Ethereum Layer-2 Networks Surge Post-Upgrade

Ethereum layer-2 activity has skyrocketed since the upgrade, with networks like Base growing from roughly 400,000 daily transactions in March to an astounding 8 million by the end of 2024.

Fresh data reveals that Ethereum layer-2 (L2) networks have witnessed a surge in activity, thanks largely to the growing adoption of stablecoins.

According to Matthias Seidl, co-founder of Growthepie, stablecoins locked within Ethereum’s L2 systems have surged to $6.75 billion on Arbitrum One and $3.56 billion on Base. This growth aligns with the broader narrative of this cycle, where stablecoins have emerged as a pivotal use case.

As a result of the Dencun upgrade in March 2024, which slashed transaction fees, L2 solutions have become more accessible, leading to higher user engagement and activity within the Ethereum ecosystem.

For instance, Base has grown from roughly 400,000 daily transactions in March to 8 million by the end of 2024, while Growthepie reports that Taiko boasts over 3 million daily transactions and Arbitrum remains a major player with over 2 million transactions.

However, not all L2 networks have shared this growth trajectory. Linea has seen its daily transaction count plummet to just 200,000, down from its peak of 800,000. Despite this, Base leads in active addresses, followed by Arbitrum and Linea.

Meanwhile, Tether (USDT) continues to dominate the stablecoin market, reaching $140.88 billion in market capitalization as of Dec. 19. This marks a significant increase from its $91.7 billion cap at the start of the year.

Circle’s USDC also saw gains, peaking at $42 billion, though it still trails its June 2022 all-time high of $55.8 billion.

The Dencun upgrade also introduced “Blobs” as a cost-saving measure, designed to temporarily store transaction data to reduce fees. These fees are then burned, similar to Ethereum’s transaction fee mechanism, which reduces ETH supply.

Since the merge, Blob fees have burned over 1,200 ETH, largely in the past few weeks. Base has emerged as the largest contributor to Blob submissions, while Taiko leads in total Blob fees, accumulating $3.5 million.

Although the average Blob count per block fell short of the target earlier this year, it hit the mark consistently in November, reflecting a renewed efficiency in Ethereum’s rollup-centric roadmap.

However, the reduced transaction fees have sharply cut revenues for Ethereum. Despite this, Base and Taiko are mounting comebacks, with increasing rent paid to the Layer-1 chain.

As Ethereum activity shifts toward layer-2 rollups, the main chain has seen its ETH burn rate decline, even as Blob fees offer a deflationary counterbalance.

Layer-2 Activity Reshapes Ethereum’s Ecosystem

The growth of layer-2 activity is not just expanding Ethereum’s ecosystem — it’s also reshaping it. As Blob usage rises, Ethereum’s supply could once again turn deflationary.

Time Robinson’s Ethereum Blob simulator suggests that ETH supply could shrink by 6.5% at 100 transactions per second for 100 rollups, a medium-term goal endorsed by Ethereum founder Vitalik Buterin.

Amid all this, stablecoins remain the star of the show, transforming into a critical financial tool. Arbitrum maintains its leadership in stablecoin market cap, followed by Base and Optimism.

Even as concerns persist over declining main-chain revenues, the growth of layer-2 networks offers an optimistic outlook for Ethereum’s future.