Ethereum's fee revenue is declining significantly as Layer-2 layers retain most of the value, undermining L1's ability to directly collect fees.
ETH used to rely on Layer-2 for scaling. But the phenomenon of "revenue leakage" to L2 is growing: ETH revenue has decreased from $2.52 billion at the beginning of the year to around $604 million, while Base [BASE] only reimburses a small portion of settlement fees to L1.
- Ethereum fee revenue plummeted as L2 retained the majority of the fees.
- Base has a 365-day revenue of approximately $83 million, with only ~8% going back to Ethereum.
- BitMine (BMNR) increased ETH holdings but the performance was poor, increasing mNAV risk.
Ethereum's fee revenue is weakening as Layer-2 retains the majority of its value.
Ethereum's revenue dropped from $2.52 billion to approximately $604 million as L2 retained the majority of fees and only reimbursed a small portion of settlement fees to L1.
Base [BASE] highlights this trend: 365-day revenue is approximately $83 million, but only about 8% goes back to Ethereum as settlement fees, equivalent to about $6.7 million. This model is prevalent in Arbitrum, Optimism , and Polygon, weakening ETH 's ability to directly collect fees over time.
The decrease in revenue reflects softer on-chain activity on L1. When fees are held back at L2, the amount of ETH burned decreases, weakening the network's deflationary momentum. Source: Token Terminal
If this pattern persists, low L1 fees and limited burn could keep ETH in a net inflationary state, hindering sustainable price increases even as overall system throughput increases thanks to L2.
From a Derivative market perspective, traders can monitor OI/funding and liquidation clusters to position fee and liquidation risk around ETH/L2 on BingX , combining leverage strategies and risk management based on fee volatility.
BitMine (BMNR) increases its exposure to highly speculative ETH .
BMNR holds 3.66 million ETH and recently acquired an additional 38,596 ETH, but ETH remains blocked below $3,200; the BMNR Token is down 9.17% on the day and -32% quarterly, making the strategy lean towards speculation.
Recently, a wallet linked to BitMine purchased an additional 38,596 ETH in two days. Despite the large scale, the price of ETH barely reacted, remaining stuck below $3,200. Conversely, BMNR was clearly impacted: its closing price was down 9.17%, bringing its quarterly decline to 32%, its worst quarter since Q3 2022. Source: TradingView (BMNR/ USDT)
The lackluster performance suggests that BMNR's heavy ETH bets haven't paid off. With L2 underperforming and low burn fees, ETH maintains net inflation, limiting upward momentum. This puts pressure on BMNR's mNAV , increasing portfolio risk.
These developments reinforce the view that, without a significant improvement in L2 activity and the rate of value transfer to L1, BMNR's continued accumulation of ETH is more speculative than a strategy based on fundamental cash flow.
What could improve ETH outlook and reduce BMNR's mNAV risk?
ETH needs stronger on-chain activity and a higher L2 fee-to-L1 conversion rate to increase burning, improve revenue, and support price; this could reduce pressure on BMNR's mNAV.
Positive signals include: increased settlement from L2 to L1; increased actual volume in both L1/L2; improved fee structure leading to higher burn; and a recovery in market risk sentiment. Conversely, if L2 continues to retain the majority of fees, ETH will struggle to regain its deflationary status, while BMNR's mNAV will face prolonged pressure.
Conclude
L2 helps scale Ethereum but "leaks" fee revenue from L1. In this context, BMNR's increased ETH holdings are ineffective and speculative, given the low burn rate and weak ETH price reaction.
- Layer-2 (Base, Arbitrum, Optimism, Polygon) holds the majority of transaction value, causing ETH fee revenue to decrease.
- BitMine's mNAV is under pressure; weak L2 and lackluster ETH price reaction make accumulating ETH with a high weighting increasingly speculative.
Frequently Asked Questions
Why has Ethereum's fee revenue dropped sharply?
Because L2 retains the majority of fees and only reimburses a small portion of settlement fees to L1, ETH revenue decreased from $2.52 billion at the beginning of the year to approximately $604 million, reflecting softer L1 activity and lower burn rates.
How much does Base pay in fees for Ethereum?
Of Base's approximately $83 million in revenue over 365 days, only about 8% was returned to Ethereum, or nearly $6.7 million, indicating a low return compared to the value retained in L2.
Why is BitMine's ETH holding strategy XEM speculative?
BMNR holds 3.66 million ETH and recently purchased an additional 38,596 ETH , but the price of ETH remains stuck below $3,200; the BMNR Token is down 9.17% on the day and -32% quarterly, while low burn weakens the fundamental argument.
What risks does BMNR's mNAV face?
If L2 continues to retain fees and ETH does not recover revenue/burn, BMNR's mNAV could further decrease due to poor portfolio performance and high sensitivity to ETH volatility.
