Ethereum Faces Unprecedented Fee Decline Amid Rising Competition and Internal Turmoil

Ethereum’s daily transaction fees have plummeted to their lowest level since September 2024, according to data from Token Terminal. On February 8, 2023, the Ethereum blockchain recorded just $731,472 in daily fees, marking a substantial decline from previous months and reflecting a broader downturn in network activity.

This recent drop in revenue mirrors a similar period between August 17 and September 8, 2024, when daily fees remained consistently below the $1 million threshold. Prior to that, the last time Ethereum experienced such low transaction fees was in November 2020, highlighting the cyclical nature of network usage and fee generation.

Despite significant regulatory milestones, such as the approval of spot exchange-traded funds (ETFs) in major financial markets like the United States and Hong Kong, Ethereum’s native cryptocurrency, Ether (ETH), has struggled to reach new price highs over the past year. This underperformance stands in contrast to Bitcoin, which has fared better despite overall market challenges. The global cryptocurrency sector has been impacted by ongoing economic uncertainties and trade tensions, further dampening investor sentiment.

A crucial factor contributing to Ether’s lagging performance is its increasing supply. Since April 2024, Ethereum’s overall supply has been rising, surpassing pre-Merge levels. The Merge, a landmark upgrade in September 2022, transitioned Ethereum from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. This transition was expected to reduce supply inflation by eliminating the need for mining-based issuance. However, the recent increase in ETH supply suggests that these deflationary effects have not been as pronounced as initially anticipated.

Another major upgrade, the London hard fork of August 2021, introduced Ethereum Improvement Proposal (EIP) 1559, which implemented a transaction fee-burning mechanism. This mechanism was designed to make ETH deflationary during periods of high network activity by permanently removing a portion of transaction fees from circulation. While this change initially reduced Ethereum’s inflation rate, the recent upward trend in supply has reversed much of the deflationary momentum.

Additionally, the growing adoption of Layer-2 scaling solutions has significantly impacted Ethereum’s fee dynamics. Designed to improve transaction throughput and reduce costs, these solutions—such as Arbitrum, Optimism, and zk-rollups—have successfully alleviated congestion on the Ethereum mainnet. While this has helped decrease transaction costs for users, it has also led to lower fee revenues for Ethereum itself. Furthermore, the shift toward Layer-2 networks has raised concerns about ecosystem fragmentation and interoperability, as more transactions occur off the main blockchain.

At the same time, rival blockchain networks like Tron and Solana have been outperforming Ethereum in terms of total transaction fees generated over the past three months. These competing platforms, which offer faster and cheaper transactions, have been attracting users who might have otherwise conducted their activities on Ethereum, further contributing to the decline in Ethereum’s fee revenue.

Internal developments within the Ethereum Foundation have also introduced additional challenges. In January 2025, Ethereum co-founder Vitalik Buterin assumed sole leadership of the organization following controversies surrounding former executive director Aya Miyaguchi. Reports suggest that internal disputes over governance, transparency, and potential conflicts of interest involving researchers played a role in the leadership shakeup. These internal tensions have added another layer of uncertainty to Ethereum’s future direction.

Despite these obstacles, Ethereum supporters remain optimistic about the network’s long-term prospects. On February 7, a significant accumulation event was observed when accumulation addresses acquired a total of 330,705 ETH—valued at approximately $833 million—according to data from CryptoQuant. This marked the largest single-day inflow of ETH into accumulation addresses in recorded history, suggesting that some investors continue to see value in Ethereum’s potential.

While Ethereum currently faces challenges from rising supply, declining fees, increasing competition, and internal disputes, its ecosystem remains robust. The ongoing development of Ethereum’s Layer-2 infrastructure, alongside upcoming network upgrades, could provide avenues for renewed growth and adoption. However, in the short term, the network must navigate a complex landscape of economic pressures, regulatory changes, and technological advancements to sustain its position as a leading blockchain platform.