Ethereum Faces 95% Decline in Transaction Fee Revenue: Caused by Layer 2 Trends and NFT Decline

27-04-2025
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Ethereum (ETH), the world’s second-largest blockchain by market capitalization, is experiencing a sharp decline in transaction fee revenue. The network’s revenue has fallen by 95% from its all-time high in Q4 2021. The decline reflects significant changes in Layer 2 activity and the waning of the NFT craze – two factors that have played a large role in driving Ethereum transaction fees.

Ethereum Revenue Plunges: The Numbers

According to Token Terminal, Ethereum’s transaction fee revenue in Q1 2025 is expected to reach around $217 million. This is a significant drop from the $4.3 billion peak recorded in Q4 2021. At that time, Ethereum revenue had increased by a whopping 1,777% year-over-year, when it brought in just $231.4 million in Q4 2020, according to data from Bankless.

The prolonged decline is also evident in each month of 2025. January revenue recorded $150.8 million, but by February it was down to $47.5 million, indicating a continued downward trend. If this continues, Ethereum could face more months of declining revenue in the future.

Reasons for the Revenue Decline

One of the main factors behind this revenue decline is the shift to Layer 2 solutions – scaling protocols that process transactions off the Ethereum main chain but still maintain security by being tied to the main network. Layer 2 has become increasingly popular because it helps reduce transaction fees and increase efficiency, causing the fees collected from Ethereum's Layer 1 to decline.

In particular, the introduction of EIP-4844 - a major upgrade on Ethereum - has significantly reduced the cost of posting data to the main chain, making Layer 2 transactions cheaper. According to a CoinShares report, this has significantly reduced the transaction fee revenue that Ethereum earns from Layer 2 operations.

In addition, the sharp decline in the NFT market is also a major cause. In Q4 2021, the NFT craze exploded with billions of dollars of transactions per month on platforms like OpenSea. However, interest has gradually cooled, causing transaction volume and transaction fees related to NFTs to plummet.

ETH Price Plunges and Market Trends

Not only has transaction fee revenue declined, but ETH prices have also been under heavy pressure. After reaching an all-time high in November 2021, ETH has fallen by 58.8% from its ATH. In Q1 2025, ETH even experienced its largest quarterly decline since 2018, with a loss of -40%.

February 2025 saw a sharp 25.1% drop in ETH price. As of press time, ETH is trading around $1,997, up slightly by 0.45% on the day, but still heavily impacted by the prolonged downtrend.

The Future of Ethereum: Can It Recover?

This decline in revenue and value raises big questions about Ethereum's future. Will upgrades and a potential explosion of Layer 2 applications be enough to bring Ethereum back to its glory days? Or will the network have to look for new innovations to stay competitive as other blockchains continue to grow?

Despite its struggles, Ethereum remains the leading DeFi and NFT platform, and its vibrant developer community will play a key role in shaping the network's next trajectory. The answer to this question will depend on how Ethereum adapts to the changing landscape of the blockchain world.