Ethereum Network User Activity Drops 6% in the Last 90 Days

The Ethereum network user activity has experienced a major decline, impacting both its transaction volume and network revenue. Over the past 90 days, Ethereum has seen a 6% drop in unique active addresses, reflecting a broader shift that could pose risks to its long-term growth. This decrease has also dragged down daily transaction counts and network fees, which are crucial indicators of Ethereum’s overall health and vitality.

A key metric that underlines the strength of any blockchain is its user activity. The Ethereum network user activity has taken a notable hit, with a 6% decline in active addresses over the last three months. According to Artemis, this slowdown highlights a trend that Ethereum enthusiasts should be wary of. Fewer active users completing transactions on the network can spell trouble for its transactional throughput.

The Ethereum network user activity directly correlates with the platform’s daily transaction count, which has also seen a dip of 5%. Fewer transactions mean less network engagement, which in turn affects Ethereum’s economic vitality.

On-chain data backs up this downturn. Ethereum’s daily transaction count—a critical marker of the network’s usage—has consistently fallen over the last 90 days, reflecting the decreasing Ethereum network user activity.

In a recent statement, a prominent blockchain analyst, Kevin Monahan, emphasized: “Ethereum’s ability to maintain dominance lies in its capacity to engage users on its base layer. A persistent decline in user activity is a risk that Ethereum cannot afford.”

Ethereum Network User Activity Hit a Low Fee

The drop in Ethereum network user activity has rippled through to the platform’s transaction fees. By the end of August, Ethereum’s network fees plummeted to $3.1 million—a record low not seen in over four years, according to data from DefiLlama.

This fee reduction is both a blessing and a curse. While lower fees are generally appealing to users, they also indicate reduced network demand. Ethereum relies heavily on network fees to support its validators and infrastructure. A prolonged decline in Ethereum network user activity could jeopardize its sustainability in the long run.

“The fees generated on Ethereum are vital for the economic model of the network,” explains Lisa Cambridge, a blockchain economist at Decentralized Finance Insights. “As more users migrate to Layer-2 solutions, Ethereum must find new ways to sustain revenue or risk losing its competitive edge.”

Some experts argue that this drop in Ethereum network user activity is partially driven by the increasing adoption of Layer-2 (L2) scaling solutions, such as Arbitrum and Optimism. These L2 platforms aim to offload transactions from the Ethereum base layer, offering users lower fees and faster processing times. However, while these scaling solutions reduce the load on Ethereum, they may also undermine its revenue-generating capacity.

“It’s a double-edged sword,” says blockchain expert Andrew Frazier. Layer-2 solutions like Optimism make Ethereum more scalable, but the downside is that fewer users are directly transacting on the base layer. This shift could significantly reduce Ethereum’s economic activity over time.

If users continue to shift away from Ethereum’s Layer-1 in favor of L2, the consequences could be far-reaching. While scaling solutions are necessary to keep fees manageable and the network usable, the decline in Ethereum network user activity at the core level may limit the network’s growth potential.

Adding to Ethereum’s woes, the much-anticipated Ethereum ETFs have not provided the market boost many had hoped for. Despite high expectations, these ETFs have consistently experienced outflows. Since their launch on July 26, outflows have exceeded $750 million, with only one week of positive inflows.

Investors initially saw these ETFs as a catalyst for Ethereum’s price recovery, but the persistent outflows indicate that confidence in Ethereum’s near-term prospects remains low.

David Johnston, a senior financial analyst at CryptoMarket Insights, commented on the matter: “Ethereum ETFs were expected to ignite fresh capital inflows and drive prices higher. However, the reality has been quite the opposite. Outflows suggest that investors are not yet convinced that Ethereum is out of the woods.”

Ethereum Network User Activity: Price Prediction 

As Ethereum network user activity continues to decline, its price action remains under pressure. ETH is currently trading at $2,411, trapped in a horizontal channel, as buying and selling pressures cancel each other out. The altcoin has faced resistance at $2,755 and found support at $2,317 since early August, reflecting uncertainty among traders.

According to market observers, Ethereum’s flat RSI (Relative Strength Index) signals indecision. Buyers and sellers alike are waiting for a clear catalyst to break the deadlock. Should Ethereum network user activity improve, and buyer interest picks up, the price could surge past resistance levels and rally towards $3,102. However, if the selling pressure mounts and network fundamentals continue to weaken, Ethereum could drop below $2,111, a low last observed during the general market crash of August 5.

The future of Ethereum network user activity is uncertain. While the rise of L2 solutions offers scalability and lower costs, the Ethereum base layer is at risk of losing economic significance if user activity remains low. Additionally, the continued outflows from Ethereum ETFs signal investor hesitancy, further complicating the outlook for the world’s second-largest cryptocurrency.

Analyst predictions suggest that Ethereum needs a significant catalyst to reverse the downtrend in both Ethereum network user activity and price action. Whether that catalyst comes from renewed market confidence, new institutional investments, or another major network upgrade remains to be seen.

In conclusion, Ethereum network user activity has become a key indicator of the platform’s health, and its recent decline poses questions about its future growth prospects. As Ethereum continues to evolve, maintaining a strong base layer of user activity will be crucial to its long-term success. Get more from The Bit Gazette