Ethereum, the second largest cryptocurrency by market capitalization, faces main challenges within the present crypto cycle. Nevertheless, in response to a current investor memo from Vaneck, the brand new initiative may pave the way in which for a possible restoration.
Matthew Sigel, Vaneck’s head of digital belongings analysis and Patrick Bush, senior digital belongings analyst, highlighted the decline in Ethereum’s market place within the report.
“Ethereum has struggled with the present crypto cycle, each when it comes to utilization and asset valuation,” the analyst added.
Rival networks like XRP and Solana have gained traction over the previous yr, however Ethereum has fallen behind. One of many principal causes for this shift is Ethereum’s method to scalability. This fragmented liquidity and misplaced market management in crypto buying and selling on the chain.
Ethereum’s scaling technique focuses on encouraging customers emigrate from their principal blockchain to varied layer 2 networks, reminiscent of Arbitrum and Base. These networks supply decrease transaction prices and better throughput. Nevertheless, this method makes buying and selling much less seamless in comparison with rival networks like Solana, as liquidity spreads throughout a number of chains.
In distinction, Solana has gained a big market share by providing a single-chain ecosystem at excessive transaction speeds. A good portion of Solana’s income, about 80%, got here from Memecoin Buying and selling, which inspired person recruitment. Because of this, the general use of Ethereum has decreased and its deflationary toknomics has weakened.
Vaneck reviews that Ethereum’s community revenues have fallen 93% over the previous yr. The community’s share of whole blockchain income has additionally dropped considerably from 55% in February 2024 to only 24% in February 2025.
Along with these points, the Ethereum Basis, a nonprofit that helps develop Ethereum, faces criticism of its governance fashion as co-founder Vitalik Buterin has sparked controversy over social media posts referring to communism.
Regardless of Ethereum’s anguish, Vaneck analysts pointed to future Pectra updates as a possible turning level.
Pectra introduces a number of essential enhancements, together with pockets restoration mechanisms, account abstractions, and elevated effectivity of Ethereum validators. Most significantly, the improve will double the variety of “blobs” that Ethereum can deal with.
A blob is a big packet of transactional knowledge despatched from a Layer 2 community to Ethereum. Growing the variety of blobs is anticipated to cut back buying and selling charges and enhance community effectivity. This modification may make Ethereum extra aggressive in opposition to sooner, cheaper alternate options like Solana.
The Ethereum Basis additionally proposes a brand new transaction technique known as “Intents.” As a substitute of manually bridging belongings between totally different layer 2 options, customers ship the specified outcomes and compete for a community of resolvers to attain essentially the most environment friendly. If profitable, this might get rid of the necessity for cross-chain bridges. This can be a safety weak point that has led to billions of {dollars} in stolen belongings.
Though Ethereum has seen a big decline in recruitment and income, future Pectra upgrades and new transaction mechanisms may assist reverse the downward development as business consultants, together with Justin Drake, a researcher on the Ethereum Basis, acknowledge the urgency of the state of affairs.
*This isn’t funding recommendation.
