@dankrad and @CamiRusso debate Ethereum's fee model and L2 ecosystem challenges

@dankrad
@dankrad

I think this is what everyone is feeling and I disagree to an extend but nevertheless the situation is tricky. Currently Ethereum is making almost zero fees from both L1 and L2 transactions *because it chooses to*: If we were a company, we would put a reasonable price tag on transactions, and raise it when there is congestion. But instead, we currently charge very close to zero for transactions and DA when there is no congestion, and the result is there is almost zero fees. Looks bad when you want to evaluate Ether based on that! But here comes the more tricky part: In its current form, it may well be that Ethereum DA does not have much of a moat. It provides very little UX benefits, and only very abstract security benefits that will probably be very closely replicated by alt-DA. Therefore, the moat for DA is low and it's likely Ethereum will never charge significant fees over a long time period. So what should be the plan? My best guess is: - scale L1 to make sure that integration with Ethereum remains attractive - scale DA to make sure that we lower the incentives for alt-DA (this doesn't have to mean lower fees. We can just charge a fee!) - work on shorter block times, single-slot L2 interop etc. to maximize value of Ethereum DA

Camila Russo (@CamiRusso)

There's a path to fix Ethereum L2 fragmentation and horrible UX. superchain interop, intents etc. It's gonna happen, eth community is galvanized around unifying Ethereum and they'll fix it. But I still don't see how all this L2 activity gets reflected on Ethereum mainnet. Layer…

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by timdaub.eth12379 🥝 • 2y • x.com
AI summary of the linked article

Ethereum DA's weak competitive moat means it is unlikely to charge significant fees over the long term, according to the discussion's author, who is not named in the text. The text says Ethereum currently makes almost zero fees from L1 and L2 transactions because it deliberately charges very close to zero when there is no congestion, unlike a company that would price transactions and raise them during congestion. It argues Ethereum DA offers little UX benefit and only abstract security benefits that alternative DA providers will likely closely replicate. Proposed next steps are scaling L1 to keep integration attractive, scaling DA to reduce incentives for alt-DA, and pursuing shorter block times and single-slot L2 interop.

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The statement that Ethereum is currently making zero fees from both L1 and L2 transactions is true, and it is true that it does so because it chooses to do so.

Ethereum has consistently made several billion dollars annually in fees: in 2021 $9 billion, 2022 $4.2 billion, 2023 $2.4 billion, 2024 $2.4 billion. In 2025, extrapolating from January, February, and March's data, it only manages to generate $200 million in revenue. So it has become cheaper by a factor of 10.

Many people have said that Solana was at fault for this, but if we look at Token Terminal financial statements, we see that while Solana has successfully increased its fee accrual, for example, in 2024 they had $750 million, in 2023 only $25 million, and in 2022 only $26 million, in 2025 they are going to probably have $350 million in fees accruing to the network owners, which is still lower than Ethereum.

But if you were to argue that Solana is competing with Ethereum for fees, this would be wrong, because Ethereum has consistently made between $2B and $9 billion in fees between 2024 and 2021. So just because Solana made $750 billion in fees in 2024 alone, it doesn't compete away Ethereum's fees.

While it makes sense that the ETH price and the Solana price was probably fluctuating a lot in those periods, and this also explains the fee accrual differences in those years, the fact of the matter is, and Denkrad also shows this, that the low amount of fees accruing to Ethereum stakers is a problem that Ethereum has created for itself. And it has done so because it wants to offer cheap transactions for its users.

So Solana is really not at fault for Ethereum's low fee accrual, it's really not a zero or negative sum game in this regard, because otherwise we probably would see the fee accrual from Ethereum go down and the fee accrual of Solana go up. We are seeing this to a degree, but not in a capacity where it would be significant.

But I think Denkrad's plans are all wrong. Shorter block times, single-slot L2 interoperability and maximizing the value of Ethereum DA will not increase fee accrual in the short term.

The inputs to fee accrual is basically an increased Ethereum price, higher costs of transacting (which we don't want) or more user activity. And so scaling the L1 to make sure that integration with Ethereum remains attractive does not necessarily increase the number of users that are transacting on Ethereum.

Scaling DA to make sure that we lower the incentives for alt DA is obviously an input into making more people use Ethereum, but at the end of the day, getting more people to use Ethereum is really a task of the ecosystem.

The issue is that when we solely focus on Ethereum being a casino and a badly usable one too, then it's no wonder that when the casino isn't running because prices are depressed in Memecoins like how it happened in February 2025 or in several other periods where Memecoin trading just led to many losses, then this is far less sustainable than if we had a diverse set of use cases which made money for Ethereum that were not subject to seasonality.

I guess there are many other things that could generate more stable revenues other than Memecoin trading. Also: Solana is basically competing for Memecoin trading fees. But in general: lowering the user experience friction would also potentially onboard more people to Ethereum which would mean that more people are transacting on it and so more fees would accrue to the protocol.

It's really the task of the applications which are using Ethereum that end up generating fees for it that then make revenues go up and make the Ethereum evaluation priced more attractively.

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