#How is Ethereum’s Transaction Volume Impacting Fees
Ethereum’s Layer 1 network has experienced unprecedented transaction volumes while maintaining extremely low fees. On December 31, 2025, daily transactions reached 1.87 million, surpassing the previous record of 1.61 million seen in May 2021. This surge in activity coincided with a substantial decrease in average transaction fees, dropping to about $0.21, with some days recording even lower fees around $0.15. This represents a year-over-year decline exceeding 50%, marking the lowest cost-per-transaction in Ethereum's history.
#What Changed with the Dencun Upgrade
The impressive change in transaction dynamics is largely credited to the Dencun upgrade implemented in March 2024. This upgrade brought proto-danksharding via EIP-4844, revolutionizing how Layer 2 rollups can transmit data to the Ethereum main chain. Previously, Layer 2 solutions faced competition for the same block space as regular users, but Dencun allowed them to utilize dedicated lanes at a lower cost.
This adjustment led to a significant reduction in congestion on the main chain. Layer 2 networks, such as Arbitrum, Optimism, and Base, leveraged this enhancement to process transactions more efficiently. Consequently, Ethereum L1 could manage its remaining transactions more effectively and at a fraction of the former costs.
Ethereum L1's transaction volume for Q1 2026 reached a staggering 200.4 million, with active addresses also hitting record levels around October 2025.
#How Does the Burn Rate Affect Ethereum
Since the Merge in September 2022, Ethereum has employed a mechanism to burn a portion of every transaction fee, effectively removing ETH from circulation. During periods of high fees, the burn rate outpaced the issuance of new ETH, creating a deflationary environment for the asset. However, this dynamic has shifted dramatically with the current low fees.
In 2025, daily ETH burn from transaction fees saw a considerable slump, averaging around 53 ETH on some days. This figure pales in comparison to the thousands of ETH that were burned on high-fee days from 2022 to 2023. Even with unprecedented activity levels, the low fee structure fails to generate enough revenue to sustain the deflationary trends once anticipated by investors.
#What Are the Implications for Investors
The interplay between reduced fees and heightened activity presents a dual narrative for ETH investors. On the one hand, lower fees are facilitating broader user adoption within the network. Increased transaction volumes and active addresses indicate a more accessible Ethereum ecosystem. However, the reduced economic benefits of this activity raise concerns. With users gravitating towards Layer 2 rollups, most fee revenue is now directed to these networks rather than Ethereum L1 itself. Ethereum only retains a minimal fee compared to its earnings from earlier high-traffic periods on the mainnet.
This evolving landscape underscores important considerations for investors. While user growth and activity are promising signs of a robust network, the shifting economic structure may affect long-term valuations of ETH.