Ethereum Fees Hit Lows While L2 Captures Users' Attention: IntoTheBlock

ethereum transaction fees have hit a six-month low, caused by the shift of transactions to layer 2 (L2) blockchains, according to the latest edition of IntoTheBlock's “On-chain Insights” newsletter.

This migration has contributed to a decrease in the total fees accumulated by ethereum. In April, transactions on the three largest L2s, Arbitrum, Optimism, and Base, accounted for an unprecedented 82% of all ethereum transactions.

With the inclusion of additional L2s, this percentage is likely to be even higher. The launch of EIP-4844 on March 13 played a crucial role in this transition by reducing L2 fees by more than ten times, resulting in a 10% drop in mainnet transactions and a shift in the economics of ethereum tokens.

In the competitive L2 landscape, different platforms are carving out their niches. Institutions have shown a preference for Arbitrum, which dominated 73% of ethereum transaction volume among major L2s. In contrast, Arbitrum accounted for only 39% of the number of transactions, while Base captured a 50% share. Notably, Blackrock and Securitize have recently applied to introduce the BUIDL real-world asset fund to Arbitrum.

In the retail sector, Optimism's OP Stack has been gaining traction through “SocialFi” applications. Coinbase's Base L2 saw a surge in transactions following the FriendTech airdrop, and social media-based card game Fantasy.top generated $6 million in fees this week on Blast L2. This diversification of applications has intensified competition among L2s, particularly in terms of market capitalization.

Optimism's OP token has seen a 48% rise from its April lows, outperforming ARB's 22% gain. The OP token now surpasses ARB in both circulating market capitalization and fully diluted valuation. Additionally, venture capital firm a16z's $90 million investment in OP has bolstered the project's resources and credibility.

The current competition between L2s is leading to lower fees for ethereum in the short term. However, at the same time it is fostering a rich ecosystem of applications that promise to stimulate economic activity and deliver long-term benefits, IntoTheBlock concludes.