Introduction

The Avalanche network stands at a pivotal juncture with the proposal of ACP-125, which aims to reduce base transaction fees from 25 nAVAX to 1 nAVAX on the C-Chain—a 96% reduction. The significance of this proposal is underscored by current network behavior, where over 80% of transactions cluster at the base fee level, suggesting an overproduction of blocks at a price that is not matched by active address demand.

This research leverages recent fee reduction events across major blockchain networks, particularly focusing on Base and Optimism, to predict ACP-125's potential impact on Avalanche. Through statistical analysis and comparative case studies, we aim to provide data-driven projections for network growth while considering sector-specific responses to fee changes.

Section 1: Historical Impact Analysis of Fee Reductions

The relationship between transaction costs and network activity can be most clearly observed through recent events on the Base network. Since March 2024, Base has implemented two significant fee-reducing mechanisms: periodic gas limit increases and EIP-4844 implementation. These events provide valuable natural experiments for understanding fee elasticity in blockchain networks. 

 

 

Base's gas limit increases demonstrated a clear correlation with network growth, though the relationship followed a logarithmic pattern—suggesting diminishing returns from successive increases. Our statistical analysis reveals that while transaction counts responded immediately to fee reductions, active address growth typically lagged by approximately five days. This pattern was consistent across multiple gas limit increase events, with Granger causality tests confirming the statistical significance of the relationship (p < 0.05).

The implementation of EIP-4844 on Base provided an even more dramatic example, effectively reducing data availability costs by 99%. The network's response was substantial and immediate:

- Daily transactions increased by 82% within the first week

- Active addresses grew by 64% over a two-week period

- Total gas consumption remained stable despite increased activity

These findings establish a clear precedent for significant network growth following major fee reductions, though the pattern and timing of responses vary across different network metrics. However, this introduces an additional question: which categories of wallets are the most price-sensitive and stand to benefit the most from fee reductions? 

Section 2: Optimism’s Post-EIP-4844 Transformation

The implementation of EIP-4844 provides a unique case study of how fee optimization affects different wallet segments within L1 and L2 ecosystems. To isolate the true impact from broader market movements, particularly during a period of significant ETH price appreciation, we normalized key metrics by the ETH price. This methodology was critical for gas consumption and fee metrics, as they are directly denominated in ETH.

 

The analysis reveals distinct patterns across wallet segments, with particularly interesting dynamics in development activity and memecoin activity. Contract deployment saw the highest transaction growth at 420.3%, accompanied by an 85.6% increase in wallets deploying new contracts, suggesting that lower fees significantly reduced barriers to entry for developers. Gaming and memecoin sectors demonstrated strong but divergent patterns: gaming showed balanced growth across normalized gas usage (125.0%) and transactions (79.6%), while memecoins exhibited modest normalized gas growth (61.0%) but led wallet growth at 232.9%. 

However, the normalized analysis reveals a crucial insight about network economics: despite transaction volume increasing by 64.4% and active wallets growing by 22.6%, ETH-denominated revenue declined by 26.0% in the post-implementation period. This finding, obscured in USD terms by ETH's price appreciation (which showed an 18% revenue increase), highlights the delicate balance ecosystems must strike between adoption and economic sustainability. 

The methodology employed – normalizing monetary metrics by ETH price while maintaining raw activity counts – proved essential in understanding the true impact of fee reduction events. Without this normalization, we would have significantly overestimated the growth in certain sectors (e.g., gaming's gas usage would have appeared 258% higher rather than the actual 125% increase) and misinterpreted the revenue implications. This analytical approach provides a clearer picture of how different unique wallet groups respond to fee optimizations and suggests that while such events can successfully drive adoption across various unique wallet segments, their impact on network economics requires careful consideration. The data indicates that fee reduction events may need to be calibrated more precisely to balance growth incentives with sustainable revenue generation.

Section 3: Comparative Wallet Profiles - Avalanche vs. Optimism

A detailed analysis of wallet composition across Optimism and Avalanche C-Chain reveals distinct ecosystem characteristics that reflect their different developmental trajectories and strategic focuses. The time period used for the analysis is data between April 1st 2023 and October 16th 2024. The primary reason for this time period is that it includes a gas limit increase on the Avalanche C-Chain and EIP 4844’s impact on Optimism. These events had notable impacts on metrics for both networks. The comparison examines three key metrics: transaction volume distribution, wallet activity, and gas consumption patterns, providing insights into the wallet segments of these ecosystems. Something to note is that the inscription mania at the start of 2024 is largely responsible for heightened EOA activity on Avalanche.

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The most striking difference appears in the distribution of transaction activity. While Avalanche shows a heavy concentration in EOA (Externally Owned Account) transactions (50.74%) and Finance (26.67%), Optimism demonstrates a more balanced distribution with Finance (27.64%), Infrastructure (18.47%), and EOAs (12.82%) leading the way. For context, Blockworks Research includes AVAX or ETH transfers, inscriptions, and spam as EOAs. This divergence suggests different wallet interaction patterns: Avalanche's ecosystem is direct wallet transaction dominated, while Optimism shows stronger infrastructure utilization. The significant presence of Social activity on Optimism (11.08% vs 3.03%) and higher Infrastructure usage (18.47% vs 0.61%) indicates a more diverse application ecosystem.

Active wallet distribution patterns reveal interesting convergences and divergences in wallet composition. Both networks show strong representation in Finance (Avalanche: 48.10%, Optimism: 35.59%) and EOAs (Avalanche: 17.58%, Optimism: 20.20%), suggesting similar core categories of wallets. However, Optimism's higher Social wallet share (16.32% vs 6.65%) and Infrastructure participation (8.76% vs 1.11%) indicate a more developed social and technical ecosystem. The similar Memecoin wallet distributions (Optimism: 3.65%, Avalanche: 3.42%) suggest comparable speculative activity levels, despite different transaction patterns.

Gas consumption patterns reveal the most pronounced differences in economic activity. Optimism shows significant Bot (29.18%) and Infrastructure (22.20%) gas usage, while Avalanche's consumption is dominated by EOAs (44.99%) and Finance (25.82%). This stark contrast in gas usage suggests fundamentally different ecosystem architectures. The similar Finance sector gas consumption (Avalanche: 25.82%, Optimism: 22.55%) indicates comparable DeFi activity levels, despite different wallet interaction models.

These composition differences highlight how L1s and L2s can develop distinct ecosystem characteristics despite similar foundational purposes. Optimism's more balanced distribution across sectors suggests a diverse ecosystem with strong infrastructure and social components, while Avalanche's concentration on direct wallet activity indicates an emphasis on individual EOA transactions and financial applications.

Section 1 illustrates that transaction cost-reducing events such as increasing the Gas Limit or EIP 4844 have a strong correlation and potentially play a significant role in increasing the number of transactions and active addresses on a network. Section 2 built on this by analyzing the specific categorical makeup of transactions, gas usage, and active addresses on Optimism and demonstrated that certain wallet categories are more price sensitive than others. This section highlights that Avalanche and Optimism have quite a bit of overlap in wallet and transaction categories. The final section will build on those before predicting the impact of ACP-125 on Avalanche C-Chain.

Section 4: Predictive Modeling for Avalanche Post-ACP-125

This analysis evaluates the potential impact of Avalanche Community Proposal 125 (ACP 125) on Avalanche C-Chains transaction volume, active address count, and fee/gas consumption across different network sectors. Leveraging historical data from Avalanche’s past gas limit increases and the observed effects of Ethereum Improvement Proposal 4844 (EIP-4844) on Optimism, we aim to project ACP 125's influence on key network metrics. ACP 125, which proposes to reduce Avalanche’s base fee from 25 nAVAX to 1 nAVAX, is expected to enhance network engagement by significantly lowering transaction costs, thereby encouraging increased participation and activity across sectors. Our methodology combines normalization techniques and sectoral weighting to provide robust projections across different scenarios, highlighting potential impacts on transaction growth, active addresses, and fee/gas consumption from ACP 125.

Methodology

To estimate the impact of ACP 125 on Avalanche, we conducted a comparative analysis using two primary data sources:

1. Avalanche’s Historical Gas Limit Increase: We examined transaction volume, active addresses, and gas consumption metrics surrounding a significant gas limit increase on Avalanche C-Chain. This historical data provided insight into Avalanche’s responsiveness to increased network capacity, allowing us to assess past growth trends relevant to ACP 125.

2. Impact of EIP-4844 on Optimism: EIP-4844 introduced data blob storage to Ethereum rollups, leading to a fee reduction on Optimism and a notable increase in transaction volume and active addresses. This event serves as a benchmark for projecting how a similar cost-lowering measure might impact Avalanche’s key metrics, particularly in terms of wallet activity and gas/fee adjustments.

We applied several statistical methods to strengthen the reliability of our projections:

- Normalization: We used median-based normalization for daily transactions, active addresses, and fees across sectors to account for differences in scale and variability between Optimism and Avalanche. This approach stabilized fluctuations and provided a consistent basis for comparison.

- Median Analysis by Sector: By calculating the median daily values for each metric, we captured a robust central tendency for each sector, reducing the impact of outliers and short-term fluctuations.  

- Pre- and Post-Period Metrics: Aggregating data into pre- and post-period medians around the key dates (Avalanche’s gas limit increase and EIP-4844’s implementation) allowed us to control for changes over defined intervals, improving accuracy.

- Weighted Scenarios: To explore how closely ACP 125’s impact on Avalanche might resemble the Optimism response, we applied three sectoral weighting scenarios (70-30, 50-50, and 30-70 for Optimism and Avalanche, respectively). These weighted scenarios offered a spectrum of likely outcomes, reflecting different levels of response alignment between the two networks.

Results and Interpretation

Transaction Volume Impact

The analysis shows that ACP 125 could drive a significant increase in daily transaction volume on Avalanche, with projections ranging from a 39.3% to 80.9% boost depending on the scenario. This range highlights ACP 125’s potential as a catalyst for network growth, with the largest impact in higher-weighted Optimism scenarios, suggesting that Avalanche’s transaction volume could respond similarly to Optimism under cost-reduction conditions.

- Multisig wallets, Memecoins and Gaming Sectors: These sectors are projected to experience the largest increases, with estimated transaction growth ranging from 50% to 325% across scenarios. This suggests a high sensitivity to fee reductions in applications relying on high-frequency, lower-value transactions.

- Finance and EOAs: The Finance sector and externally owned accounts (EOAs) exhibit significant growth potential, with transaction increases of up to 52.7% in certain scenarios. This implies that lower fees could stimulate broader active address engagement, particularly in peer-to-peer and decentralized finance (DeFi) applications sensitive to transaction costs.

Active Address Impact

ACP 125 is also projected to have a strong positive impact on active addresses, as wallets respond to lower transaction costs by increasing their network activity. The reduction in base fees from 25 nAVAX to 1 nAVAX aligns with the usage patterns seen after EIP-4844 on Optimism, where active address counts grew significantly post-fee reduction.

- Memecoins and Finance Sectors: These sectors show the most elastic response, with active address growth projections up to 200% in certain scenarios. Memecoins, in particular, are expected to see the largest increases in unique wallet activity due to their reliance on frequent interactions, while Finance applications benefit from cost-effective, peer-to-peer interactions.

- Moderate Growth in Infrastructure and Gaming: Infrastructure and Gaming sectors also show positive growth, though less pronounced, indicating increased wallet engagement in protocol-level activities and gaming applications.

Fee and Gas Consumption Impact

In contrast to the increases in transaction volume and active addresses, fee and gas consumption are anticipated to exhibit a more complex pattern. Initially, gas consumption may rise due to increased activity but could stabilize or even decrease as the average fee per transaction falls. The transition mirrors the EIP-4844 response on Optimism, where gas usage temporarily spiked before leveling out.

- Multisig Wallets and Infrastructure Sectors: These sectors are expected to see the most significant initial gas consumption increase, as reduced fees encourage more frequent transactions.  

- Long-Term Effects: Over a longer period, total gas consumption may begin to decrease slightly if transaction counts stabilize and wallets adapt to lower transaction costs, similar to the stabilization observed post-EIP-4844.

In the below charts we define immediate effects as 30 days after ACP-125, short-term as 90 days and long term as 365 days.

However, when we adjust the increase in gas usage post ACP 125 by the 96% reduction in the Avalanche C-Chain base fee, there is a significant drawdown in fees generated. We estimate that even adjusted for the growth in transactions and gas usage, fees generated could see a reduction of anywhere between 94% - 95%. Prior to ACP-77 the primary way that the Avalanche network generates fees is via burning transaction fees from the C-Chain. Using 2021 and 2022 as a case study since these were time periods of significant consistent onchain activity on Avalanche, approximately $41M and $95M were generated in fees for the respective years. Assuming that Avalanche C-Chain onchain activity sees a return to comparable activity levels, post ACP-125 we could see annual fees being anywhere between ~$2.46M - $5.7M for the identical amount of onchain usage. 

Statistical Interpretation and Industry Implications

This analysis employs normalization and median-based sectoral projections to derive reliable estimates across networks and scenarios. The projected increases in transaction volume, active addresses, and gas consumption underscore ACP 125’s potential as a growth catalyst, positioning Avalanche as a more accessible, cost-effective network for a broader range of wallets and applications.

From an industry perspective, ACP 125 could enhance Avalanche’s competitiveness by lowering barriers to high-frequency and micro-transaction use cases. The sector-specific projections highlight diverse responses, suggesting that while Memecoin and Finance sectors might drive immediate activity spikes, other sectors like Infrastructure and Gaming could see more sustained, gradual growth. However, something to note is that prior to ACP-77 Avalanche primarily generated fees via transaction fees on the C-Chain that are denominated in AVAX and burned. Despite our projections of increases in metrics across the board, fees generated on the C-Chain will likely see a 94%-95% decrease adjusted for growth in metrics. By strategically reducing fees, Avalanche may unlock new opportunities for network engagement, catering to both mainstream users and niche applications, but at the same time, there will be the need to drive additional activity to offset the large cut in fees generated. 

Conclusion

Our analysis suggests that ACP-125 will serve as a significant catalyst for Avalanche's ecosystem by lowering base transaction fees from 25 nAVAX to 1 nAVAX. Even our most conservative scenario projects substantial network expansion, with total daily transactions increasing by 39.3%.

In this report, we presented several scenarios for Avalanche’s growth post-ACP 125:

The analysis suggests substantial growth in total daily transactions across all scenarios, with predictions ranging from 39.3% to 80.9% increase depending on weighting between Optimism and Avalanche historical data. 

Key findings support the robustness of these projections:

1.  Memecoin and Gaming Sectors are projected to experience the largest increases, especially the Memecoin sector, with estimated transaction growth ranging from 141.5% to 368.8% across scenarios. 

2. Finance and EOAs exhibit significant growth potential, with transaction increases up to 52.7% in certain scenarios. 

In contrast to these predicted increases, fee and gas consumption are anticipated to exhibit a more complex pattern. Initially, gas consumption may rise due to increased activity but could stabilize or even decrease as the average fee per transaction falls. Over a longer period, total gas consumption may begin to decrease slightly if transaction counts stabilize and wallets adapt to lower transaction costs, similar to the stabilization observed post-EIP-4844. Accounting for the reduction in the base fee we project a 94%-95% decrease adjusted for growth in metrics. By significantly cutting fees, Avalanche may open new avenues for network engagement, attracting both new wallets and specialized applications. However, it will need to generate additional activity to compensate for the significant decrease in fee revenue. Using 2021 and 2022 as a case study since these were time periods of significant consistent onchain activity on Avalanche, approximately $41M and $95M were generated in fees for the respective years. Post ACP-125 we could see annual fees being anywhere between ~$2.46M - $5.7M for the identical amount of onchain usage. 

Several factors support the credibility of these projections:

- Median-based calculations minimize the impact of outliers

- Multi-scenario analysis provides a range of realistic outcomes

- Sector-specific modeling captures varying fee sensitivities

- Cross-chain validation through recent comparable events

- Normalization stabilized fluctuations and provided a consistent basis for comparison.

While this analysis suggests significant growth potential, we acknowledge certain limitations. Market conditions may shift, and external factors could influence adoption patterns. However, the consistency of growth predictions across core sectors and the alignment with historical patterns provide strong support for these projections.

ACP-125 represents a strategic opportunity to enhance Avalanche's competitive position in the Layer-1 blockchain ecosystem. Based on our previous ACP-77 analysis paired with an analysis of ACP-125, Avalanche is prioritizing kick-starting growth and network effects in its ecosystem while trading off short-term value accrual. While projected growth in both core and emerging sectors suggests the proposal could catalyze a new phase of network expansion in the long term, the stark decrease in fees generated suggests the need to explore other ecosystem growth programs paired with fee reductions to offset this phenomenon. 

 

 

 

 

 

The information contained in this report and by Blockworks Inc. and related affiliates is for general informational purposes only and is not intended to provide legal, financial, or investment advice. The report should not be construed as an offer or solicitation to buy or sell any security, token, or financial instrument and does not represent any recommendation or endorsement of any investment or financial product or service. Blockworks Inc. and related affiliates are not registered as a securities broker-dealer or an investment advisor in any jurisdiction or country.