Ethereum Repels Rival Layer 1s as Merge Looms

Ethereum remains the dominant Layer 1 smart contract network by a wide margin during the 2022 bear market, raking in 90% of L1 protocol revenue since mid-March.

The stats show that demand for Ethereum’s block space has remained high as rival Layer 1s suffer from declining usage amid the cryptocurrency swoon. With Ethereum’s highly anticipated chain-merge just around the corner, the network is poised to further solidify its dominance.

Avalanche Second

A Sept. 5 report from ConsenSys, said Ethereum commanded $1.8B in protocol revenue over the past five months. By contrast, Avalanche ranked second by protocol revenue with just $72.6M, with Solana and Fantom taking in just a couple of million.

Data from Token Terminal shows that new token issuance exceeds the protocol revenue of Binance Chain and Terra. Just 16 blockchains generated protocol revenue worth more than the value of tokens issued to validators over the past 180 days.

“This traction demonstrates that the number of users and liquidity coming to Ethereum is incomparable to other L1 chains,” the report said.

Institutional Activity

ConsenSys said that Ethereum’s impressive on-chain activity is “supported by the increasing amount of institutional activity across the network.”

Protocol revenue is the amount of money users are willing to pay to transact on a blockchain, or the value paid by miners or validators to purchase block space. “Currently, nearly every blockchain spends more money on securing their network than they receive from selling blocks,” ConsenSys said.

L1 protocol revenues since February. Source: TokenTerminal

The data shows that Ethereum is holding its own even as its rivals are struggling.

In 2021, Ethereum’s escalating gas crisis amid the DeFi boom paved the way for low-cost Layer 1 networks offering EVM compatibility to enjoy enormous gains while riding an ‘Ethereum killer’ narrative.

Attracted Billions

The native tokens of Solana, Fantom, Avalanche, and Terra all surged by thousands of percent during 2021 as the networks attracted billions in total value locked (TVL). But their token price and TVL have each crashed by more than 80% since the year began, with network activity quickly evaporating as the bear market set it.

ConsenSys said the number of daily active Ethereum addresses also increased despite the bear market. While the metric peaked near 800,000 in early May when ETH was trading for $4,000, more than 500,000 wallets are still active each day even as Ether’s price dropped 60% since the high.

Daily active Ethereum addresses versus ETH price. Source: Glassnode

The number of daily transactions also increased steadily this year despite gas fees plummeting. Most days hosted around 1.1M transactions this year, according to Etherscan. However, transactions briefly dropped down to 940,000 daily in June — its lowest level in 24 months — as the bear market reached its peak.