Gas fees on the Ethereum network have recently hit lows not seen since 2020, providing some relief to users. On August 10, fees plummeted to just 1 gwei, translating to only $0.007 for sending ETH, thanks to decreasing network activity and lower market prices.
Unfortunately, this brief respite didn’t last long, as costs quickly rebounded to 2 gwei the next day and soared to 6 gwei soon after. Historical data shows this is quite rare; since the Berlin hard fork implemented back in May 2021, daily gas fees have dipped below 10 gwei fewer than 20 times.
According to Alice Liu, research lead at CoinMarketCap, the gas fee trends often correlate with Ethereum's market price levels. She explained, "This often occurs during periods where Ethereum is suffering from lower-than-market price levels and is seen as a reflection of lower network activity and market sentiments."
At present, Ethereum's price hovers around $2,700, quite below its peak of $4,850, leading many to question what is preventing the asset from climbing back up. Liu also noted fluctuations usually peak during U.S. business hours and drop during weekends or late at night when demand decreases.
Despite the current low prices, experts warn consumers to be cautious as these low gas fees may not remain for long. Matt Cutler, CEO of Blocknative, echoed this sentiment: “Ethereum L1 gas fees have historically been highly volatile, so we should not expect 1 gwei fees to last.”
A noticeable shift is taking place as users migrate their activities to Layer 2 scaling networks with increasing speed. The L2Beat report indicates significant growth has occurred since the Dencun upgrade back in March 2024.
Total value locked (TVL) on Layer 2 networks surged 300% over the past year, climbing to $36 billion from just $12 billion. Notably, TVL almost reached $50 billion at its peak earlier this June, demonstrating the strong draw of Layer 2 solutions.
Among these networks, Coinbase's Layer 2, known as Base, has rapidly gained traction, reaching second place by TVL just months post-launch. It lurks closely behind Arbitrum, which leads with $14 billion and commands approximately 40% of market share, alongside notable protocols like Blast, Optimism, and Mantle.
Observers suggest Ethereum's low gas fee situation is connected more to its price trends than user activity migrating to Layer 2s. Cutler clarified, “Ethereum L1 transaction volume...tends to rise during environments of low gas prices, which is why we are likely seeing the low single-digit transaction costs.”
CoinMarketCap’s data suggests lower transaction volumes and reduced gas prices arise as the price of ETH tumbles. While many factors contribute to the current fees, the consistently bearish sentiment of the market does play quite the role.
Holders of ETH face another issue with low gas prices: increasing inflation within the network. Since fewer fees translate to lesser ETH being burnt, the overall supply of this token may rise, affecting its value negatively.
Recent stats paint a concerning picture: only 273 ETH were burnt today, compared to 120 yesterday, which doesn’t quite keep pace with the 2,560 ETH issued. According to ultrasound.money, if these low fees persist, this inflationary trend likely won't sit well with investors.
Interestingly, both Liu and Cutler firmly believe this inflationary necessitation will be short-lived. Historical patterns indicate fluctuations in gas prices often lead to volatility, meaning as transaction volumes increase, so will the gas prices.
Nonetheless, the driving factor seems once again tied to Ethereum’s price performance. With the recent buzz about potential catalysts, especially the approval of ETH ETFs—something many were hopeful for—the stagnant price of ETH still raises eyebrows.
The Ethereum layer 2 scaling networks are gaining traction and significantly impacting the gas fee environment. If existing trends continue, users may stay inclined toward these solutions, resisting the volatility of Layer 1 activity.
Lastly, it’s worth noting how trends on gas fees and transaction volumes are ever so linked to broader market sentiments. Given the volatility inherent to cryptocurrency, as optimism rises or falls, so do these fees, creating what’s now known as the rollercoaster of the Ethereum gas markets.
