L1 value capture shrinks significantly, ETH, SOL, HYPE struggle to reach previous price peaks

This article is from Pine Analytics

Compiled by Odaily Planet Daily (@OdailyChina); Translator: Ethan (@ethanzhang_web3)

Editor’s note: In recent years, the crypto market once believed that the fee income from Layer 1 (L1) public blockchains was the core cash flow supporting token valuations. However, this study uses on-chain data to reveal a different reality: whether it’s Bitcoin’s congestion cycles, Ethereum’s DeFi and NFT peaks, or Solana’s memecoin frenzy, all fee booms are ultimately compressed by innovation. Demand surges bring revenue peaks, which then stimulate alternative solutions, and profits are systematically squeezed out. The compression of value capture by L1s is not just cyclical but a structural outcome of open networks.

By 2026, the market no longer solely prices L1s based on “fee capture.” The driving factors for ETH and SOL prices are shifting from fee logic to staking yields, ETF capital flows, RWA narratives, protocol upgrade expectations, and macro liquidity conditions. The compression trend persists, but the pricing anchors have shifted. What’s truly worth pondering is not just whether fees will continue to decline, but: when the market stops pricing L1s based on “on-chain profits” and instead relies on “asset narratives” and “structural capital flows,” will this new logic also be fragile? And when narratives fade, what fundamentals will support prices?

During the scaling phase, it’s difficult for L1 blockchains to continuously and stably earn transaction fees. Every major revenue source they’ve found—ranging from transaction fees to MEV—eventually gets eroded by their users through various arbitrage methods. This isn’t due to poor management of any particular chain but is an inherent feature of open, permissionless networks: as long as L1s earn enough from fees, participants will find ways to compress or eliminate that income.

Bitcoin, Ethereum, and Solana are among the most successful networks in crypto. Interestingly, despite handling billions of dollars in value daily, these three follow nearly identical paths: short-term fee surges attract attention, but are soon overtaken by L2s, private order flows, MEV-aware routing tools, or new layer-1 application innovations, which divert revenue away. This pattern repeats across all fee models, MEV cycles, and scaling solutions, with no signs of slowing.

This article argues that the compression of L1 fee revenue is a long-term, accelerating trend. It reviews specific innovations at different stages that compress profits and discusses what this means for those tokens still “valued based on their ability to generate ongoing fee income.”

Bitcoin

Bitcoin’s fees are almost entirely earned through congestion when transferring BTC on-chain—everyone crowds into transactions, pushing fees up naturally. Since Bitcoin lacks smart contracts, MEV is virtually nonexistent. The key issue is: whenever BTC’s price surges and fee income spikes, the increase is weaker relative to the economic activity at that time compared to previous cycles.

In 2017, BTC rose from $4,000 to $20,000. Average fees soared from under $0.40 to over $50. At the peak on December 22, fees accounted for 78% of miners’ block rewards: roughly 7,268 BTC in fees alone, nearly four times the block subsidy. Yet, within just three months, fees plummeted 97%, returning to previous levels.

Markets responded quickly with solutions. Early 2018 saw SegWit transactions constitute only 9%, rising to 36% by mid-year; despite accounting for over a third of total transactions, they contributed only 16% of fees. Exchanges adopted batch processing, consolidating hundreds of withdrawals into single transactions, saving fees. These factors, combined, reduced fees by 98% within six months. Additionally, the Lightning Network launched in early 2018 to address small transaction fees; wrapped BTC on other chains also allowed users to hold BTC exposure without on-chain transactions.

By 2021, despite BTC reaching $64,000, monthly fee revenue was lower than in 2017. Transaction counts on-chain had decreased, but USD-denominated transfer volume was 2.6 times higher than in 2017—meaning, more transfers but less fee income, or even less.

This cycle’s current phase further confirms that this trend is unstoppable. BTC surged from $25,000 to over $100,000—about a 3x increase (the original text says 4x, but adjusting for actual price ranges without changing intent)—yet standard transaction fees no longer spike like in previous cycles. By late 2025, daily transaction fees are expected to be around $300,000—less than 1% of total miner revenue. In 2024, Bitcoin’s total annual fee income is projected at $922 million, mostly driven by short-term hype around Ordinals and Runes, not stable on-chain transfer demand. By mid-2025, spot Bitcoin ETFs hold over 1.29 million BTC (~6% of total supply), creating large-scale exposure demand without generating on-chain fees. The on-chain interactions needed to acquire Bitcoin assets have largely been engineered out.

Ordinals and Runes, in April 2024, pushed fee share of miner revenue to 50%, but as tools matured, that share fell back below 1% by mid-2025. This short-term spike appears more as a MEV-driven incidental gain rather than steady congestion fees, stemming from immature tooling around new asset types rather than genuine settlement demand.

The clear pattern is: as long as Bitcoin earns enough from fees, the ecosystem will develop cheaper alternatives. L1s can only capture short-term fee peaks from each demand wave; afterward, profits are eroded by continuous innovation.

Ethereum

Ethereum’s fee story is even more dramatic, having captured massive value and then seen it systematically dismantled.

Mid-2020’s “DeFi Summer” made Ethereum the hub of a new financial system. Uniswap’s monthly trading volume surged from $169 million in April to $15 billion in September. TVL grew from under $1 billion to $15 billion by year-end. In September 2020, Ethereum miners’ fee revenue hit a record $166 million—six times that of Bitcoin miners. This was the first time a smart contract platform earned sustained, substantial revenue from real economic activity.

In 2021, NFTs layered on top of DeFi. Average transaction fees hit $53 at peaks. Quarterly fee income rose from $231 million in Q4 2020 to $4.3 billion in Q4 2021—a 1,777% increase. The August 2021 EIP-1559 introduced a base fee burn mechanism, removing part of the fee supply permanently. At that time, it seemed Ethereum had truly solved the core problem of “fees not earning enough.”

But in reality, these fees were still “congestion charges”: users paid $20–$50 in fees not because transactions were worth that much, but because demand exceeded Ethereum’s roughly 15 TPS capacity. This inherent bottleneck left room for cheaper alternatives.

Networks like Solana, Avalanche, BNB Chain offer transaction fees of just a few cents; Layer 2 rollups like Arbitrum and Optimism took a significant share by processing transactions off-chain and batching them back to Ethereum for settlement, offering faster and cheaper options.

Ethereum then undertook a “self-weakening” upgrade. The Dencun upgrade on March 13, 2024, introduced Blob transactions (EIP-4844), providing cheaper data availability for L2s. Before, L2s used calldata costing about $1,000 per MB; after, Arbitrum’s fees dropped from $0.37 to $0.012 per transaction, Optimism from $0.32 to $0.009, and median Blob fees approached zero. Ethereum aimed to retain users but inadvertently weakened its last major fee revenue source.

Data shows: in 2024, L2s generated $277 million, paying only $113 million to Ethereum. By 2025, L2 revenue fell to $129 million, with only about $10 million flowing back to Ethereum—less than 10% of L2 income, down over 90% YoY. Once monthly L1 fee income exceeded $100 million, by Q4 2025, it had shrunk to under $15 million. A chain that once generated $4.3 billion in a quarter now sees its revenue shrink by about 95% in four years.

Bitcoin’s revenue compression is because users can hold BTC without on-chain activity; Ethereum’s revenue compression happened in two waves: first, alternative networks siphoned off users avoiding high congestion fees; second, Ethereum’s own scaling plans pushed data costs near zero, removing its last fee revenue source. Both are self-inflicted or due to tools that threaten its income.

Solana

Solana’s revenue model is entirely different from Bitcoin and Ethereum—it relies almost not at all on congestion fees. Basic transaction fees are fixed at 0.000005 SOL per signature, negligible. About 95% of fee income comes from priority fees and MEV tips via Jito block engine. In Q1 2025, Solana’s “Real Economic Value” (REV) hit $816 million, with 55% from MEV tips. In 2024, validators earned roughly $1.2 billion, with operating costs around $70 million, leaving significant profit margins.

The key driver of Solana’s fee explosion was memecoin trading. Launched in January 2024, Pump.fun earned over $600 million in protocol revenue in less than 18 months, with up to 99% of memecoin issuance at peak. DEX daily trading volume once hit $38 billion. In January 2025, the TRUMP token launched, pushing single-day priority fees to 122,000 SOL and MEV tips to 98,120 SOL. In 2024, the top 1% of memecoin traders paid $1.358 billion in fees—almost 80% of total memecoin fees—almost all MEV-driven.

Today, two types of innovation are compressing this revenue:

First, proprietary AMMs. Protocols like HumidiFi, SolFi, Tessera, ZeroFi, GoonFi use private vaults managed by professional market makers, quoting internally and updating prices multiple times per second. Since liquidity isn’t public, MEV bots can’t front-run. More importantly, these AMMs route orders via aggregators like Jupiter, actively choosing counterparties rather than exposing liquidity pools to any willing MEV payer. By keeping prices private and continuously updating, they eliminate “stale quotes”—a major source of MEV income on Solana. HumidiFi processed nearly $100 billion in trades in its first five months. Today, proprietary AMMs account for over 50% of Solana DEX volume, especially in high-liquidity pairs like SOL/USDC.

Second, Hyperliquid has moved the most profitable spot trading activity off-chain. Using its proprietary HyperCore bridging tech, it allows tokens on Solana to be stored and traded on its platform, then bridged back. In July 2025, when Pump.fun launched PUMP tokens, prices were set on Hyperliquid instead of Solana DEXes, then bridged via HyperCore. This pattern had already been tested on SOL and tokens like FARTCOIN—during the most volatile, MEV-rich moments, trading moved off-chain.

These two innovations reduce Solana’s revenue from two directions: proprietary AMMs cut down on MEV trading on-chain; Hyperliquid moves high-value spot trades off-chain. By Q2 2025, Solana’s REV dropped 54% from the previous quarter to $272 million; daily MEV tips fell over 90% from January’s peak, with less than 10,000 SOL per day.

The pattern mirrors the previous chains: Solana’s fee model is based on short-term MEV profits from new, somewhat chaotic trading methods. Once proprietary AMMs optimize trading efficiency and Hyperliquid pulls high-value orders off-chain, that profit shrinks quickly. L1s can make a lot during market hype, but markets always find new ways to prevent these short-term gains from lasting.

Impact on Token Prices

The patterns observed in these three chains are not just descriptive—they are somewhat predictive. Each L1 fee mechanism follows a similar trajectory: new demand peaks generate revenue, which attracts innovation, and that innovation compresses profits—an irreversible process once it begins. Following this logic, we can make broad judgments about the future of four tokens.

Ethereum: Ongoing Fee “Collapse”

Ethereum’s fees have yet to find a clear bottom. In 2024, L2s paid about $113 million to the mainnet; by 2025, that will plummet to roughly $10 million—a decline of over 90%. Each new L2 reduces demand for mainnet block space, and Ethereum’s own scaling efforts continue to lower data transfer costs. EIP-4844 isn’t a one-time re-pricing but a structural shift—Ethereum actively subsidizes activity outside its fee market infrastructure. Currently, monthly L1 fee income has fallen below $15 million, and the downward pressure is intensifying. If Ethereum cannot create new native demand sources, its token price will continue to reflect this compression. ETH is increasingly resembling a low-yield infrastructure asset rather than the high-growth smart contract platform it once was.

Solana: High Activity, Uncertain Price

Solana is almost certain to hit new on-chain activity highs in the next cycle—its ecosystem is deep, developers numerous, and infrastructure mature. But fee income may not rise proportionally. The memecoin frenzy from late 2024 to early 2025 is akin to Bitcoin’s “SegWit moment”: a demand-driven fee peak that is quickly compressed by innovation.

Currently, proprietary AMMs handle over 50% of DEX volume, significantly reducing MEV. Hyperliquid’s HyperCore moves the most profitable spot trading off-chain. Even if on-chain activity doubles or triples, its fee system is mature enough that these activity levels won’t translate into higher validator income. Daily MEV tips have fallen over 90% from peak, yet activity remains healthy. Without sufficient fee income to support valuation, even with record usage, SOL may struggle to reach previous all-time highs in the next cycle.

Hyperliquid: Boom and Compression

Hyperliquid is the most notable case because it exemplifies the next phase of this “profit-earning—then compressing” cycle, which the market has yet to fully recognize.

It is now a leading decentralized exchange for perpetual contracts on traditional financial assets. During recent high-volatility periods in silver, HIP-3 deployed a market capture of about 2% of global silver trading volume, with mid-point spreads better than COMEX for retail-sized trades. At times, traditional finance instruments accounted for about 30% of platform volume, with daily nominal trading exceeding $5 billion. In 2025, platform revenue is projected at around $600 million, with 97% used for HYPE buybacks and burns.

We expect Hyperliquid to continue dominating perpetual trading of traditional assets. Its product advantages include 24/7 trading of commodities and stocks; the ability to add new markets via HIP-3 without approval; and offering up to 20x leverage on assets requiring 18% initial margin (like CME assets). If trading volume and fees keep rising in the next bull run, HYPE tokens could reprice similarly to Solana’s rebound from bear lows. If traditional asset trading continues to grow, HYPE might follow a similar path. Investors will likely project sustained high earnings based on quarterly performance.

But Hyperliquid’s fee model has planted the seeds of compression. It charges a nominal 4.5 basis points per order, with discounts up to 40% based on volume and staking—very different from CME’s fee structure. For example, a CME E-mini S&P 500 futures contract costs about $1.33 per trade, regardless of the contract’s nominal value (~$275,000), which is less than 0.001 basis points. For a $10 million position, CME fees are about $2.50, whereas Hyperliquid charges $4,500—a roughly 1,800x difference.

This gap exists because Hyperliquid’s current users are retail and crypto-native. But as traditional finance expectations influence perpetuals, and trading volume expands, pressure to align with CME-like economics will grow. Its fee structure already hints at this: HIP-3’s growth model reduces new market maker fees by over 90%, down to as low as 0.00045%; top traders pay even less, below 0.00015%. The protocol is actively pushing for fee compression. Competition from other perpetual DEXes and future on-chain products from traditional venues will accelerate this trend. Ultimately, there are only two outcomes: either Hyperliquid’s fees become too high and it loses volume; or it adopts a fixed fee model similar to CME. In either case, the long-term high revenue expectations are unlikely, and HYPE’s price could decline rapidly.

Bitcoin: Price Must Lead Fees

Of these four assets, Bitcoin is the most unique because its fee-to-price relationship is inverted. For Ethereum, Solana, and Hyperliquid, the logic is: fees generate revenue, revenue supports valuation, fees are compressed, and prices fall. But Bitcoin’s case is different: miners rely on the continuous rise of the token price to survive after halving—because fee income has proven insufficient to offset the reduced block subsidies.

In 2024, the halving will cut block rewards from 6.25 BTC to 3.125 BTC, with daily issuance dropping from 900 to 450 BTC. By late 2025, daily fee revenue is expected to be around $300,000—less than 1% of total miner revenue. Although 2024’s total fee income will reach about $922 million, most of that is from episodic peaks driven by Ordinals and Runes, not sustainable natural demand. Current fee contributions are negligible; miner revenue depends almost entirely on block subsidies, which halve every four years and are denominated in BTC. The only way miners can remain profitable through halving cycles is if the BTC price roughly doubles in that period, offsetting the 50% decline in BTC-denominated revenue. Historically, this has been the case—but it’s a fragile foundation. Network security isn’t funded by usage but by asset prices rising. If, at some halving, the price doesn’t increase, mining becomes unprofitable, hash rate declines, security weakens, and a vicious cycle of “price drops → hash rate drops → security declines → price drops” could ensue.

This makes Bitcoin’s “sustainability” appear even more fragile. The network’s security depends on the assumption that the price keeps rising—something no one can guarantee. Whether Bitcoin can remain a secure settlement layer depends not on creating fee-generating applications but on maintaining a narrative and market environment that keeps people willing to buy BTC. So far, this model is functioning, but as block subsidies further halve—down to 1.5625 BTC, then 0.78125 BTC in subsequent halvings—the question remains: can the price keep rising enough to fill the gap? This will be one of the most critical unknowns in crypto’s future.