Ethereum's Economic Sustainability Amid Plunging Gas Fees: Validator Incentives and Network Security at a Crossroads

Ethereum's journey into 2025 has been marked by a paradox: unprecedented scalability gains from the Dencun and Pectra upgrades, coupled with a 99% drop in Layer 1 (L1) revenue since March 2024. While these upgrades have slashed gas fees to historic lows-averaging 0.067 gwei in October 2025-validators now earn a fraction of what they did pre-upgrade, raising critical questions about the network's long-term economic sustainability and security. This analysis unpacks the implications of this shift, the risks to validator incentives, and the broader consequences for Ethereum's role as a foundational blockchain.

The Double-Edged Sword of Scalability

The Dencun upgrade in March 2024 and the Pectra upgrade in May 2025 were hailed as game-changers for Ethereum's scalability. By implementing proto-danksharding and expanding blob capacity for Layer 2 (L2) networks, these upgrades reduced L2 transaction fees by 50% and cut mainnet gas fees by 95% over the past year, according to a Coinrise analysis. As a result, Ethereum's daily transaction volume surged to 1.6 million in October 2025, with active addresses hitting 695,872-a sign of renewed user confidence, the Coinrise report notes.

However, this scalability success has come at a cost. L1 revenue, which once funded validator incentives and secured the network, has plummeted. With token swaps costing as little as $0.11 and NFT trades at $0.19, users have migrated en masse to L2s like Arbitrum and Base, leaving the mainnet underutilized, according to a Coinotag analysis. This shift has left validators grappling with a 99% drop in earnings, forcing them to rely increasingly on consensus layer (CL) rewards, which now account for ~93% of total validator income, according to a Figment report.

Validator Incentives: A Ticking Clock for Security

Validator incentives are the lifeblood of Ethereum's proof-of-stake (PoS) model. With gas fees now contributing less than 1% of validator rewards, the economic model that once attracted thousands of independent validators is fraying. According to Q3 2025 data from Figment, median CL rewards for validators averaged 0.002029 ETH per day, while execution layer (EL) rewards-once a significant income source-have become sporadic due to low blockspace demand, the Figment report notes.

This erosion of income risks a cascading effect on network security. Validators may exit the network or consolidate stakes to offset losses, as seen post-Pectra, where over 11,000 validators merged their stakes, increasing the average balance per validator from 32 ETH to 32.4 ETH, according to a Coinmetrics analysis. While consolidation improves efficiency, it also raises centralization concerns. If a small number of high-balance validators dominate the network, the cost of a 51% attack could theoretically decrease, though Ethereum's slashing conditions and economic barriers still make such an attack highly impractical, as noted in a Galaxy analysis.

The Long-Term Risks: Centralization and Exit Rates

The Pectra upgrade's EIP-7002 streamlined validator exits, accelerating churn and reducing the active validator set by 16,344 since May 2025, the Coinmetrics analysis notes. While this improves network efficiency, it also signals a potential exodus of smaller validators who can no longer sustain operations on meager CL rewards. This trend could lead to a more centralized validator ecosystem, where only large entities with diversified income streams (e.g., staking pools or institutional operators) remain viable.

Moreover, the shift to L2s has created a chicken-and-egg dilemma: Ethereum's mainnet is becoming a "settlement layer" rather than a transaction layer, but without sufficient L1 revenue, the network's ability to fund upgrades and maintain security is at risk. Analysts warn that if gas fees remain sub-1 gwei for extended periods, Ethereum may struggle to attract new validators, weakening its decentralized security model, as noted in a Coinotag analysis.

Pathways to Sustainability

To mitigate these risks, Ethereum's community is exploring solutions like EIP-4844 (Proto-Danksharding) and further L2 integrations to rebalance revenue streams. Additionally, MEV (Maximal Extractable Value) mechanisms and staking derivatives could provide alternative income for validators. However, these solutions require careful design to avoid introducing new centralization risks.

For investors, the key takeaway is clear: Ethereum's economic model is evolving rapidly. While the network's scalability and user adoption are undeniably strong, the long-term health of its validator ecosystem-and by extension, its security-depends on addressing the revenue gap. Those who bet on Ethereum must monitor validator exit rates, stake consolidation trends, and the success of upcoming upgrades to gauge the network's resilience.