This article is from Pine Analytics Compiled by Odaily (@OdailyChina); Translated by Ethan (@ethanzhang_web3) Editor's Note: In the past few years, the crypto market once believed that transaction fee revenue from L1 public chains was the core cash flow supporting token valuations. However, this study uses on-chain data to reveal a different fact: whether it's Bitcoin's congestion cycles, Ethereum's DeFi and NFT booms, or Solana's memecoin frenzy, all fee booms are ultimately compressed by innovation. Demand surges lead to revenue peaks, which in turn stimulate the emergence of alternatives, systematically squeezing out profits. The compression of L1 value capture is not a cyclical phenomenon, but a structural result of open networks. The market in 2026 will no longer simply price L1 based on "fee capture." The price drivers for ETH and SOL are shifting from L1 fee logic to staking rewards, ETF fund flows, RWA narratives, protocol upgrade expectations, and the macro liquidity environment. The compression trend continues, but the pricing anchor has shifted. The real question isn't just whether transaction fees will continue to decline, but rather: when the market stops pricing L1 based on "on-chain profits" and instead uses "asset narratives" and "structured cash flows," is this new logic equally fragile? And when the narratives fade, what fundamental support will the price revert to? In the stage of large-scale development, L1 blockchains struggle to consistently and stably earn transaction fees. Every major revenue stream they've found—from transaction fees to MEVs—will eventually be gradually eroded by their users through various arbitrage methods. This isn't because any particular chain is bad, but rather an inherent characteristic of open, permissionless networks: once L1 earns a certain amount from transaction fees, transaction stakeholders will devise new ways to compress or even eliminate this revenue. Bitcoin, Ethereum, and Solana are among the most successful networks in the crypto space. Interestingly, despite processing billions of dollars in value flows daily, these three tokens have followed almost identical paths: a sudden surge in transaction fee revenue attracts everyone's attention, only to be quickly overtaken by L2 (Layer 2 networks), private order flows, routing tools aware of MEVs, or new application-layer features, which then steal the business and share the revenue. This phenomenon repeats itself in every transaction fee model, every MEV fluctuation, and every scaling solution in the crypto industry, with no signs of slowing down. This article argues that L1 fee compression is a long-term and accelerating trend. This article will outline the specific innovative approaches that compress profits at different stages and explore what this means for L1 tokens that still include "continuously earning money from transaction fees" in their valuations. Bitcoin Bitcoin's transaction fees are almost entirely generated by the congestion during on-chain BTC transfers—everyone is rushing to transfer, naturally driving up fees. Furthermore, because Bitcoin lacks smart contracts, there are virtually no MEVs on the network. The key issue is that each time the price of Bitcoin (BTC) surges, leading to a spike in transaction fees, the increase in fees is significantly weaker than in the previous cycle, relative to the scale of economic activity at the time. In 2017, BTC rose from $4,000 to $20,000. Average transaction fees also soared from less than $0.40 to over $50. At its peak on December 22nd, transaction fees accounted for 78% of miners' block rewards: approximately 7,268 BTC in fees alone, nearly four times the block reward. However, in just three months, transaction fees plummeted by 97%, returning to their original levels. The market reacted remarkably quickly, and solutions were soon developed. At the beginning of 2018, SegWit transactions accounted for only 9%, rising to 36% by mid-year; although these transactions comprised more than a third of the total transaction volume, they contributed only 16% of transaction fees. Exchanges also began using batch processing, merging hundreds of withdrawals into a single transaction, significantly reducing fees. These factors combined resulted in a 98% drop in fees within six months. Furthermore, the Lightning Network officially launched in early 2018, specifically addressing the fee issue for small transactions; Wrapped BTC on other chains also allowed users to hold BTC exposure without having to operate on the Bitcoin mainnet. By the time BTC price peaked in 2021, reaching $64,000, monthly transaction fee revenue was actually lower than in 2017. At that time, there were fewer on-chain transactions, but the scale of USD-denominated transfers was 2.6 times higher than in 2017—simply put, there were more network transfers, but the earned transaction fees didn't keep up, and were even lower. The current cycle further illustrates that this trend is unstoppable. BTC surged from $25,000 to over $100,000, a roughly threefold increase (the original text states fourfold, slightly adjusted for the actual price range, but the meaning remains the same), but standard transaction fees never saw the explosive growth of previous rounds. By the end of 2025, daily transaction fees were only around $300,000, less than 1% of miners' total revenue. In 2024, Bitcoin's total transaction fees reached $922 million, but most of this came from the short-term hype surrounding Ordinals and Runes, not the 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 the market with substantial BTC exposure without generating any on-chain fees. The on-chain interactions required to acquire Bitcoin assets...This has been largely removed through engineering. Ordinals and Runes once pushed transaction fees to 50% of miners' revenue in April 2024, but as related tools matured, this percentage fell back below 1% by mid-2025. This short-term surge was more like a windfall from MEV (Metal Equity Virtual Chain), not a stable income from congestion, but rather stemmed from an immature tool system surrounding new assets rather than a genuine demand for BTC settlement. The pattern is quite clear: as long as Bitcoin earns enough and conspicuously from transaction fees, cheaper alternatives will emerge in the ecosystem. L1 can only earn a short-term fee peak from each demand, after which this profit will be slowly eroded by continuous innovation. Ethereum Ethereum's fee story is even more dramatic. This chain once truly captured enormous value, only to witness its systemic dismantling. In mid-2020, the "DeFi Summer" made Ethereum the center of a new financial system. Uniswap's monthly transaction volume surged from $169 million in April to $15 billion in September. TVL (Transaction Value Limit) grew from less than $1 billion to $15 billion by the end of the year. In September 2020, Ethereum miners' fee revenue reached a record $166 million, six times that of Bitcoin miners. This marked the first time a smart contract platform earned a consistent and substantial income from real-world economic activity. In 2021, NFTs were superimposed on DeFi. Average transaction fees peaked at $53. Quarterly fee revenue grew from $231 million in Q4 2020 to $4.3 billion in Q4 2021, an increase of 1,777%. EIP-1559, implemented in August 2021, introduced a basic fee burning mechanism, permanently removing a portion of fees from the market. At that time, it seemed Ethereum had truly solved the core problem of L1's inability to generate revenue. In reality, these fees are essentially "congestion fees": users pay $20 to $50 not because the transaction itself is worth that much, but because everyone is crowding onto the chain, exceeding Ethereum's processing capacity of approximately 15 transactions per second (15 TPS). This inherent limitation also creates ample room for cheaper alternatives. Other L1 services like Solana, Avalanche, and BNB Chain offer transaction services for just a few cents; Ethereum's L2 Rollups, such as Arbitrum and Optimism, have taken a significant share of the business—they process transactions on their own networks and then send compressed batches back to the Ethereum mainnet for settlement, making it both fast and cheap. Subsequently, Ethereum underwent a "self-weakening." The Dencun upgrade on March 13, 2024, introduced Blob transactions (EIP-4844), providing a cheaper data publishing path for L2. Before this, L2 used calldata, costing approximately $1,000 per megabyte. After the upgrade, Arbitrum's single transaction fee dropped from $0.37 to $0.012; Optimism's dropped from $0.32 to $0.009. Blob's median fee nearly disappeared. Ethereum had hoped to retain users with this, but instead, it weakened its last major source of fee revenue. The data makes this even clearer. In 2024, L2 generated $277 million in revenue, but only $113 million was paid back to Ethereum. By 2025, L2 revenue had fallen to $129 million, while only about $10 million flowed back to Ethereum, less than 10% of L2 revenue, a year-on-year decrease of over 90%. L1 fee revenue, which once averaged over $100 million per month, had fallen below $15 million by the fourth quarter of 2025. This chain, which generated $4.3 billion in revenue in a single quarter, had shrunk by approximately 95% in just four years. Bitcoin's revenue was compressed because people could obtain BTC without being on-chain; Ethereum's revenue was compressed in two waves: the first wave came from other alternative networks, which siphoned off users unwilling to pay high congestion fees; the second wave came from Ethereum's own scaling plans, which reduced the cost of L2 data transmission to almost zero, making it impossible for Ethereum to profit from settlements. In either case, L1 either built its own infrastructure or allowed tools that would steal its revenue to emerge. Solana Solana's revenue model is completely different from Bitcoin and Ethereum—it almost entirely avoids relying on congestion fees. The base fee is a fixed 0.000005 SOL per signature, so cheap it's almost negligible. Approximately 95% of its fee revenue comes from priority fees and MEV tips paid through the Jito block engine. In the first quarter of 2025, Solana's Real Economic Value (REV) reached $816 million, with 55% coming from MEV tips. In 2024, validators were projected to earn around $1.2 billion, while operating costs were only about $70 million, indicating a substantial profit margin. The key to Solana's fee surge was memecoin trading. Pump.fun, launched in January 2024, earned over $600 million in protocol revenue in less than 18 months, at its peak contributing a staggering 99% of memecoin issuance. Its DEX daily trading volume once reached $38 billion. The launch of the Trump token in January 2025 caused daily priority fees to soar to $122.000 SOL, MEV tips reached 98,120 SOL. In 2024, the top 1% of memecoin traders contributed $1.358 billion in fees, accounting for nearly 80% of total memecoin fees. Almost entirely driven by MEV. Currently, two types of innovation are squeezing this revenue. The first is proprietary AMMs. Protocols like HumidiFi, SolFi, Tessera, ZeroFi, and GoonFi use private vaults managed by professional market makers, quoting prices internally and updating them multiple times per second. Because liquidity is not publicly disclosed, MEV bots cannot engage in squeeze trading. More importantly, proprietary AMMs route orders through aggregators like Jupiter, actively selecting counterparties, rather than passively exposing themselves to any participant willing to pay MEV tips like public pools. By keeping pricing private and continuously refreshed, they eliminate the problem of "stale quotes"—the source of Solana's substantial MEV revenue. HumidiFi processed nearly $100 billion in trading volume in its first five months after launch. Today, proprietary AMMs account for over 50% of Solana DEX trading volume, with an even higher share in high-liquidity trading pairs like SOL/USDC. The second type involves Hyperliquid directly migrating its most profitable spot trading activity off Solana. Leveraging its self-developed HyperCore technology, it created a native bridging tool that allows tokens on Solana to be deposited into, withdrawn from, and traded on its spot order book. When Pump.fun launched its PUMP token in July 2025, pricing was done on Hyperliquid, not Solana's DEX, using HyperCore for cross-chain bridging. Prior to this, Hyperliquid had already tested this model on SOL itself and tokens like FARTCOIN—the period when prices first emerged, with the largest price differences, the most volatile trading, and the easiest time to earn MEV, had gradually moved these transactions off-chain from Solana. These two approaches compressed Solana's revenue in two ways: the proprietary AMM reduced the MEV transactions remaining on Solana, while Hyperliquid moved the most profitable spot trading off-chain. By the second quarter of 2025, Solana's REV had decreased by 54% compared to the previous quarter, leaving only $272 million; daily MEV tips had dropped by more than 90% from the January peak, falling to less than 10,000 SOL per day. The underlying pattern is the same as the previous two chains, only the way they generate revenue differs: Solana's transaction fees are essentially short-term profits earned from MEV during the initial, somewhat chaotic period of new trading methods. Once proprietary AMMs optimized transaction efficiency, Hyperliquid absorbed high-value orders, and this profit quickly shrank. L1 can generate substantial profits during market frenzies, but the market always quickly devises new methods to prevent such short-term gains from lasting. Impact on Token Prices The patterns presented by the three chains mentioned above are not merely hindsight; they also possess a degree of foresight. Each L1 fee mechanism follows the same trajectory: new demand leads to revenue peaks, peaks attract innovation, innovation compresses profits, and once this compression occurs, it is difficult to reverse. Following this line of thought, we can make a general judgment about the future of the four tokens. Ethereum: Continuous Fee "Collapse" Ethereum's fees have not yet seen a clear bottom. In 2024, L2 contributed $113 million to the Ethereum mainnet; by 2025, this had plummeted to approximately $10 million, a drop of over 90%. With each new L2 scalar, the demand for Ethereum mainnet block space decreases, and Ethereum's own scaling plans are continuously reducing data transmission costs. EIP-4844 is not a one-time repricing, but the starting point of a structural shift—Ethereum actively subsidizes infrastructure tools outside its fee market. Currently, monthly L1 fee revenue has fallen below $15 million, and the downward pressure is increasing. If Ethereum cannot create new sources of native L1 demand, the token price 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 High Activity, Price Not Necessarily Guaranteed Solana will almost certainly set a new record for on-chain activity in the next cycle—its ecosystem is deep, its developers are numerous, and its infrastructure is mature—but fee revenue may not necessarily follow suit. The memecoin frenzy of late 2024 and early 2025 was, for Solana, equivalent to Bitcoin's "SegWit moment": a surge in fees driven by new demand, quickly compressed by innovation. Currently, proprietary AMMs handle over 50% of DEX trading volume, significantly eroding MEV. Hyperliquid's HyperCore technology is moving the most profitable pricing off-chain. Even if on-chain activity is 2 to 3 times higher than in January 2025, its fee system is already mature enough to make it difficult to convert this activity into corresponding validator revenue. Daily MEV tips are currently down over 90% from their peak, but on-chain activity remains healthy. Without sufficient fee revenue to support its valuation, even if Solana's usage reaches new highs...SOL is unlikely to break its all-time high in the next cycle. Hyperliquid: The Boom and Bust Phases of Compression Hyperliquid is a case in point because it represents the next phase of this "profit-compression" cycle, and the market hasn't yet realized what the latter half of this cycle will look like. Hyperliquid is now a leading decentralized exchange for trading perpetual contracts (perps) of traditional financial assets. During the recent peak in silver volatility, the HIP-3-deployed market captured approximately 2% of global silver trading volume, with median spreads for retail-scale trading even outperforming COMEX. At certain times, traditional financial instruments accounted for about 30% of the platform's trading volume, with daily notional trading volume exceeding $5 billion. The platform's revenue is projected to reach approximately $600 million in 2025, with 97% used for HYPE buybacks and burns. We expect Hyperliquid to continue dominating perpetual contract trading for TradFi assets. Its products do have advantages: commodities and stocks can be traded 24/7, even when traditional markets are closed; new trading markets can be added without approval through the HIP-3 proposal; and it offers leverage of up to 20x on assets for which the CME requires an 18% initial margin. In the next bull market, if trading volume and fees continue to rise, the HYPE token may be repriced, similar to Solana's rebound from its bear market lows. If trading volume in traditional financial assets continues to expand, HYPE will likely follow a similar path. Investors may predict its future profitability based on high revenue in a particular quarter. However, Hyperliquid's fee model has sown the seeds of compression. The platform charges takers a 4.5 basis point notional value fee, offering discounts of up to 40% based on trading volume and staking. This is drastically different from the pricing logic of traditional financial derivatives. On CME, the exchange fee for an E-mini S&P 500 contract is approximately $1.33 one-way, which is negligible compared to the notional value of over $275,000, amounting to less than 0.001 basis points. For a notional position of $10 million: CME fees are approximately $2.50, while Hyperliquid fees are $4,500, a difference of approximately 1,800 times. This price difference exists because Hyperliquid's current user base is primarily retail and crypto-native. However, TradFi's perpetual products will bring TradFi's future potential. As trading volume increases and institutional participants enter, the pressure to align with a CME-style economic model will significantly intensify. Hyperliquid's own fee structure already reveals this direction: the HIP-3 growth model reduces taker fees in new markets by over 90%, as low as 0.0045%; top traders even see rates below 0.0015%. The protocol is actively pushing for fee reduction. Competitive perpetual DEXs, and traditional exchanges offering on-chain products in the future, will further accelerate this process. Ultimately, there are only two possible outcomes: either Hyperliquid loses trading volume due to high fees, or it changes its fee structure to a fixed-fee model similar to CME. Regardless, the long-term high returns currently anticipated by investors are unlikely to materialize, and the HYPE token price may decline rapidly. Bitcoin: Price Must Rise Before Fee Growth Of these four assets, Bitcoin is the most unique because the logical relationship between its fees and token price is inverse. For Ethereum, Solana, and Hyperliquid, the logic is: fees generate revenue, revenue supports valuation, and fee compression leads to a price drop. But Bitcoin is different; the logic is reversed. Miners must rely on a continuously rising price to survive after each block reward halving—because fee revenue has proven insufficient to fill the gap caused by reduced block subsidies. The 2024 halving reduced the block reward from 6.25 BTC to 3.125 BTC, and the daily issuance decreased from 900 BTC to 450 BTC. By the end of 2025, the average daily transaction fee was approximately $300,000, accounting for less than 1% of miners' total revenue. Although Bitcoin's total transaction fee revenue reached $922 million in 2024, most of this came from temporary peaks in Ordinals and Runes, rather than sustainable natural demand for fees. Currently, the contribution of transaction fees is almost negligible, and miners' revenue relies almost entirely on block subsidies, which halve every four years and are denominated in BTC. The only way for miners to remain profitable during a halving cycle is for the USD price of Bitcoin to roughly double within a similar timeframe, thus offsetting the 50% reduction in BTC-denominated revenue. Historically, this condition has held true. However, this foundation is extremely fragile. The chain's security budget is not funded by usage but by a sustained increase in asset prices. If, during a halving, the price of Bitcoin stops rising, mining will become unprofitable, hashrate will decrease, and network security will be affected, potentially leading to a vicious cycle of "falling price → decreasing hashrate → poor security → further price drop." This makes Bitcoin's "sustainability" more fragile than it appears. The ability of the price to support network security with virtually no transaction fees is a mechanism difficult for other blockchains to replicate because Bitcoin is primarily a monetary asset, not a smart contract platform. People buy BTC to hold it, not to use its block space. This gives Bitcoin an advantage that the other three blockchains lack: its price is driven by demand, maintaining network security even with low transaction fees. However, this also means that Bitcoin's long-term security relies entirely on one assumption—that the price will always rise, something no one can guarantee.Whether this blockchain can continue to serve as a secure settlement layer depends not on whether it can create applications that generate transaction fees, but on whether it can maintain a narrative and market environment that encourages people to buy BTC. So far, this model is functioning normally, but as the block subsidy further decreases from 3.125 BTC to 1.5625 BTC and then to 0.78125 BTC, and with the next three to four halvings, will it be able to fill the gap through price increases?