L1 Value Capture Shrinks Significantly, ETH, SOL, HYPE Struggle to Return to Price Peaks

Source: Pine Analytics

Compiled by｜Odaily（@OdailyChina）；Translator｜ Ethan（@ethanzhang_web 3）

Editor's Note: For several years, the crypto market believed that the fee revenue of L1 public chains was the core cash flow supporting token valuations. However, this research 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 stimulate the emergence of alternatives, and profits are systematically squeezed out. The compression of L1 value capture is not a cyclical phenomenon but a structural outcome of open networks.

By 2026, the market has long ceased to price L1s solely based on "fee capture." The price drivers for ETH and SOL are shifting from L1 fee logic to staking yields, ETF fund flows, the RWA narrative, protocol upgrade expectations, and macro liquidity conditions. The compression trend persists, but the pricing anchor has migrated. 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 uses "asset narratives" and "structural fund flows," is this new logic equally fragile; and when narratives recede, what fundamental support will prices revert to.

L1 blockchains struggle to earn fees sustainably and stably during their scaling phases. Every major revenue source they have found—from transaction fees to MEV—is eventually eroded bit by bit by the users they serve, through various arbitrage methods. This isn't a failure of any particular chain; it's an inherent characteristic of open, permissionless networks: once an L1 earns enough money from fees to become noticeable, transaction counterparties will devise new ways to compress that revenue to zero.

Bitcoin, Ethereum, and Solana are among the most successful networks in crypto. Yet, interestingly, despite processing billions in value daily, all three have followed nearly identical paths: a sudden, short-term spike in fee revenue captures everyone's attention, only to be quickly cannibalized by L2s, private order flow, MEV-aware routing tools, or new application-layer innovations. This pattern repeats across every fee model, every MEV wave, and every scaling solution in crypto, with no signs of slowing down.

This article argues that L1 fee compression is a persistent and accelerating phenomenon. It will trace the specific innovations that compress profits at each stage and explore what this means for L1 tokens that still factor "sustainable fee earnings" into their valuations. 

Bitcoin

Bitcoin's fees are almost entirely earned from congestion during on-chain BTC transfers—when everyone rushes to transact, fees naturally rise. Moreover, since Bitcoin lacks smart contracts, there is virtually no MEV in its network. The key issue is: each time a BTC price surge drives a fee spike, the magnitude of the fee increase relative to the scale of economic activity has been weaker than in the previous cycle.

In 2017, BTC rose from $4,000 to $20,000. The average fee also skyrocketed from under $0.40 to over $50. At the peak on December 22nd, fees constituted 78% of miner block rewards: fees alone amounted to approximately 7,268 BTC, nearly four times the block subsidy. Yet, within just three months, fees plummeted by 97%, returning to their original state.

The market reacted swiftly with countermeasures. In early 2018, SegWit transactions accounted for only 9%; by mid-year, they had risen to 36%. Although such transactions made up over one-third of the total volume, they contributed only 16% of the fees. Exchanges also began adopting batching, consolidating hundreds of withdrawals into a single transaction, saving significant fees. Combined, these factors drove a 98% reduction in fees within six months. Additionally, the Lightning Network officially launched in early 2018, specifically addressing fees for small transactions; Wrapped BTC on other chains also allowed users to hold BTC exposure without necessarily operating on the Bitcoin main chain.

By the 2021 BTC price peak, although the price reached $64,000, monthly fee revenue was actually lower than in 2017. On-chain transaction counts were lower, but the dollar-denominated transfer volume was 2.6 times higher than in 2017—simply put, network transfers increased, but fee earnings did not keep pace, and even decreased.

The current cycle further illustrates this unstoppable trend. BTC rose from $25,000 to over $100,000, roughly a 3x increase (the original text stated 4x; adjusted slightly based on the actual price range without changing the meaning), but standard transfer fees never surged as dramatically as in previous cycles. By late 2025, daily transaction fees were only about $300,000, less than 1% of total miner revenue. Bitcoin's total fee revenue for 2024 was $922 million, but most came from short-term Ordinals and Runes hype, not stable income from traditional BTC transfers. By mid-2025, spot Bitcoin ETFs held over 1.29 million BTC, approximately 6% of the total supply, providing large-scale BTC exposure demand to the market without generating any on-chain fees. The on-chain interaction required to acquire Bitcoin assets has been largely engineered away.

Ordinals and Runes briefly pushed the fee share of miner revenue to 50% in April 2024, but as related tools matured, by mid-2025, this ratio had fallen back below 1%. Such short-term spikes resemble incidental MEV gains rather than stable congestion-based revenue, stemming more from immature tooling around new asset types than from genuine demand for BTC settlement.

The pattern is clear: Whenever Bitcoin earns enough fees to become noticeable, cheaper alternatives emerge within the ecosystem. The L1 captures only one short-term fee spike from each type of demand, after which that profit is gradually eaten away by continuous innovation.

Ethereum

Ethereum's fee story is more dramatic. This chain genuinely captured massive value, only to witness it being systematically dismantled.

In mid-2020, "DeFi Summer" positioned Ethereum as the center 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 miner fee revenue hit a record $166 million, six times that of Bitcoin miners. This was the first time a smart contract platform earned substantial, sustained revenue from real economic activity.

In 2021, NFTs layered on top of DeFi. The average transaction fee peaked at $53. Quarterly fee revenue grew from $231 million in Q4 2020 to $4.3 billion in Q4 2021, a 1,777% increase. The implementation of EIP-1559 in August 2021 introduced a base fee burn mechanism, permanently removing a portion of fees from circulation. At the time, it seemed Ethereum had finally solved the core problem of L1s not being able to earn money.

In reality, these fees were essentially "congestion fees": users paid $20 to $50 not because the transaction was worth that much, but because everyone was competing for block space, exceeding Ethereum's processing capacity of roughly 15 transactions per second (15 TPS). This inherent limitation left ample room for cheaper alternatives.

Other L1s like Solana, Avalanche, and BNB Chain offered transactions for pennies; Ethereum's L2 Rollups, such as Arbitrum and Optimism, captured significant volume—they processed transactions on their own networks and submitted compressed transaction batches back to the Ethereum mainnet for settlement, faster and cheaper.

Subsequently, Ethereum performed a "self-weakening." The Dencun upgrade on March 13, 2024, introduced Blob transactions (EIP-4844), providing L2s with a cheaper data publication path. Prior to this, L2s used calldata, costing about $1,000 per megabyte. Post-upgrade, Arbitrum's single transaction fee dropped from $0.37 to $0.012; Optimism's from $0.32 to $0.009. Median Blob fees nearly dropped to zero. Ethereum intended to retain users with this move but instead weakened its last significant fee revenue source.

The data is even more telling. In 2024, L2s generated $277 million in revenue but paid only $113 million to Ethereum. By 2025, L2 revenue fell to $129 million, while the amount flowing back to Ethereum was only about $10 million, less than 10% of L2 revenue, a year-over-year decline of over 90%. The once-monthly L1 fee revenue exceeding $100 million had fallen below $15 million by Q4 2025. The chain that generated $4.3 billion in revenue in a single quarter saw its revenue scale shrink by approximately 95% just four years later.

Bitcoin's revenue was compressed because people could obtain BTC without using the chain; Ethereum's revenue compression occurred in two waves: The first wave was alternative networks siphoning off users unwilling to pay high congestion fees; the second wave was Ethereum's own scaling plan, pushing the cost of L2 data transmission to near zero, making it impossible to earn from settlement anymore. In both cases, the L1 either built or allowed the tools that cannibalized its own revenue to emerge. 

Solana

Solana's revenue logic is entirely different from Bitcoin and Ethereum—it hardly earns fees from congestion. The base fee is fixed at 0.000005 SOL per signature, negligible. Approximately 95% of fee revenue comes from priority fees and MEV tips paid via the Jito block engine. In Q1 2025, Solana's "Real Economic Value" (REV) reached $816 million, with 55% from MEV tips. In 2024, validators earned roughly $1.2 billion, while operational costs were only about $70 million, indicating a substantial profit margin.

The key driver of Solana's fee explosion was memecoin trading. Pump.fun, launched in January 2024, generated over $600 million in protocol revenue in less than 18 months, contributing up to 99% of memecoin issuance at its peak. DEX daily volume once reached $38 billion. The launch of the TRUMP token in January 2025 drove single-day priority fees to 122,000 SOL and MEV tips to 98,120 SOL. In 2024, the top 1% of memecoin traders contributed $1.358 billion in fees, nearly 80% of total memecoin fees. Almost entirely MEV-driven.

Today, two types of innovations are compressing this revenue.

The first is proprietary AMMs. Protocols like HumidiFi, SolFi, Tessera, ZeroFi, and GoonFi employ private vaults managed by professional market makers, quoting internally and updating prices multiple times per second. Since liquidity is not publicly exposed, MEV bots cannot perform sandwich attacks. More critically, proprietary AMMs route orders through aggregators like Jupiter, actively choosing counterparties rather than passively exposing themselves in public pools to anyone willing to pay MEV tips. By keeping pricing private and continuously refreshing, they eliminate the "stale quote" problem—the source of much of Solana's MEV revenue. HumidiFi processed nearly $100 billion in volume in its first five months. Today, proprietary AMMs account for over 50% of Solana DEX volume, even higher for high-liquidity pairs like SOL/USDC.

The second is Hyperliquid migrating the most profitable spot trading activity directly off Solana. Using its self-developed HyperCore technology, it built a native bridging toolset, allowing tokens on Solana to be deposited onto Hyperliquid, withdrawn, and traded on its spot order book. When Pump.fun launched the PUMP token in July 2025, price discovery occurred on Hyperliquid, not Solana's DEXs, via HyperCore cross-chain bridging. Previously, Hyperliquid had tested this model with SOL itself and tokens like FARTCOIN—the phase of maximum spreads, volatility, and MEV profitability during initial price discovery is gradually moving off Solana.

These two approaches compress Solana's revenue from different angles: proprietary AMMs reduce MEV transactions remaining on Solana, while Hyperliquid migrates the most MEV-profitable spot trading off-chain. By Q2 2025, Solana's REV had dropped 54% quarter-over-quarter to $272 million; daily MEV tips were down over 90% from the January peak, to less than 10,000 SOL per day.

The pattern is the same as the previous two chains, just with a different revenue mechanism: Solana's fees are essentially short-term MEV profits earned during the initial, chaotic phase of new trading innovations. Once proprietary AMMs optimize trading efficiency and Hyperliquid siphons off high-value orders, these profits quickly shrink. The L1 can earn a windfall during market frenzies, but the market always quickly devises new ways to prevent such short-term gains from persisting.

Impact on Token Prices

The pattern exhibited by the three chains above is not merely a retrospective description; it is, to some extent, predictive. Every L1 fee mechanism follows the same trajectory: new demand brings a revenue peak, the peak attracts innovation, innovation compresses profits, and once this compression occurs, it is difficult to reverse. Following this logic, we can make broad judgments about the future of four tokens.

Ethereum: Persistent Fee "Collapse" 

Ethereum's fees have yet to find a clear bottom. In 2024, L2s paid $113 million to the Ethereum mainnet; by 2025, this plummeted to roughly $10 million, a drop of over 90%. Each new L2 further reduces demand for Ethereum mainnet block space, and Ethereum's own scaling plans continue to lower data transmission costs. EIP-4844 was not a one-time repricing but the starting point of a structural shift—Ethereum actively subsidizes infrastructure tools that route activity outside its fee market. Currently, monthly L1 fee revenue has fallen below $15 million, and the forces driving it down are still strengthening. If Ethereum cannot create entirely new sources of L1-native demand, token prices will continue to reflect this compression trend. ETH is increasingly resembling a low-yield infrastructure asset rather than the high-growth smart contract platform it once was. 

Solana: Record Activity, Not Necessarily Price 

Solana will almost certainly set new records for on-chain activity in the next cycle—its ecosystem is deep, developers are numerous, and infrastructure is mature—but fee revenue may not follow. The memecoin frenzy from late 2024 to early 2025 was Solana's "SegWit moment": a fee spike supported by new demand, quickly compressed by innovation.

Currently, proprietary AMMs handle over 50% of DEX volume, significantly weakening MEV. Hyperliquid's HyperCore technology continues to move the most profitable price discovery phase off-chain. Even if on-chain activity is 2 to 3 times higher than in January 2025, its fee system is now mature enough that it's difficult to convert this activity into corresponding validator revenue. Daily MEV tips are down over 90% from the peak, yet on-chain activity remains healthy. Without sufficient fee revenue to support valuation, even if Solana's usage hits new highs, the likelihood of SOL breaking its all-time high in the next cycle is not great.

Hyperliquid: The Front and Back End of the Boom-and-Compress Cycle 

Hyperliquid is the most noteworthy case because it represents the next stage of this "earn-and-get-compressed" cycle, and the market has not yet realized how the latter half of this cycle will play out.

Hyperliquid is now a leading decentralized exchange for traditional financial asset perpetual contracts (perps). During recent silver volatility peaks, markets deployed via HIP-3 captured about 2% of global silver trading volume, with median spreads for retail-sized trades even better than COMEX. At times, traditional financial instruments constitute about 30% of platform volume, with daily notional trading exceeding $5 billion. Platform revenue in 2025 was approximately $600 million, with 97% used for HYPE buybacks and burns.

We expect Hyperliquid to continue dominating TradFi asset perps trading. Its product indeed has advantages: commodities and stocks can trade 24/7, even when traditional markets are closed; new markets can be added via HIP-3 proposals without approval; it offers up to 20x leverage on assets where CME requires 18% initial margin. In the next bull market, if trading volume