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Layer 1 blockchains face slowdown in 2024 with lower activity

GrafaGrafa2024/09/05 06:55
By:Liezl Gambe

Layer one (L1) blockchain networks like Ethereum (CRYPTO:ETH), Solana (CRYPTO:SOL), and Bitcoin (CRYPTO:BTC) are seeing a significant dip in activity and market performance this year, according to a new report by Coin Metrics researchers Tanay Ved and Matías Andrade.

The report shows that transaction volumes are down, and total fees collected by these networks have dropped sharply from their highs earlier in the year.

Ethereum, Solana, and Bitcoin, which started 2024 on a strong note, have struggled to maintain momentum.

Data indicates that year-to-date returns for most L1 tokens have slipped below 50%.

Ethereum's total fees have fallen to $1.15 million, while Solana and Bitcoin have recorded even lower figures at $724,000 and $463,000, respectively.

The slowdown in transaction volumes is a key factor driving these declines.

The drop in activity is not just about fees.

The broader market for L1 networks is seeing a consolidation that is affecting token prices and overall market sentiment.

Solana, which had gained traction for its high-speed transactions, enjoyed early gains but has faced a steep decline as the market cooled.

Ethereum, despite its much-talked-about move to proof-of-stake with the Merge, is also feeling the impact of less network activity.

Ved and Andrade's report explains that “low-fee networks like Solana are optimised and primarily used for high-frequency, low-value transactions,” yet even these networks are seeing reduced activity.

The competition among L1 blockchains has fueled rapid advancements—Ethereum’s switch to proof-of-stake, Solana’s push for speed, and Avalanche’s customizable subnets.

But these upgrades haven’t been enough to sustain high levels of activity across the board.

The Coin Metrics report also touches on the importance of fee mechanisms for the sustainability of L1 networks.

Fees paid in native tokens are vital for keeping validators and miners engaged.

Even with the decline in fee income, networks like Ethereum are focused on making improvements to drive future growth.

Efforts like lowering layer two (L2) transaction fees and introducing new features like blobs are designed to boost accessibility and performance, positioning Ethereum for potential surges in activity down the line.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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