Price Elasticity of Gas Demand on L1 and L2: Evidence from Ethereum and Arbitrum
Provides the first causal estimates of gas demand elasticity for blockchain fee mechanism design, enabling more accurate simulations and policy evaluations.
The paper estimates the causal price elasticity of gas demand on Ethereum and Arbitrum, finding near-inelastic aggregate demand (-0.006 on L1, -0.036 on L2) with heterogeneous elasticities across resources and wallet clusters.
We estimate the causal price elasticity of gas demand on Ethereum mainnet (L1) and Arbitrum One (L2), a quantity necessary for calibrating fee mechanism simulations, evaluating resource pricing reforms, and explaining observed usage patterns. A two-way fixed effects panel regression instrumented by each wallet's own lagged base fee removes the congestion-driven endogeneity that causes naive regressions to substantially underestimate demand sensitivity. On Ethereum mainnet (full year 2025), the pooled IV elasticity is -0.006***, near-inelastic: a 10% fee increase reduces total gas demand by approximately 0.06%. On Arbitrum One (October 2025--April 2026), the pooled IV elasticity is -0.036**. Both chains are inelastic in the aggregate, with L2 measurably more responsive than L1. A per-resource decomposition of L2 demand reveals elasticities ranging from modestly elastic computation (-0.027*) to -0.27*** for refunds, with storage growth (-0.15***) and calldata (-0.06*) in between. Behavioral clustering identifies always-on protocol wallets as near-inelastic and high-volume operators as substantially more responsive, with cluster-level elasticities up to roughly 6x the pooled estimate. These results establish an empirical foundation for downstream simulations and for evaluating fee mechanism designs.