Ethereum (ETH) is experiencing a significant decline in network activity, leading to historically low gas fees. The drop below 1 gWEI highlights a decrease in user transactions, while competition from Solana's ecosystem, particularly Phantom, is intensifying.
Ethereum Gas Fees Plunge to Historic Lows
Ethereum has seen a substantial reduction in transaction demand, pushing gas fees below 1 gWEI for the first time since September 2024. Currently, standard transactions cost as little as $0.06, while more complex operations, such as token swaps and NFT transactions, remain under $1.

This development follows a broader market downturn, with ETH trading around $2,700 and experiencing bearish sentiment.
Until recently, Ethereum users faced gas fees exceeding $25 per swap, making the network unaffordable for smaller investors. The high costs discouraged retail users from making transactions, leading to a decline in daily active users (DAUs) from 700,000 in late January to 477,000 over the past 24 hours.
Ethereum L2 Ecosystem Sees Decline in Activity
The drop in gas fees is not just affecting the Ethereum mainnet but is also impacting Layer 2 (L2) solutions. Blob transaction fees, which help optimize network congestion, have fallen from 84 ETH per day to just 62.65 ETH across all L2 networks.
This decline reflects a broader 24% reduction in active addresses across L2 chains in the past week. Additionally, Base recorded a 30% drop in daily transactions since its peak in early January.
Another concerning trend is the outflow of stablecoins from L2 back to Ethereum. Arbitrum, for example, had previously held over $7 billion in stablecoins, but recent withdrawals have reduced this figure to $3.91 billion. This shift suggests that while Ethereum remains the primary hub for liquidity, retail traders are migrating elsewhere.

Phantom and Solana Surge as Ethereum Slows Down
Ethereum is facing growing competition from Solana's ecosystem, where transaction volumes and fees are rising rapidly.
Notably, Phantom, a leading Solana-based wallet, has surpassed Ethereum in daily fee generation. Phantom now brings in over $469,000 per day in fees, with monthly revenues reaching as high as $30.54 million. The wallet’s growing adoption was further fueled by its recent support for multiple blockchains and currencies.
Among the top Solana applications, Jito, Raydium, Pump.fun, and Meteora are regularly ranking among the top 10 fee-generating dApps. This shift suggests that retail traders favor Solana for high-risk, high-reward trading opportunities.
Ethereum Still Holds DeFi Liquidity, but Challenges Remain
Despite declining transaction activity, Ethereum remains the dominant player in DeFi and high-value transactions. Large institutions and whales continue to rely on Ethereum for liquidity, giving it an edge over newer chains.
The biggest fee generators on Ethereum continue to be Tether (USDT) and Circle (USDC), as stablecoins remain a core use case for Ethereum. Recently, USDT inflows into Ethereum have increased, largely due to its superior liquidity and direct access to centralized exchanges.
Meanwhile, the Ethena (ENA) protocol has emerged as the second-largest fee generator on Ethereum, reflecting the market’s recent volatility and the demand for synthetic stablecoins like USDe and sUSDe.
Ethereum Faces Market Capitulation Amid Falling Open Interest
The recent market downturn triggered mass liquidations in ETH, causing open interest to drop from $16 billion to $11 billion in just one week.
At the time of writing, Ethereum is trading at $2,736.96, with negative funding rates on Kraken and Deribit. Despite this, 70% of traders are still holding long positions, indicating confidence in a potential rebound.
While Ethereum’s dominance is being challenged, it still holds a strong position in DeFi and institutional markets. However, the question remains whether it can maintain its leadership in the altcoin sector or if Solana and other emerging blockchains will continue to attract more users and liquidity.

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