It's 2026, how should we reasonably assess the market value of L1?
Author: Pine Analytics
Compiled by: Ken, Chaincatcher
Core Argument
Layer 1 public chains (L1) cannot sustainably and massively generate stable fee income over the long term. From transaction fees to maximum extractable value (MEV), every major source of income they have previously generated is systematically arbitraged and depleted by participants within the ecosystem. This is not an execution issue of any particular public chain, but rather a structural characteristic of open permissionless networks: once the revenue scale of an L1 becomes substantial enough, competitive forces in the market will squeeze or even eliminate that portion of revenue through new models.
Bitcoin, Ethereum, and Solana are the three most successful networks in the crypto industry. Despite handling asset flows worth tens of billions, they all follow the same trajectory: fee income initially experiences explosive growth, attracting market attention, only to be continuously siphoned off by layer 2 networks, private order flows, MEV-aware routing, or application layer innovations. This pattern has recurred in every evolution of mainstream fee mechanisms, MEV structures, and scaling paradigms in the history of the crypto industry, and there are no signs of it slowing down.
This article argues that the compression of L1 fees is permanent and accelerating. It will break down the specific new models that compress L1 profit margins at various stages and analyze the impact of this trend on L1 tokens that still incorporate long-term fee-generating capabilities into their valuations.
Bitcoin
Bitcoin's fee income is almost entirely derived from congestion caused by on-chain demand. With no smart contracts, MEV essentially does not exist. The problem is that whenever Bitcoin's price rises, driving its fees to soar, the increase in fees tends to diminish sequentially despite the increase in economic activity.
In 2017, Bitcoin's price skyrocketed from $4,000 to $20,000, a fivefold increase. Average fees rose from below $0.40 to over $50. At the peak on December 22, fees accounted for 78% of miners' total block rewards: approximately 7,268 Bitcoins, nearly four times the block subsidy. However, this good fortune was short-lived, as fees plummeted by 97% within three months.
The market reacted swiftly. By early 2018, the adoption rate of Segregated Witness (SegWit) was only 9%, rising to 36% by mid-year; despite such transactions accounting for over a third, they contributed only 16% of the total fees across the network. Exchanges adopted batching techniques, merging hundreds of withdrawals into a single transaction. These measures collectively reduced fees by 98% within six months. The Lightning Network was launched in early 2018. Other chains wrapped BTC, allowing users to gain exposure to Bitcoin assets without interacting with the base layer.
By the peak in 2021, despite Bitcoin's price reaching $64,000, monthly fees were lower than in 2017. The number of transactions was even lower. However, the transaction volume in dollar terms was 2.6 times higher than before. The value transferred on the network was greater, but the fees collected remained flat or even lower.
The current cycle makes this trend undeniable. Bitcoin's price soared from $25,000 to over $100,000, a fourfold increase. However, standard transfer fees never surged as they did in previous cycles. By the end of 2025, transaction fees had dropped to about $300,000 per day, less than 1% of miners' income. Bitcoin's total fee revenue in 2024 was $922 million, but primarily came from Ordinals and Runes activities, rather than traditional transfer business.
By mid-2025, spot Bitcoin ETFs had accumulated over 1.29 million Bitcoins (about 6% of the total supply), meeting the market's huge demand for 'zero on-chain fee' Bitcoin exposure. The demand for users to interact with the main chain to obtain Bitcoin assets has essentially been eliminated.
In April 2024, the fees from Ordinals and Runes surged, temporarily pushing miners' income to 50%, but as trading tools matured, that proportion fell back to below 1% by mid-2025. Such income is essentially closer to MEV rather than congestion premium: it stems from early inefficiencies and frictions in new asset infrastructure, rather than genuine demand for Bitcoin's settlement functionality.
This pattern repeats itself: whenever Bitcoin's fee income reaches a substantial scale, the ecosystem builds low-cost alternatives. L1 can only capture a one-time fee spike from each wave of new demand, subsequently facing profit compression from innovations.
Ethereum
The fee evolution of Ethereum is even more dramatic: it successfully captured enormous value, only to witness its value moat systematically dismantled.
The DeFi Summer of mid-2020 established Ethereum as the core of the new financial system. Uniswap's monthly trading volume surged from $169 million in April to $15 billion in September; during the same period, TVL (Total Value Locked) skyrocketed from less than $1 billion at the beginning of the year to $15 billion by year-end.
In September 2020, Ethereum miners achieved a record $166 million in fee income, six times that of Bitcoin miners during the same period. This marked the first time a smart contract platform generated scalable and sustainable cash flow based on real economic activity.
In 2021, the NFT craze combined with the DeFi boom to create a synergistic effect, pushing average transaction fees up to $53 at one point. Quarterly fee income soared from $231 million in Q4 2020 to $4.3 billion in Q4 2021, a year-on-year increase of 1,777%. The EIP-1559 implemented in August of the same year introduced a base fee burn mechanism, permanently removing this portion of income from the circulating supply. At this point, it seemed that Ethereum had perfectly solved the value capture problem of public chains.
However, fees are calculated based on congestion. Users pay high fees not because they are reasonable execution costs, but because demand exceeds the chain's capacity of about 15 transactions per second. This creates a significant incentive for cheaper alternatives.
Alternative L1s like Solana, Avalanche, and Binance Smart Chain offer extremely low-cost execution. Layer 2 solutions like Arbitrum and Optimism absorb activity, executing on their own chains and sending compressed batch data back to Ethereum.
Subsequently, Ethereum initiated a self-revolution. The Cancun upgrade on March 13, 2024, introduced Blob transactions (EIP-4844), providing a cheaper data publishing solution for L2. Before Blob, L2 used call data, costing about $1,000 per megabyte.
After the upgrade: Arbitrum's transaction fees dropped from $0.37 to $0.012. Optimism's fees fell from $0.32 to $0.009. The median Blob fee is nearly zero. Ethereum established a dedicated low-cost channel to retain users, thus losing an important source of fee income.
The data is as follows: in 2024, L2 generated $277 million in revenue but paid only $113 million to Ethereum. By 2025, L2 revenue fell to $129 million, but the amount paid to Ethereum plummeted to about $10 million, less than 10% of L2 revenue, a year-on-year decline of over 90%. Once averaging over $100 million per month, L1 fee income dropped below $15 million in Q4 2025. This blockchain, which once generated $4.3 billion in a single quarter, saw its revenue shrink by 95% just four years later.
The compression in Bitcoin stems from users turning to off-chain methods to hold and use assets. Ethereum's compression occurs in two waves: first, alternative layer networks siphoned off users unwilling to bear high congestion costs; then Ethereum's own scaling roadmap further drove down L2 data availability costs to near zero, completely undermining the ability of the layer 1 public chain to profit from settlement business. The commonality in both situations is that the infrastructure built or supported by L1 ultimately erodes its own sources of income.
Solana
Solana's fee structure is entirely different, charging almost no congestion fees. The base fee is a fixed 0.000005 SOL per signature, essentially zero. Instead, about 95% of fee income comes from priority fees and MEV tips paid through the Jito block engine. In Q1 2025, Solana's actual economic value reached $816 million, of which 55% came from MEV tips. Validation nodes are expected to achieve $1.2 billion in revenue in 2024, with costs only at $70 million.
The driving force behind all this is meme coin trading. Pump.fun launched in January 2024, generating over $600 million in protocol revenue in less than 18 months, capturing as much as 99% of meme coin issuance at its peak. Its decentralized exchange's daily trading volume peaked at $38 billion.
In January 2025, the issuance of the TRUMP token pushed priority fees to 122,000 SOL in a single day, and MEV tips soared to 98,120 SOL. In 2024, the top 1% of meme coin traders contributed $1.358 billion in fees, accounting for nearly 80% of total meme coin fees, with this income almost entirely driven by MEV.
Now, two innovations are compressing this income.
First: the rise of private market maker models.
Protocols like HumidiFi, SolFi, Tessera, ZeroFi, and GoonFi utilize privately managed liquidity pools by professional market makers, who quote internally and update prices multiple times per second. Since liquidity is not visible to public pools, MEV bots cannot execute "sandwich attacks" on trades.
The key is that private market makers can actively filter counterparties (e.g., by receiving routed quotes through aggregators like Jupiter), rather than passively remaining in public liquidity pools, allowing others to arbitrage by paying MEV tips or exploiting lagging quotes.
By keeping quotes private and continuously refreshing them, these solutions fundamentally eliminate the order lag issue that generates the vast majority of Solana's MEV income. Just the HumidiFi product alone accumulated nearly $100 billion in trading volume in its first five months. Currently, private market makers account for over 50% of Solana's decentralized exchange trading volume, and this proportion is even higher in high liquidity trading pairs like SOL/USDC.
Second: Hyperliquid is directly siphoning high-value spot trading away from Solana.
Using HyperCore technology, Hyperliquid has built a native cross-chain infrastructure that supports tokens originating from Solana to deposit, withdraw, and trade on its spot order book. When Pump.fun issued the PUMP token in July 2025, the core spot price discovery occurred on Hyperliquid rather than on decentralized exchanges within the Solana ecosystem, with funds completing cross-chain transactions via HyperCore.
Prior to this, Hyperliquid had already validated this model with tokens like SOL and FARTCOIN. Now, the initial pricing phase, which has the highest spreads, volatility, and MEV arbitrage opportunities, is gradually migrating away from the Solana main chain.
These two forces compress MEV earnings from different directions: private market makers reduce the MEV generated by exchanges remaining on Solana; Hyperliquid directly withdraws high MEV value spot trading altogether. By Q2 2025, Solana's actual economic value had significantly declined by 54%, dropping to $272 million; daily MEV tips plummeted over 90% from the January peak, falling to less than 10,000 SOL per day.
The model is similar, but the mechanisms are different. Solana's fee income is essentially MEV value captured during the chaotic early stages of emerging trading models. As private market makers optimize trade execution and Hyperliquid siphons off high-value order flows, this profit margin continues to compress. Although the layer 1 public chain captured enormous value during market frenzy, the market itself is continuously building new tools that make such value extraction difficult to sustain in the long term.
Impact on Token Prices
The patterns exhibited by these three public chains are not only a review of history but also a prediction of the future. The L1 fee mechanism follows the same trajectory: new demand triggers a surge in fees, which in turn induces innovation, and innovation compresses fees, with this compression being an irreversible structural change. Based on this framework, we can make specific predictions about the future prospects of four tokens.
Ethereum: Continuous Internal Competition of Fees
Ethereum's fee trajectory shows no obvious lower limit. Fees paid by L2 to Ethereum plummeted from $113 million in 2024 to about $10 million in 2025, a decline of over 90%. Every new L2 further siphons off block space demand, while the protocol's own roadmap continues to drive down data availability costs.
EIP-4844 is not a one-time repricing but the beginning of a structural transformation—namely, Ethereum intentionally subsidizing the infrastructure that diverts its fee income. Currently, monthly L1 fee income has fallen below $15 million, and the downward trend is accelerating. Unless Ethereum can discover entirely new sources of L1 native demand, the token price will reflect this ongoing value compression.
The market trend for ETH has exhibited characteristics of a "low-yield infrastructure asset" rather than a "high-growth smart contract platform."
Solana: High Activity or Innovation, but Difficult to Achieve New Price Highs
Solana is almost certain to set new activity highs in the next cycle. Its ecosystem is thriving, developer momentum is strong, and infrastructure robustness is unprecedented. However, fee growth is unlikely to keep pace. The meme coin frenzy from late 2024 to early 2025 is Solana's "SegWit moment": after a significant surge in fees from new demand, rapidly emerging innovations directly compress profit margins.
Private market makers accounted for over 50% of DEX trading volume, eliminating most MEV arbitrage opportunities; Hyperliquid's HyperCore is shifting high-profit price discovery off-chain. Even if activity reaches 2-3 times that of January 2025, the mature fee infrastructure prevents it from translating into equivalent validator income. Despite a healthy ecosystem, daily MEV tips have dropped over 90% from their peak.
Without fee income to support higher valuations, even with increased usage, SOL is unlikely to break historical highs in the next cycle.
Hyperliquid: Under Prosperity, Fee Rates Under Pressure
Hyperliquid is the most noteworthy case in this cycle, representing the next phase of the cycle, but the market has yet to price in its potential risks.
Hyperliquid has established its dominance in the perpetual contract space for traditional financial (TradFi) assets. During the recent volatility in silver prices, markets deployed through HIP-3 captured about 2% of global silver trading volume, with retail median spreads outperforming the Chicago Mercantile Exchange (CME). During specific periods, TradFi assets contributed about 30% of platform trading volume, with daily nominal value exceeding $5 billion. The platform's revenue for 2025 is projected to be around $600 million, of which 97% is allocated for the buyback and destruction of HYPE tokens.
We expect Hyperliquid to continue dominating on-chain trading of TradFi assets. Its product-market fit is clearly visible: around-the-clock trading, permissionless market deployment, and leverage of up to 20 times (CME requires 18% initial margin). As the bull market enters, the dual growth of activity and fees may drive HYPE to achieve a repricing similar to Solana's rebound from the bottom. If TradFi trading volume continues to grow, HYPE may replicate this trajectory, with investors easily extrapolating future valuations based on massive quarterly revenues.
However, its fee model harbors the risk of self-compressing fee rates. The platform charges a base fee of 4.5 basis points on nominal value and offers discounts of up to 40% for high trading volume and staking users. This is in stark contrast to the pricing logic of traditional financial derivatives. For example, for a $10 million nominal value position: CME fees are about $2.50; Hyperliquid fees are about $4,500. The difference is approximately 1,800 times.
This price disparity exists because current users are primarily retail and crypto-native groups. However, as institutions enter the market, the pressure to align with CME rates will increase significantly. Hyperliquid's own fee schedule has already shown signs: the HIP-3 model has reduced Taker fees for new markets by over 90% (down to 0.0045%), with top trader rates even below 0.0015%. The protocol is caught in a race against its own fee compression.
Whether losing to cheaper competitors or being forced to switch to a fixed fee model, both scenarios mean that investors' linear extrapolations of revenue expectations will not materialize, leading to a rapid revaluation of the token.
Bitcoin: Price Dominates Fees
Among the four, Bitcoin stands out with a completely opposite logical relationship between fees and token price. For ETH, SOL, and HYPE, the logic is: fees generate income → income supports valuation → fee compression leads to price pressure. In contrast, Bitcoin's logic is inverted: miners rely on significant appreciation in token price to maintain profitability post-halving, as fee income has proven insufficient to fill the gap left by the halving of block subsidies.
The 2024 halving will cut block rewards in half, reducing daily issuance to 450 BTC. By the end of 2025, average daily transaction fees will drop to about $300,000, less than 1% of total miner income. Although total fee income in 2024 reached $922 million, it primarily stemmed from speculative activities around Ordinals and Runes, rather than sustainable native transfer demand.
Due to the negligible contribution of fees, miners rely almost entirely on the block subsidies that halve every four years (in BTC terms). To maintain profitability through each halving, Bitcoin's price must roughly double within the same cycle to offset the halving of BTC-denominated income.
Historically, this has been the case, but the foundation is not solid. The chain's security budget does not derive from network usage fees but relies on the continuous appreciation of the asset itself. If the token price stagnates during the halving cycle, mining will become unprofitable, leading to a decrease in hash power and security, potentially triggering a negative feedback spiral.
This makes Bitcoin's sustainability more fragile than it appears. Bitcoin operates primarily as a monetary asset rather than a smart contract platform, allowing its price to dominate the fee logic. This endows Bitcoin with a unique mechanism: price increases driven by monetary demand can fund network security even when fees are negligible. However, this also means that its long-term security is entirely maintained through the uncertain assumption of "continuous price appreciation."
As a secure settlement layer, Bitcoin's viability does not depend on building applications that generate fees but on maintaining a narrative that can continuously drive asset demand. So far, it has been effective. However, as block subsidies decrease exponentially, whether this model can persist through the next three or four halvings remains the biggest unsolved mystery in the crypto space.
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