Ethereum’s New Gas Market Paradigm

L2 Gas Use Plummets Post-Dencun

• Ethereum’s Dencun upgrade on the 13th March reduced gas costs for L2 chain data by adding a dedicated “blob gas” market
• Ahead of the upgrade, we forecast a large reduction in the mainnet gas usage by L2s as they moved to the newer, cheaper system of storing L2 transaction data
• We also correctly foresaw the increase in gas used by non-L2 transactions as the base fee fell and unlocked demand for space on the network at a lower fee

‍

L2's Switch To Blobs, But Still Have Room To Grow

• The new blob space still has room to grow, averaging only 1.5 blobs of the 6 available in each block
• This is far below the target of 3 blobs filled per block, and so the blob base fee burnt in each block is negligible
• Blobs briefly reached their target usage nearly two weeks after the upgrade as “blobscriptions” were minted and sold

ETH Supply Is Inflationary Again

• The exodus of L2 activity to blob space means that the demand for gas on Ethereum’s mainnet (L1) has fallen
• Gas usage has stablised at a much lower equilibrium base fee price, even when the lower network activity is considered
• Therefore the amount of ETH burnt in each block is also much lower
• The new supply of ETH to Beacon chain stakers has not fallen as fast, resulting in a net increase in the supply of ETH per block

In our report ahead of the Dencun upgrade in March, we forecast a swift migration of L2 transaction data to the new, dedicated blob space. We also expected the swift recovery in gas usage to the 15 million unit per block target, but at a much lower base fee due to the lower usage by L2s. While we were correct to predict a fall in the base fee burned, the impact on the net supply dynamics of ETH has been swifter than we expected. The new supply of ETH minted on the Beacon chain now outweighs the burned supply for the first time since the Merge, removing a potential tailwind that failed to support ETH against BTC during the last 18 months of under-performance.

‍