Ethereum Layer 2s Push Gas Fees to Four-Year Lows

Low prices drove Ethereum’s gas fees to the single digits in the past days, but experts are warning that these levels likely won’t last.

According to Etherscan, users were paying 1 gwei or $0.007 to send ETH on Aug. 10, a number not seen since 2020. Costs quickly rebounded with fees doubling to 2 gwei the following day, and up to 6 gwei today. And since Ethereum underwent the Berlin hard fork in May 2021, there were only fewer than 20 days where average daily gas fees fell below 10 gwei.

“This often occurs during periods where Ethereum is suffering from lower-than-market price levels and is generally seen as a reflection of lower network activity and market sentiments,” said Alice Liu, research lead at CoinMarketCap.

Ethereum currently changes hands for around $2,700. It remains roughly 45% below its all-time high of $4,850, which has prompted investors to wonder what is holding the asset back, especially considering the recent SEC approval for a spot ETH ETF.

Liu told The Defiant that like most things in crypto, “gas fees can fluctuate, but they tend to be highest during U.S. business hours, and lower fees tend to happen weekends or late nights when demand typically decreases.”

She had a warning for users: “Extremely low gas fees like this wouldn’t last for long.”

Matt Cutler, CEO of Blocknative, agrees.

“Ethereum L1 gas fees have historically been highly volatile,” Cutler told The Defiant, “So we should not expect 1 Gwei fees to last.”

Layer 2 Activity

Analysts say that Ethereum’s low gas fee environment is due to a migration of activity to Layer 2 scaling networks.

There has certainly been a move to using Layer 2s, with L2Beat reporting a substantial uptick in activity since the Dencun upgrade in March 2024. Total value locked (TVL) on L2s surged 300% to $36 billion from $12 billion this time last year. TVL neared a $50 billion peak in early June.

Select L2 networks have been absorbing the majority of activity from users, with Coinbase’s Layer 2 Base becoming wildly popular, soaring to 2nd place by TVL barely a year after launch. It trails Arbitrum with $14 billion in TVL and 40% market share. Other notable protocols used are Blast, Optimism, and Mantle.

Price Impact

But some reckon that price is moving the needle more than the popularity of L2s.

Ethereum L1 transaction volume, which tends to rise during environments of low gas prices, is actually more correlated to the price of ETH, which is why we are likely seeing the low single-digit transaction costs.

“With lower Ether to USD prices we see lower transaction volumes and therefore reduced gas prices,” Cutler said.

Rising Network Supply

Low gas fees spur an additional concern for ETH holders: An inflationary network.

Lower gas prices means less ETH gets burned, which ultimately triggers a rising token supply. According to ultrasound.money, only 273 ETH have been burned today–up from 120 yesterday–while 2,560 have been issued.

If users heed to the advice of Liu and Cutler, this inflationary environment shouldn’t last. What’s more, in the past it hasn’t, with volatile gas prices also triggering volatility in the supply of ETH, both of which can easily subside as transaction volume starts to rise.

It all seems to depend, however, on price. And that has struggled to rise considering the potential catalyst that many expected the ETH ETF to bring.