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Price Elasticity of Gas Demand on L1 and L2: Evidence from Ethereum and Arbitrum

Authors Pranay Anchuri , Akaki Mamageishvili

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ACM Subject Classification
  • Applied computing → Economics
Keywords
  • gas pricing
  • demand elasticity
  • instrumental variables
  • panel data
  • fixed effects
  • Arbitrum
  • Ethereum
  • transaction fee mechanism

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Abstract

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 6× the pooled estimate. These results establish an empirical foundation for downstream simulations and for evaluating fee mechanism designs.

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Pranay Anchuri and Akaki Mamageishvili. Price Elasticity of Gas Demand on L1 and L2: Evidence from Ethereum and Arbitrum. In 8th Conference on Advances in Financial Technologies (AFT 2026). Leibniz International Proceedings in Informatics (LIPIcs), Volume 395, pp. 35:1-35:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2026) https://doi.org/10.4230/LIPIcs.AFT.2026.35

Author Details

Pranay Anchuri
  • Offchain, Princeton, United States
Akaki Mamageishvili
  • Offchain, Zurich, Switzerland

References

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