Reduced onchain activity has led to a sharp decline in Ethereum transaction fees, bringing costs to the lowest since 2020, and raising concerns about overall network demand.
Ethereum Fees Hit Lowest Level Since 2020
Ethereum’s transaction fees have fallen sharply, reaching their lowest level in over four years. According to The Block’s Data & Insights, the 7-day moving average (7DMA) of transaction fees on the Ethereum network dropped to $0.77 on February 15, marking a steep 70% decline from $2.57 just a week prior. The last time fees were this low was in July 2020.
Alongside the reduction in fees, Ethereum’s median gas price, measured in Gwei, also saw a significant drop. The daily median gas price averaged 1.61 GWEI over the past week, reaching its lowest level of 1.19 GWEI on February 17. This represents the lowest gas price since January 2020, barring a brief period in September 2024.
Decreasing Onchain Demand
The decline in fees is largely attributed to a drop in onchain activity. Ethereum’s onchain transaction volume has also fallen, with the 7DMA plummeting to $4.19 billion on February 17—a 46% decrease from the previous week. This suggests that the lower fees are not necessarily driving an increase in network usage but rather reflect a broader decrease in demand.
The decline in fees coincides with Ethereum’s underperformance in the broader crypto market. ETH has fallen by 18% year-to-date (YTD), struggling to match the momentum of other major altcoins. Market analysts suggest that lower fees often correspond with bearish sentiment, as reduced transaction costs typically indicate lower trading and investment activity.
Role of Layer-2 Solutions and EIP-1559
Ethereum’s lower transaction costs can also be linked to improvements in scalability through layer-2 solutions like Arbitrum and Optimism, which have alleviated congestion on the main network. Additionally, the EIP-1559 fee-burning mechanism has contributed to more efficient gas fee structures, reducing pressure on the base layer.
Correlation Between Fees and Market Activity
Historically, Ethereum transaction fees rise during periods of heightened market activity, as increased demand for block space drives up costs. For example, Ethereum transfer fees averaged $15.21 at their peak over the past two years. However, during periods of market downturn or reduced engagement, fees tend to decline, making transactions more affordable for users but also reflecting a lack of enthusiasm in the ecosystem.
While lower Ethereum fees may offer a cost advantage to users, the broader decline in network activity raises concerns about overall demand. Whether this trend will reverse depends on future market dynamics, the adoption of Ethereum-based applications, and broader economic conditions within the crypto sector.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
Source: https://cryptodaily.co.uk/2025/02/ethereum-transaction-fees-drop-to-four-year-low-amid-declining-onchain-activity