correlate with on-chain activity. Much of today’s usage occurs on Layer 2 networks, which reduce congestion and lower mainnet gas demand—even during bull markets.
Q: Are low gas fees bad for Ethereum?
A: Not inherently. They improve accessibility and scalability. However, persistently low fees may prevent ETH from becoming deflationary, potentially impacting long-term staking economics.
Q: What is the Dencun upgrade and how does it affect gas fees?
A: Dencun introduced blob transactions that allow cheaper data storage for Layer 2 rollups. This reduces L2 costs and indirectly lowers mainnet congestion and gas prices.
Q: Can Ethereum still be deflationary with low transaction activity?
A: Currently, no. With insufficient fee burn, issuance exceeds destruction—leading to net inflation. Sustained high usage would be needed to return to deflation.
Q: Where is most Ethereum activity happening now?
A: A growing majority of transactions occur on L2 networks like Arbitrum, Optimism, and Base. These platforms offer faster speeds and lower costs while inheriting Ethereum’s security.
Q: Should investors worry about rising ETH supply?
A: Moderate inflation isn’t an immediate threat, but it could affect staker returns and market perception if prolonged. Monitoring burn vs. issuance trends is key.
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As Ethereum evolves into a layered architecture, success will no longer be measured solely by mainnet gas fees or daily transactions. Instead, metrics like cross-layer TVL, interoperability, and overall ecosystem health will define its strength.
For users, developers, and investors alike, this transition represents both opportunity and adaptation—a sign that Ethereum isn’t just surviving the next cycle, but reshaping it.