Not only has Ethereum (ETH) experienced a remarkable surge of close to 100% in the initial quarter of 2024 in terms of price movement, but the Ethereum blockchain has also generated substantial profits of around $369 million during this timeframe. This unforeseen profitability has sparked inquiries into the mechanisms that drive profitability in a blockchain like Ethereum.
Potential Revenue Streams of Ethereum
As highlighted in a recent analysis by the on-chain data platform Token Termina, the accumulation of transaction fees plays a pivotal role in Ethereum’s revenue model.
All users on the network are mandated to pay fees in ETH when engaging with applications on the blockchain, serving as a crucial source of revenue for Ethereum.
Upon payment of transaction fees, a segment of the ETH is burned and permanently taken out of circulation. This process, known as “ETH buyback,” benefits current ETH holders by enhancing the scarcity and value of the remaining ETH tokens. Consequently, the daily burning of ETH contributes to the economic advantage of Ethereum stakeholders.
Contrary to the burning of ETH, Ethereum also issues new ETH tokens as incentives to the network’s validators for each new block appended to the blockchain.
These incentives function akin to conventional stock-based compensation, motivating validators to uphold the network’s security and integrity.
Nevertheless, it is imperative to recognize that the issuance of new ETH tokens dilutes the holdings of existing ETH holders.
As per Token Terminal, the variance between the daily USD value of the burned ETH (revenue) and the freshly issued ETH (expenses) delineates the daily earnings for current ETH holders, essentially the proprietors of the Ethereum blockchain. This computation facilitates the assessment of Ethereum’s profitability on a daily basis.
Growth Driven by Reduced Transaction Expenses Amounts to $3.3 Billion
In conjunction with the revamped revenue model instituted by the Ethereum blockchain, the introduction of the highly-anticipated Dencun upgrade to the Ethereum ecosystem towards the conclusion of the initial quarter of 2024 ushered in significant transformations, including the debut of an innovative data storage system known as blobs.
This upgrade has alleviated congestion on the Ethereum network and notably slashed transaction costs on Layer 2 networks such as Arbitrum (ABR), Polygon (MATIC), and Coinbase’s Base.
The implementation of the Dencun upgrade, alongside the adoption of blobs and Layer 2 networks, has profoundly impacted Ethereum’s revenue.
According to data from Token Terminal, the blockchain’s revenue has observed an 18% annualized upsurge, totaling an impressive $3.3 billion. These revenue advancements can be attributed to reduced transaction expenses, rendering Ethereum a more appealing platform for users and developers.
ETH’s market capitalization and revenue performance YTD. Source: Token Terminal
Despite the favorable revenue escalation, it is crucial to acknowledge the repercussions of market corrections and waning investor interest in the second quarter of 2024.
Over the past 30 days, Ethereum’s revenue has dwindled by over 52%. This downturn can be ascribed to broader market dynamics and a temporary ebb in investor enthusiasm.
Analyzing the data from the last 30 days, Ethereum’s market cap (fully diluted) has contracted by 15.2% to $358.47 billion. Similarly, the circulating market cap has decreased by 15.2% to reach the same value.
Furthermore, the token trading volume in the previous 30 days has receded by 18.6%, amounting to $586.14 billion.
The daily chart exhibits a downward trend in ETH’s price. Source: ETHUSD on TradingView.com
ETH is currently priced at $3,042, reflecting a 0.4% increase in the last 24 hours. The impact of these developments and the reduction in fees on the second quarter of the year, coupled with a potential surge in trading volume, remains to be seen in terms of their influence on propelling the ETH price to higher levels.
Featured image from Shutterstock, chart from TradingView.com
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