Ethereum is moving toward a model in which much of the activity users see happens outside the base chain, raising a difficult business and design question: can lower-cost layer-2 networks expand Ethereum’s economic reach while preserving meaningful demand for the settlement layer?
For years, Ethereum’s central limitation was visible in a simple number: how much users had to pay to use it. During periods of heavy demand, a swap, mint, game interaction or decentralized application transaction could cost more than the underlying service was worth. The network’s security and broad developer base made it attractive, but congestion turned that advantage into a barrier.
The answer has been a multiyear scaling strategy built around layer-2 networks. These systems execute transactions away from Ethereum’s main chain, bundle the results and return data or proofs to Ethereum for settlement and security. In theory, the approach combines the reach and speed of specialized networks with the credibility of a large, decentralized base layer.
That trade-off is now becoming more consequential. If users, applications and liquidity increasingly operate on layer-2 networks, Ethereum may process fewer transactions directly while remaining the system that verifies, settles and secures them. Its economic value would then depend less on charging users for every individual action and more on becoming the shared infrastructure beneath a large collection of rollups and applications.
The model could turn Ethereum into a high-value settlement network, similar in some respects to how wholesale payment infrastructure supports a much larger retail economy. But it could also create pressure on the base layer’s fee market, weaken the connection between Ethereum and its end users, and give layer-2 operators more control over distribution, branding and economics.
This tension sits at the heart of Ethereum’s roadmap. The network is not simply trying to process more transactions in the conventional sense. It is attempting to redesign where computation happens, what data must be stored on-chain, how users move between networks and how value flows through a layered digital economy.
Scaling by moving execution elsewhere
Ethereum’s original architecture required transactions and smart-contract execution to be processed by the main network. Every node would verify the same state changes, an approach that supports strong transparency and broad participation but limits throughput. Increasing capacity directly can place greater demands on hardware, bandwidth and storage, potentially making it harder for ordinary participants to run nodes.
Layer-2 networks address that constraint by moving much of the execution away from Ethereum. A rollup can process thousands of transactions in its own environment, compress the relevant information and publish a record to Ethereum. Users receive faster confirmation and lower fees, while Ethereum remains responsible for verifying data availability, resolving disputes or checking cryptographic proofs, depending on the rollup’s design.
The most widely discussed categories are optimistic rollups and zero-knowledge rollups. Optimistic systems generally assume that submitted batches are valid unless someone challenges them during a specified window. Zero-knowledge systems use cryptographic proofs to demonstrate that a batch was executed correctly. Both approaches are evolving, and the distinction is less important to users than the practical questions of cost, speed, security and compatibility.
For developers, layer-2 networks can offer a more manageable environment for applications. A game can support frequent low-value interactions without asking players to pay mainnet transaction fees. A payments company can experiment with stablecoin transfers that settle quickly. A decentralized exchange can process trades at a cost that is more competitive with centralized platforms.
The design also allows different networks to specialize. One layer-2 may focus on payments, another on trading, another on gaming or tokenized assets. That specialization could support experimentation that would be difficult if every application competed for the same limited block space on Ethereum.
Yet distributing execution creates new friction. Users may need to bridge assets between networks, select the correct chain in a wallet and understand whether a particular application is deployed on Ethereum, an optimistic rollup or a zero-knowledge network. Liquidity can become fragmented across venues. An asset that appears to be the same token may have different addresses, withdrawal periods and technical assumptions depending on the network where it resides.
The scaling strategy therefore shifts the problem. Ethereum can make transactions cheaper by moving them elsewhere, but it must still make the resulting ecosystem feel coherent.
Blobs change the economics of rollups
A major part of that effort has been the introduction of a specialized data mechanism known as blobs. Before blobs, rollups generally published compressed transaction data through Ethereum’s conventional transaction data fields. That data was expensive because it competed directly with ordinary Ethereum activity.
Blobs provide temporary data storage designed primarily for layer-2 networks. They are attached to blocks, but unlike ordinary contract data, they are not intended to remain permanently accessible as part of Ethereum’s execution state. The temporary structure reduces the cost of publishing rollup data while giving the base chain a way to verify that the information was made available.
This distinction matters because rollups need data availability. If a layer-2 operator claims that a certain batch of transactions occurred, users and independent systems need access to enough information to verify the claim or reconstruct the relevant state. Blobs offer a standardized and cheaper channel for that information.
The upgrade associated with this capability, commonly known as Dencun, was a milestone in Ethereum’s scaling push. It did not instantly make every layer-2 transaction inexpensive, because user fees also depend on the rollup’s own costs, sequencing model, wallet design and demand. But it created a more favorable cost structure for the networks expected to carry Ethereum’s future activity.
A dated comparison shows how sharply that cost structure changed, and how quickly demand later grew. According to the Ethereum blob dashboard on Dune Analytics, the first two weeks after Dencun, from March 13 through March 26, 2024, averaged well below one blob per Ethereum block. With a target of three blobs per block, that represented utilization of only roughly 10% to 20% of target capacity. The blob base fee stayed at its protocol floor of 1 wei, making the fee for the blob space itself effectively negligible. Rollups’ combined data-posting bills were also generally measured in thousands of dollars per day rather than the much larger amounts seen during later periods of congestion.
The same dashboard’s June 30, 2025 snapshot showed a materially different market. Rollups were regularly filling most of the available blob target, with average use close to three blobs per block and occasional periods at or above the target. The blob base fee had moved above the 1-wei floor during demand spikes, although it remained tiny compared with the pre-Dencun cost of publishing equivalent data through ordinary calldata. Dune’s rollup cost data put aggregate daily data-posting expenditure in the low hundreds of thousands of dollars during the busiest periods, far above the immediate post-Dencun baseline, but still a small cost per transaction once spread across the activity carried by the major networks.
That comparison captures both sides of the Dencun outcome. In March 2024, Ethereum supplied more blob capacity than rollups needed and charged almost nothing for it. By June 2025, rollups were using a much larger share of that capacity and paying more when demand pushed the blob market toward its target. The reduction in cost per unit of data remained substantial, but the aggregate bill was no longer trivial because the volume of published data had expanded.
The figures show that rollups became more active users of Ethereum’s data-availability infrastructure over that period. They do not, by themselves, prove sustained end-user demand. Blob consumption measures how much data rollups post, not whether the underlying transactions represent recurring payments, profitable applications or temporary bursts of trading and incentives. A rollup can publish more efficiently compressed data, while a high blob count can also reflect a single application or a short-lived campaign concentrated on one network.
The numbers also do not show how much of the value created by that activity accrues to Ethereum. Blob fees are only one component of a rollup’s economics. Users pay the sequencer, applications may retain revenue, and operators incur costs for execution, proving, infrastructure and customer acquisition. A period of full blobs would demonstrate demand for Ethereum’s data capacity, but it would not establish that Ethereum is capturing a proportionate share of the economic value generated above it.
Conversely, low blob usage immediately after Dencun was not evidence that rollups had failed. The upgrade created capacity in advance of demand, and operators needed time to migrate, improve compression and attract applications. The more informative signal is the subsequent persistence of usage across multiple months and across different types of applications. Blob utilization should therefore be read alongside rollup transaction activity, active users, stablecoin transfers, application revenue and the number of independent networks publishing data.
The broader objective is to make data publication cheap enough that Ethereum can support many more rollups than its original architecture could accommodate. The base chain would not need to execute every transaction. Instead, it would provide a dependable data and settlement environment for a growing network of execution layers.
The fee paradox
Ethereum’s scaling strategy creates an unusual economic paradox: the network can become more useful while collecting less from each transaction.
On the old model, demand for Ethereum block space pushed up fees. High fees were painful for users, but they also produced substantial revenue for validators and created a clear relationship between network activity and the value of the native asset. If a user wanted to interact with an application, the user generally paid Ethereum directly.
On a layer-2-centered Ethereum, users may pay a fraction of a cent to a rollup sequencer. The rollup then pays Ethereum for data availability and settlement. The total economic activity may be much larger, but Ethereum’s share of the payment could be smaller.
That is not automatically a failure. Internet infrastructure companies do not need to capture the full value of every service built on their networks. A base layer could benefit from being the most trusted settlement venue even if its fee per transaction declines. Lower costs can increase usage, and greater usage can create demand for block space, ETH as collateral and ETH as a reserve asset within the ecosystem.
But the relationship between adoption and revenue becomes more complex. Ethereum may need enormous scale to replace the fees generated by a smaller number of expensive mainnet transactions. The critical question is whether the network can achieve that scale before alternative chains capture the applications and liquidity that layer-2s are meant to support.
The issue also affects ETH’s investment narrative. ETH is used to pay transaction fees, secure the network through staking and serve as collateral across decentralized finance. Under a rollup-centric model, it may additionally function as the reserve asset of an interconnected settlement system. But those benefits do not necessarily appear in a single metric.
Fee destruction under Ethereum’s monetary design has made network activity relevant to ETH’s supply dynamics. Under EIP-1559, Ethereum burns the base fee component of every transaction, while the priority fee, or tip, goes to the validator. Burning therefore does not begin only after fees cross a specified threshold. However, lower rollup-related fees can reduce the amount burned: if layer-2 networks pay less to publish data and settle batches, or if abundant capacity keeps those fees low, the base fees burned by that activity may decline even as transaction volume and the number of users increase. The result is a more nuanced relationship between usage and scarcity: more transactions are not always equivalent to more fee burn.
This is one reason analysts are watching both the quantity and quality of activity. A network serving millions of low-value actions may have significant strategic importance but modest fee revenue. A smaller network hosting high-value financial settlement may generate more fees with fewer users. Ethereum’s long-term economics will depend on how those categories develop and how much value layer-2 operators retain.
Sequencers create a new center of power
Layer-2 systems do not eliminate intermediaries. In many cases, they introduce a new one: the sequencer.
A sequencer orders transactions before they are submitted to Ethereum. It may determine how quickly users receive confirmations, how transactions are grouped and how certain forms of ordering value are captured. In a centralized configuration, one company or organization can operate the sequencer, even if the underlying rollup ultimately uses Ethereum for security.
Centralized sequencing can be practical in the early stages. It improves performance, simplifies upgrades and gives a team control over an important part of the user experience. A startup can launch a network without immediately solving the difficult problem of decentralized transaction ordering.
Over time, however, the sequencer becomes a governance and trust concern. If it goes offline, users may be unable to transact. If it censors a transaction, the user may need a delayed escape route to Ethereum. If it captures ordering profits, the economic value of activity may accrue primarily to the rollup operator rather than to Ethereum or application developers.
Many layer-2 roadmaps include plans for decentralized sequencing, forced inclusion mechanisms or other safeguards. These features can reduce dependence on a single operator, but they introduce complexity and may involve trade-offs in performance and governance. The quality of a rollup cannot be assessed solely by asking whether it uses Ethereum for settlement. Observers must also examine who controls upgrades, how withdrawals work, whether fraud or validity proofs are active, and what happens if the operator disappears.
This is where decentralization becomes an engineering question rather than a slogan. A rollup may inherit Ethereum’s security for a particular function while retaining centralized control over other functions. Users need to know which guarantees are shared with Ethereum and which remain dependent on a company, foundation or small group of validators.
For businesses, that distinction is significant. A payments provider may accept centralized sequencing if it receives predictable performance and clear legal accountability. A financial institution may prefer a permissioned environment with explicit governance. A censorship-resistant application may demand stronger guarantees, even at the cost of slower upgrades.
Ethereum’s layered architecture can support all of these use cases, but it cannot make their trade-offs disappear.
Fragmentation is a product problem
The technical debate over rollups often focuses on throughput, proofs and data availability. For users, the more immediate issue is fragmentation.
A person who holds stablecoins on one layer-2 may not be able to use them instantly in an application deployed on another. Bridging can involve fees, waiting periods and smart-contract risk. Wallets must display chain information clearly. Exchanges need to support deposits and withdrawals across multiple networks. Developers have to decide where to deploy and how to maintain liquidity.
These problems are not unique to Ethereum. The broader blockchain industry has always been divided across networks, but the rise of multiple Ethereum-compatible layers can make the ecosystem look unified to developers while remaining confusing to consumers.
Infrastructure companies are responding with intent-based systems, cross-chain messaging, unified balances and faster bridges. In an intent-based model, a user specifies the desired outcome, such as swapping one asset for another or paying a recipient on a different network, while a service or network of solvers handles the underlying routing. If these systems work reliably, users may not need to know which layer processes a transaction.
That abstraction can be powerful, but it introduces new dependencies. A wallet or solver may become responsible for selecting routes, pricing transactions and managing cross-network risk. The user experience becomes simpler, while the infrastructure beneath it becomes more sophisticated and potentially more concentrated.
Developers face a related choice between building on an established layer-2 and launching an application-specific network. An established network may provide liquidity, wallets and distribution. A dedicated chain can offer custom performance, governance and fee economics but must attract users and secure its own ecosystem.
The successful platforms will likely be those that hide complexity without hiding risk. A consumer should not need to understand data availability sampling to buy a digital asset, but the application should still provide transparent information about settlement, custody and recovery. Convenience cannot come at the expense of credible security disclosures.
Competition is no longer just chain versus chain
Ethereum’s competitors are also adapting. Other smart-contract networks have emphasized fast finality, low fees, high throughput or simpler user experiences. Some use a single execution environment and attempt to scale directly. Others are building their own modular ecosystems, with separate layers for execution, settlement, consensus and data availability.
The comparison is therefore becoming more difficult. Ethereum may have the deepest developer community, the broadest set of decentralized applications and a strong reputation for neutrality. A competing network may offer faster transactions and a more unified user experience. A specialized chain may deliver better performance for a particular market, such as payments or gaming.
Ethereum’s advantage depends on whether its layered architecture produces an ecosystem that is more secure, liquid and adaptable than its rivals. The number of transactions alone will not settle that question. Users and businesses care about successful transactions, predictable costs, recovery options, asset availability and the credibility of the institutions behind an application.
Developer activity will remain an important signal. Engineers tend to build where tools are mature, users are reachable and capital is available. Ethereum’s compatibility standards can make it easier to move applications across layer-2 networks, but portability can also reduce differentiation. If every network offers similar tools, distribution and incentives may matter more than technical branding.
Liquidity is another critical factor. Decentralized finance depends on deep markets for borrowing, trading and collateral. Splitting those markets across many layers can reduce efficiency, even if bridges and messaging systems improve. A fragmented liquidity environment may favor applications that can aggregate across networks, giving a premium to infrastructure capable of routing orders and collateral efficiently.
For Ethereum, the strategic goal is not necessarily to prevent competing ecosystems from growing. It is to remain the default settlement and development environment even as applications become more distributed. That requires technical reliability, economic neutrality and a user experience that does not make the underlying architecture feel like a burden.
Regulation adds another layer of uncertainty
The legal status of digital assets remains an important variable for Ethereum, layer-2 operators and application developers. Materials published by the U.S. Securities and Exchange Commission, Congress and other government bodies show that policymakers continue to examine how crypto networks should be classified and regulated.
The questions are not limited to whether ETH itself is a security. Regulators may also examine the activities of exchanges, staking providers, foundations, wallet companies, decentralized application teams and layer-2 operators. A network that presents itself as decentralized may still have identifiable entities controlling upgrades, sequencers, interfaces or treasury funds.
Layer-2 systems could make these questions more complicated. One organization may operate the user-facing network, another may maintain the software and Ethereum may provide settlement. Determining responsibility for disclosures, custody, market integrity and consumer protection can become difficult when the technology divides functions across several participants.
At the same time, regulation could create opportunities. Clear rules for stablecoins, tokenized securities, digital commodities and custody could encourage financial institutions to use blockchain settlement. Layer-2 networks may be attractive to these organizations because they offer lower costs and more controlled execution while retaining a connection to public infrastructure.
The risk is that inconsistent rules push activity toward closed systems. If companies cannot determine whether operating a sequencer, offering staking services or supporting a token creates regulatory exposure, they may choose private ledgers or avoid blockchain projects altogether. That would reduce the network effects Ethereum needs for its scaling model to succeed.
Policy developments in the United States are only one part of the picture. European, Asian and other jurisdictions are developing their own frameworks for digital assets and financial technology. A global application may need to manage different rules for payments, securities, consumer protection and data handling in each market.
Ethereum’s open architecture can support global participation, but open access also makes compliance more difficult. The most durable businesses may be those that build compliant interfaces and services around permissionless settlement rather than attempting to turn the base protocol itself into a conventional regulated institution.
What investors should measure
The most visible market indicator remains ETH’s price, but price alone offers little information about whether the scaling strategy is working. Investors evaluating Ethereum’s progress should watch a broader set of operating metrics.
First is layer-2 activity. Active users, transaction counts and application revenue can show whether low fees are attracting organic demand or merely encouraging short-term incentives. Stablecoin transfers and recurring payments may be more informative than isolated bursts of trading activity because they indicate regular use.
Second is blob demand and the cost of publishing data to Ethereum. Rising demand would suggest that rollups are using the capacity created for them. But the quality of that demand matters. Analysts should distinguish between sustained usage and temporary spikes, while also tracking whether compression improvements reduce the data required per transaction.
Third is settlement activity. Ethereum’s role may increasingly be measured by the value and importance of the rollups that rely on it, not simply by the number of transactions executed directly on mainnet. The security assumptions of those rollups, the value locked in their applications and the frequency of their settlement transactions all provide context.
Fourth is the distribution of economics. Who collects user fees? How much do rollup operators pay Ethereum? What share goes to sequencers, application developers, liquidity providers and infrastructure companies? A growing ecosystem can be strategically valuable even when base-layer revenue is modest, but the distribution determines which participants have an incentive to keep building.
Fifth is decentralization. Investors should examine validator participation, client diversity, staking concentration, sequencer control and upgrade governance. A network can scale quickly while creating new points of failure. The long-term investment case depends partly on whether performance improvements preserve credible neutrality.
Finally, developers and users should monitor interoperability. A fragmented ecosystem may still succeed if wallets, bridges and messaging protocols make movement between layers safe and easy. If users remain trapped in isolated environments, application growth could stall despite abundant technical capacity.
The next phase is about capacity and coordination
Ethereum’s roadmap is often described through technical terms such as data availability sampling, statelessness, Verkle trees, proof systems and rollup decentralization. These projects matter because they determine how much activity the base layer can support and how expensive it is for participants to verify the chain.
But the broader challenge is coordination. Ethereum is becoming a platform of platforms. Its success will depend on whether those platforms share enough standards to feel like one ecosystem while retaining enough flexibility to innovate.
More capacity can lower costs, but it can also encourage a larger number of competing networks. More interoperability can improve user experience, but it can create additional bridge and messaging risks. More centralized infrastructure can deliver better performance in the short term, but it may weaken the decentralization guarantees that attract users to public blockchains.
There is no single architecture that resolves every trade-off. A gaming network may prioritize speed and inexpensive interactions. A financial settlement network may value censorship resistance and auditability. A consumer application may need seamless onboarding more than direct user interaction with Ethereum’s mainnet.
The practical test is whether Ethereum can provide a credible foundation for all three without forcing users to understand the entire stack. That means making failures recoverable, risks visible and cross-layer activity simple enough for mainstream products.
The scaling effort is therefore more than a throughput upgrade. It is an attempt to define what a blockchain should be when computation, data and settlement are distributed across multiple networks. Ethereum is betting that a neutral base layer can capture lasting value by securing an ecosystem much larger than the chain itself.
That bet has a strong technological logic. Lower fees can open markets that mainnet pricing excluded. Rollups can give developers room to build consumer applications. Blobs and future data improvements can make the system more efficient. Layered infrastructure can support specialized products without requiring every application to compete for the same block space.
The economic result, however, remains unsettled. Ethereum must demonstrate that activity moving to layer-2 networks strengthens the base layer rather than turning it into an invisible utility with limited revenue and weakened user relationships. Rollups must prove that their additional layers improve access without creating unacceptable centralization or fragmentation. Investors must learn to evaluate a network whose value is spread across several interconnected businesses.
If Ethereum succeeds, users may not think about layers at all. They will play games, send stablecoins, trade assets and use financial applications while Ethereum quietly provides the settlement assurances beneath them. If it fails, cheaper execution may simply accelerate the migration of developers and liquidity to whichever ecosystems offer the smoothest experience.
The next stage of Ethereum’s development will be judged not by whether it can produce more transactions in isolation, but by whether its architecture turns that capacity into durable adoption. The central question is no longer only how many transactions the network can process. It is who benefits when those transactions are processed, who controls the infrastructure, and whether the value created across the system continues to reinforce Ethereum’s role at its center.