Harsh Crypto Winter: Even Ethereum Network Faces Losses
The Ethereum network is experiencing significant losses, reflecting the downturn in the current market conditions, despite its leading position in the ecosystem.
According to data from Blockworks Research, Ethereum's blockspace profitability has been consistently positive since The Merge. However, as of September, Ethereum's "business" is suffering substantial losses.
Blockspace profitability represents the operational earnings of the Ethereum network, calculated as the total transaction fees minus expenses. For Ethereum, income comes primarily from transaction fees, while expenditures include payments to validators and the issuance of new ETH.
Thus, the equation for blockspace profitability is:
Blockspace Profitability = Total Transaction Fees - (Validator Rewards + Value of Newly Issued ETH)
As Coin68 previously explained in its one-year anniversary piece post-The Merge, Ethereum has operated efficiently, reducing inflation and consuming significantly less energy compared to its Proof of Work days. Nevertheless, due to harsh market conditions and an extended crypto winter, on-chain activities have dwindled, leading Ethereum to record negative blockspace profitability for the first time in months.
According to ultrasound.money, September saw 8,900 new ETH issued, combined with reduced on-chain activities resulting in sharply reduced transaction fee revenues. This has led to a negative profitability of $15.9 million in September 2023.
The most evident evidence of this downturn is the drastic reduction in swap and stablecoin transaction volumes, such as USDT and USDC, which have plummeted by 90% since their peak in March 2023. Additionally, the NFT market has seen a decline, with blue-chip NFT collections dropping by 83% from their highs, prompting many investors to cut losses and lose interest in the sector.
However, amidst these challenges, some Layer-2 solutions like Arbitrum and Optimism continue to sustain operations despite the overall market downtrend.
Despite these setbacks, Ethereum's ETH price is currently undervalued by 27% based on a user activity-driven valuation study of the network.
This challenging period underscores the resilience needed in navigating the volatile cryptocurrency landscape, even for established networks like Ethereum.
