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

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  • Pranay Anchuri
  • Akaki Mamageishvili

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

Suggested Citation

  • Pranay Anchuri & Akaki Mamageishvili, 2026. "Price Elasticity of Gas Demand on L1 and L2: Evidence from Ethereum and Arbitrum," Papers 2606.13555, arXiv.org, revised Jun 2026.
    • Handle: RePEc:arx:papers:2606.13555
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