Asset manager VanEck has announced that Ethereum (ETH) $2,405.88) assessed several factors contributing to its recent poor price performance. According to VanEck’s August 2024 Crypto Monthly Report, Ethereum’s share of decentralized exchange trading volume fell from 42% in 2022 to 29% in 2024. The three main reasons for this decline were the overall decrease in network revenues, “conscious policy choices,” and the loss of value created by layer-2 solutions.
Decrease in network revenues
According to VanEck’s analysis, the shift of consumers to higher transaction volume layer-1 blockchains like Solana has negatively impacted revenues on the Ethereum network. Ethereum has been one of the leading platforms for decentralized finance as the first mover in the smart contract space. However, the high transaction capacity of blockchains like Solana, MATIC, Sui, and Aptos reduces Ethereum’s competitive advantage. A Prize Pool Worth 21 Million TL Awaits You from BinanceTR! Participating and winning has never been easier.. You can sign up to BinanceTR from this link. Get your first crypto!
Internal and external pressures
Ethereum is under revenue pressure due to both the influence of layer-2 solutions within its own ecosystem and external competition. Ethereum’s layer-2 networks have caused a rapid proliferation of these networks, with the Dencun upgrade in March 2024 reducing network fees by 99%. According to Anoma co-founder Adrian Brink, there are currently too many layer-2 solutions on Ethereum.
The impact of competition
VanEck’s report notes that new tokens are now being mined on networks that offer more transaction capacity in order to improve the user experience. This is causing users to shift to more efficient networks due to limitations in Ethereum’s transaction speed. Networks like Solana can process thousands of transactions per second, which reduces demand on Ethereum.
Although Ethereum is trying to maintain its leadership in the world of decentralized finance, increasing competition and internal pressures are negatively affecting the network’s revenues and price. The rapid spread of Layer-2 solutions and the decrease in transaction fees are causing a contraction in revenues despite Ethereum expanding its ecosystem. In order for Ethereum to overcome these challenges in the future, it will need to both solve scalability issues and develop more innovative policies.
Disclaimer: The information contained in this article does not contain investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
