Ethereum, the cryptocurrency world’s second-largest player by market cap, has been grappling with substantial difficulties in the current crypto cycle. However, new initiatives on the horizon could potentially chart a course to recovery, as outlined in a recent investor note by VanEck.
Matthew Sigel, VanEck’s Head of Digital Assets Research, and Senior Digital Assets Analyst Patrick Bush, highlighted Ethereum’s dwindling market standing in their report. They stated, “Ethereum has struggled in the current crypto cycle, both in terms of usage and asset valuation. This decline is largely due to the erosion of the fundamental factors that once made Ethereum valuable.”
Competing networks such as XRP and Solana have gained significant ground over the past year, leaving Ethereum trailing in their wake. Ethereum’s struggles stem largely from its approach to scalability, which has resulted in fragmented liquidity and loss of market dominance in on-chain crypto trading.
Ethereum’s scaling strategy has involved persuading users to transition from the main blockchain to various layer 2 networks like Arbitrum and Base. These networks offer the advantage of lower transaction costs and higher throughput. However, this tactic has led to liquidity being dispersed across multiple chains, thereby making trading less streamlined compared to competitor networks like Solana.
In sharp contrast, Solana has carved out a substantial market share by providing a single-chain ecosystem with lightning-fast transaction speeds. Solana’s revenue, which is primarily driven by memecoin trading, accounting for approximately 80% of its total, has propelled user adoption. Consequently, Ethereum’s overall usage has dipped, and its deflationary tokenomics have been weakened.
VanEck’s report reveals that Ethereum’s network revenue has dropped by a staggering 93% in the past year. The network’s portion of total blockchain revenue has also seen a significant decrease, from 55% in February 2024 to a meager 24% in February 2025.
Adding to Ethereum’s challenges is the criticism directed towards the Ethereum Foundation – the nonprofit organization that fosters Ethereum’s development – for its governance style. Co-founder Vitalik Buterin recently sparked controversy with a social media post referencing communism.
However, amidst Ethereum’s struggles, VanEck analysts see a glimmer of hope in the upcoming Pectra update. The update promises a host of improvements, including a wallet recovery mechanism, account abstraction, and enhanced efficiency for Ethereum validators. Crucially, it will double the number of “blobs” that Ethereum can process.
Blobs are large packets of transaction data sent to Ethereum from layer 2 networks. By increasing the number of blobs, transaction fees are expected to reduce, and network efficiency is likely to increase. This change could potentially make Ethereum a more formidable competitor against faster and cheaper alternatives like Solana.
In addition, the Ethereum Foundation has proposed an innovative transaction method called “intents.” This technique would eliminate the need for users to manually bridge assets between different Layer 2 solutions. Instead, they would submit a desired result and a network of resolvers would compete to accomplish it most efficiently, potentially eliminating the necessity for cross-chain bridges, a known security flaw that has led to billions of dollars in assets being stolen.
While Ethereum has faced an undeniable slump in adoption and revenue, the forthcoming Pectra upgrade and new transaction methodologies could help to reverse the downward trend. Industry experts, including Ethereum Foundation researcher Justin Drake, acknowledge the urgency of the situation.
As a disclaimer, this article does not serve as investment advice but aims to provide a comprehensive understanding of the current scenario and potential future developments within the Ethereum ecosystem.
