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Layer-2 Adoption and Ethereum Mainnet Congestion: Regime-Aware Causal Evidence Across London, the Merge, and Dencun (2021-2024)

Aysajan Eziz

TL;DR

This study addresses whether Ethereum L2 adoption measurably decongests the L1 fee market when demand and protocol regimes are held constant. Using a regime-aware ITS-ECM on a 1245-day daily panel spanning London, the Merge, and Dencun, it identifies a substantial but time-local reduction in L1 base fees: a $10$ percentage-point rise in posting-clean L2 adoption lowers median base fees by about $13\%$, with an $11$-day half-life toward equilibrium. The analysis introduces a posting-clean adoption metric, a demand-factor that excludes mediator pathways, and a cross-regime causal template that translates semi-elasticities into Gwei and dollar savings, offering a practical monitoring framework for scaling decisions. However, once blob-era adoption saturates post-Dencun, the precision of further estimates diminishes, underscoring the need for new quasi-experimental variation to reassess the effect in the blob regime. Overall, the paper provides the first cross-regime causal evidence that aggregate L2 adoption relieves mainnet congestion in the near term and offers a concrete toolkit for ongoing congestion monitoring as the Ethereum roadmap evolves.

Abstract

Do Ethereum's Layer-2 (L2) rollups actually decongest the Layer-1 (L1) mainnet once protocol upgrades and demand are held constant? Using a 1245-day daily panel from August 5, 2021 to December 31, 2024 that spans the London, Merge, and Dencun upgrades, we link Ethereum fee and congestion metrics to L2 user activity, macro-demand proxies, and targeted event indicators. We estimate a regime-aware error-correction model that treats posting-clean L2 user share as a continuous treatment. Over the pre-Dencun (London+Merge) window, a 10 percentage point increase in L2 adoption lowers median base fees by about 13% -- roughly 5 Gwei at pre-Dencun levels -- and deviations from the long-run relation decay with an 11-day half-life. Block utilization and a scarcity index show similar congestion relief. After Dencun, L2 adoption is already high and treatment support narrows, so blob-era estimates are statistically imprecise and we treat them as exploratory. The pre-Dencun window therefore delivers the first cross-regime causal estimate of how aggregate L2 adoption decongests Ethereum, together with a reusable template for monitoring rollup-centric scaling strategies.

Layer-2 Adoption and Ethereum Mainnet Congestion: Regime-Aware Causal Evidence Across London, the Merge, and Dencun (2021-2024)

TL;DR

This study addresses whether Ethereum L2 adoption measurably decongests the L1 fee market when demand and protocol regimes are held constant. Using a regime-aware ITS-ECM on a 1245-day daily panel spanning London, the Merge, and Dencun, it identifies a substantial but time-local reduction in L1 base fees: a percentage-point rise in posting-clean L2 adoption lowers median base fees by about , with an -day half-life toward equilibrium. The analysis introduces a posting-clean adoption metric, a demand-factor that excludes mediator pathways, and a cross-regime causal template that translates semi-elasticities into Gwei and dollar savings, offering a practical monitoring framework for scaling decisions. However, once blob-era adoption saturates post-Dencun, the precision of further estimates diminishes, underscoring the need for new quasi-experimental variation to reassess the effect in the blob regime. Overall, the paper provides the first cross-regime causal evidence that aggregate L2 adoption relieves mainnet congestion in the near term and offers a concrete toolkit for ongoing congestion monitoring as the Ethereum roadmap evolves.

Abstract

Do Ethereum's Layer-2 (L2) rollups actually decongest the Layer-1 (L1) mainnet once protocol upgrades and demand are held constant? Using a 1245-day daily panel from August 5, 2021 to December 31, 2024 that spans the London, Merge, and Dencun upgrades, we link Ethereum fee and congestion metrics to L2 user activity, macro-demand proxies, and targeted event indicators. We estimate a regime-aware error-correction model that treats posting-clean L2 user share as a continuous treatment. Over the pre-Dencun (London+Merge) window, a 10 percentage point increase in L2 adoption lowers median base fees by about 13% -- roughly 5 Gwei at pre-Dencun levels -- and deviations from the long-run relation decay with an 11-day half-life. Block utilization and a scarcity index show similar congestion relief. After Dencun, L2 adoption is already high and treatment support narrows, so blob-era estimates are statistically imprecise and we treat them as exploratory. The pre-Dencun window therefore delivers the first cross-regime causal estimate of how aggregate L2 adoption decongests Ethereum, together with a reusable template for monitoring rollup-centric scaling strategies.

Paper Structure

This paper contains 67 sections, 7 equations, 5 figures, 13 tables.

Table of Contents

  1. Introduction
  2. Contributions
  3. Roadmap
  4. Related Work
  5. Fee-Market Design and Ethereum Upgrades
  6. Empirical Congestion and Causal Time-Series Methods
  7. Broader Congestion and Market-Design Literatures
  8. Data and Variables
  9. Sample Window, Regimes, and Panel Snapshot
  10. Treatment: Posting-Clean Adoption Share
  11. Outcomes and Congestion Metrics
  12. Controls and Auxiliary Inputs
  13. Methodology
  14. Causal Estimand and DAG
  15. Estimand in plain language
  16. ...and 52 more sections

Figures (5)

  • Figure 1: Regime-Aware Time Series Overview
  • Figure 2: Directed Acyclic Graph for Total-Effect Identification
  • Figure 3: Local-Projection Responses to a 10pp Adoption Shock
  • Figure 4: BSTS Counterfactual: Observed vs. Low-L2 Scenario (Exploratory)
  • Figure 5: Residual ACF/PACF for Levels and ECM Equations