Dencun slashes gas fees as Ethereum users double

Following Ethereum’s March 2024 Dencun upgrade, weekly network fee revenue dropped from more than $200 million to roughly $10 million while monthly active users roughly doubled, according to research from CoinShares.

The CoinShares report divides ether’s value into two parts. The first is a cash-flow model that projects fee revenue across eight activity categories. The second is a “monetary premium” that reflects ether’s role as the primary collateral and settlement asset for the largest smart-contract platform.

Using both components, CoinShares’ base-case forecast places ether at $4,935 by 2031, an annualized return of about 16% from current spot prices. The report’s bull scenario projects ether at $14,135 by 2031 and models a global stablecoin supply rising to about $2.8 trillion.

Under the cash-flow model, decentralized exchange trading is the single largest source of fee revenue, followed by stablecoin transfers. The report notes Ethereum currently holds about 52% of global stablecoin supply, above $300 billion in circulation.

CoinShares models three outcomes for Ethereum’s share of global decentralized exchange volume: a bear case of 11%, a base case of 20%, and a bull case of 35%.

The research documents recent increases in Ethereum’s processing capacity. The protocol’s gas limit rose from 30 million to 60 million over the past year. A planned upgrade nicknamed Glamsterdam, scheduled for the third quarter of 2026, could raise the gas limit to around 200 million and introduce parallel transaction processing, a potential 3.3x increase in throughput.

The report cautions that higher capacity and lower per-transaction fees do not automatically translate to lower total fee revenue. CoinShares invokes the Jevons paradox, explaining that cheaper use of a resource can increase overall consumption if new use cases and transaction volume grow.

The monetary premium component rests on six structural demand sources, including inflows to exchange-traded products. The base-case projection assumes annual ETF inflows of $25 billion by 2031.

Luke Nolan, senior Ethereum research associate at CoinShares, wrote that the market struggles to price ether when it is treated only as a single asset rather than a combination of transaction-fee cash flows and a monetary premium tied to collateral and settlement demand.

The report references CoinShares’ own Bitcoin and Ether ETF (BTF), which at the time of the research held $14.5 million in assets under management and carried a 1.27% expense ratio. CoinShares assigns the highest probability to outcomes between its base and bull scenarios and states that future fee revenue will depend on how much activity shifts to Ethereum, whether new use cases arise from increased capacity, and how monetary demand for ether evolves through institutional products and collateral needs.