Yes. Many investors and traders are selling Ethereum in part because Layer‑2 rollups currently capture most transaction activity and keep only a small share of fees on Ethereum’s base layer, which weakens ETH’s direct economic capture of network growth.[2][3]
Context and what “L2 fee sharing incentives” means
– Layer‑2 (L2) rollups are networks that process most user transactions off the Ethereum base layer (L1) and periodically settle summaries back to L1 to inherit Ethereum’s security.[1][3]
– “Fee sharing incentives” refers to mechanisms where L2 operators (sequencers, rollup teams) return some portion of the fees or revenue they earn back to Ethereum stakeholders (for example, ETH stakers, validators, or to burn ETH). If L2s return revenue to ETH holders, that channels economic value from L2 activity back into ETH demand and supply dynamics.[3]
Why L2 migration can create selling pressure on ETH
– Lower on‑chain fees reduce ETH burn and base‑layer revenue. As user activity migrates to L2s, fewer transactions are posted on L1, which lowers gas demand and the amount of ETH burned under EIP‑1559, weakening one of the narratives that supported ETH’s value proposition.[1][2][3]
– Economic capture shifts to sequencers and L2 token ecosystems. Many large L2s collect fees and build their own economic models; if most fee revenue stays with the L2 rather than being passed to ETH stakers or burned, ETH holders see less direct monetary benefit from ecosystem growth, which can turn investor expectations negative and prompt selling.[2][3]
– Perception of declining core revenue. Reports and market commentary in 2025 documented large drops in base‑layer fee revenue despite rising user metrics, fueling concern that Ethereum’s “platform” returns are decoupling from usage and that ETH may lose macro drivers of price appreciation.[2][3]
Empirical evidence and recent findings
– Studies show L2 adoption meaningfully reduces mainnet fees: a 10 percentage‑point increase in L2 posting activity is associated with roughly a 13 percent decline in median base fees within days, with effects persisting and restoring over weeks.[1]
– Market reports during 2025 documented that cumulative fee revenue flowing from L2s back to Ethereum was a small fraction of L2 revenues, and Ethereum’s base‑layer fee revenue fell sharply from multibillion figures toward much lower levels as activity concentrated on L2s.[2][7]
– Journalistic and market analysis linked part of ETH’s price weakness in 2025 to fee migration and ETF outflows, arguing that unless revenue sharing is adopted, ETH’s direct monetary link to on‑chain commerce remains weak.[3]
How weak L2 fee sharing creates a chain of effects that can lead to selling
– Step 1: Users migrate to L2s because fees and UX are lower. L2s process transactions cheaply and quickly compared with congested L1 blocks, so users and dapps move there.[1][3]
– Step 2: Base fees decline and burn falls. With fewer direct fee‑paying transactions on L1, gas usage and ETH burned per unit time drop, reducing a deflationary pressure some investors counted on.[1][3]
– Step 3: Revenue accrues to sequencers and L2 ecosystems. Sequencers or L2 treasury models capture fee revenue; if that revenue is not shared with ETH holders, the mainnet captures less economic value.[2][3]
– Step 4: Narrative and yield shifts. Lower fee revenue can reduce staking yields attributable to network fees and weaken narratives that ETH accrues value as usage grows, which can diminish investor demand for ETH and encourage selling.[2][3]
– Step 5: Market reaction. Reduced demand or increased expectations of lower future cash flows from Ethereum lead traders and long‑term holders to realize gains or cut exposure, contributing to downward price pressure.[2][3]
Counterarguments and factors that can limit selling pressure
– L2 growth also increases overall ecosystem value. Even if L1 captures fewer fees, broader adoption can make ETH more important as settlement collateral and for security; some investors argue long‑run demand for ETH could rise with more value secured by Ethereum.[1][7]
– Protocol-level changes and governance can restore capture. If major L2s adopt formal revenue sharing — returning a portion of sequencer fees to ETH stakers or burning ETH — that would reconnect L2 economic activity with ETH’s monetary supply dynamics and could reverse negative market sentiment.[3]
– Diversified value accrual channels. Not all valuation of ETH depends solely on gas burn; staking, liquid staking derivatives, collateral roles in DeFi, and institutional demand (ETFs) matter too. Those channels can offset lost fee capture to some extent.[2][7]
Examples of market responses and proposals
– Calls for revenue sharing: Analysts and commentators have pushed for L2s to adopt fee‑sharing or burn schemes so that rollup growth directly benefits ETH holders and strengthens staking economics.[3]
– L2-native experiments: Some L2 projects design on‑chain incentive structures that partially redistribute fees to users, liquidity providers, or governance treasuries; but most of those flows do not automatically increase ETH’s scarcity or staking returns unless explicitly routed to ETH holders or burned.[4][5]
– Protocol and ecosystem options: Possible approaches include voluntary transfers from L2 treasuries to ETH burn addresses, native coordination to share a percentage of fees with L1, or building services that require more L1 settlement for high‑value transfers to preserve fee capture.[3][5]
Which parts of the concern are empirical and which are interpretive
– Empirical: L2 adoption reduces mainnet fees in measurable ways; L2s in aggregate generated significant revenue while contributing only modest fee flows to L1 in 2025 reporting.[1][2][7]
– Interpretive: How much those revenue changes should affect ETH’s market price depends on investor horizons, expectations of governance fixes, the speed and scale of protocol changes, and macro liquidity conditions; these elements are inherently forward‑looking and debated among market participants.[2][3]
What would change investor behavior
– If large L2s implement formal revenue‑sharing mechanisms that route meaningful fee fractions to ETH stakers or to ETH burn, the direct economic case for holding ETH strengthens and selling pressure tied to fee capture concerns would likely lessen.[3]
– If L2s continue to withhold most fee revenue and market participants expect persistent low base‑layer fee revenue, selling pressure may persist until other demand channels (ETF inflows, DeFi use, staking yield) compensate.[2][3]
Practical indicators to monitor going forward
– Aggregate base‑layer fee revenue and ETH burn rate: sudden upticks or sustained declines signal changes in value capture.[1][2]
– L2 revenue reporting and public proposals for fee sharing: announcements by Arbitrum, Optimism, Base, and other large rollups about revenue‑sharing or treasuries moving funds back to ETH are critical.[3][7]
– Staking yield composition: how much of