In an impressive display of financial vitality, the market price of Ethereum (ETH) has witnessed an almost twofold increase within the first quarter of 2024. However, the price surge isn’t the only matter garnering attention; the Ethereum blockchain has also amassed substantial profits upwards of $369 million during this period. The unexpected profitability of a blockchain like Ethereum isn’t typically a common occurrence and has sparked a myriad of questions.
Indeed, the Ethereum blockchain has dizzying potential for revenue generation. A recent probe into the matter by Token Terminal, a renowned on-chain data platform, elucidates a primary factor to this facet of Ethereum’s business model: the collection of transaction fees.
The Ethereum network necessitates that users pay fees in ETH while interacting with applications housed on the blockchain. This fee collection serves as a significant fountainhead of revenue for Ethereum. Post the payment of the transaction fees, a fraction of the ETH is effectively incinerated, thus permanently removing it from circulation. Industry insiders typically refer to this maneuver as an “ETH buyback”. It’s worth noting that this calculated incineration bolsters the value of the remaining ETH tokens, thereby positively impacting current ETH holders.
In juxtaposition to burning ETH, Ethereum also circulates new ETH tokens as rewards to the network’s validators for each fresh block added to the blockchain, akin to traditional stock-based perks. Such rewards are crucial in incentivizing validators to uphold the network’s integrity.
However, it should be recognized that issuing new ETH tokens conversely dilutes the stakes of current ETH holders. Token Terminal propounds that the discrepancy between the daily fiscal value of the pulverized ETH (revenue), and the newly launched ETH (expenses) epitomizes the daily earnings for current ETH holders, or rather, the de facto owners of the Ethereum blockchain.
Embarking onto the sprawling vista of the first quarter of 2024, the much-anticipated Dencun upgrade took the Ethereum ecosystem by storm, introducing a game-changing data storage system known as blobs. This revamp alleviated the previously congested Ethereum network while drastically slashing transaction costs on Layer 2 networks; Arbitrum (ABR), Polygon (MATIC), and Coinbase’s Base included.
Following the Dencun update and layers of consequential adoption of blobs and Layer 2 networks, Ethereum’s revenue underwent a significant transformation. As per the luminous data provided by Token Terminal, the blockchain revenue saw an annualized rise by an astounding 18%, approximating to a handsome sum of $3.3 billion. Ethereum became a more enticing platform for users and developers alike, thanks to reduced transaction costs.
Despite an initially glowing review of Ethereum’s revenue, it’s crucial to consider the market reshufflings and somewhat diminished investor interest that marked the second quarter of 2024. In the past 30 days, Ethereum’s revenue saw a steep 52% drop. To give it perspective, Ethereum’s market cap, fully diluted, slumped by 15.2% to $358.47 billion, and the circulating market cap followed suit. The trading volume over the same period dipped by approximately 18.6%, clocking in at $586.14 billion.
At present, ETH is trading at $3,042, recording a marginal 0.4% increment in the last 24 hours. It remains to be observed whether the fee reduction in the upcoming second quarter can replicate the effect it had in the first quarter, and if that, in conjunction with a potential upswing in trading volume, can catapult the ETH price to loftier heights.
