Immediately after Ethereum (ETH) successfully completed the main net launch of the Dencun upgrade (EIP 4844), fees on layer two coins such as Arbitrum (ARB) dropped dramatically. Many hailed the event as the beginning of a new era so that traders could use these networks and pay pennies for transactions rather than $1 – $50+.
After all, the meme coin trading explosion on Solana (SOL) has been possibly only because the network is so cheap and fast.
Below is an image from a Dune analytics dashboard that shows just how much fees have dropped in the two days after the upgrade. You’ll notice the one-day delay with Arbitrum (in orange) which completed its integration a day after the other L2s.
One drawback to the approach is that these L2s now transmit far fewer fees back to ETH main net. Since the protocol burns its coins (ETH) with the fees, the supply issuance is more inflationary. This may be one reason why ETH prices have dropped about 8% since the upgrade went live.
Another, as many speculated, is that ETH has witnessed a “sell the news” event, such that traders bought before the news on anticipation and sold the actual event. Reality often doesn’t match expectations and that leads to disappointment.
A third suggestion is the rather obvious point that all digital assets have been on an unstoppable ascent lately. It is only natural for the market to experience a pullback.
Finally, the recent dip may simply reflect a trend in the broader macroeconomy. In the United States, inflation continues to remain surprisingly strong, and recent numbers have traders shifting their bets about the first interest rate cut.
If you take a look at the CME Fed Watch tool, you’ll notice that while most still anticipate that June will be the first rate cut, many have shifted their bets to July and some expect a further delay beyond that (about 22%).
Of course, we can’t know for sure. Historically, major upgrades on ETH have been followed by significant coin price rises.
Many now speculate that Base will become the new meme-coin L2 on ETH–one that might rival SOL because it is directly supported by Coinbase and most US dollars are traded on Coinbase. The data below are from The Block and they strongly support this point.
Happy Trading!