Key Takeaways
- Daily active addresses (DAA) and total value locked (TVL) on Ethereum have stagnated, while competitors like Solana and new-gen Layer 1s are growing strongly.
- Competition from high-performance Layer 1s like Solana, Sui, and Berachain is intensifying, putting pressure on Ethereum’s dominance.
- Negative sentiment around Ethereum is growing due to its slow development pace, price underperformance, and perceived lack of leadership.
Is Ethereum Failing?
Ethereum (ETH) has long been the king of decentralised applications (dApps) and smart contracts, serving as the backbone for DeFi, NFTs, and decentralised autonomous organisations (DAOs). However, its status as the number two cryptocurrency is being challenged. Sluggish price action, declining user activity and the rise of more efficient competitors are sparking debates about whether Ethereum’s best days are behind it.
The 2021 market cycle demonstrated the limitations of ETH in terms of speed and cost to transact. During periods of high demand, Ethereum’s fees spiked, making it impractical for everyday use. Layer 2s — expected to solve this problem — were not yet available in 2021. In the meantime, fast and cheap alternatives like Solana arrived, demonstrating a strong point of difference with their high transaction speeds and low costs.
During the following bear years, the Layer 2s did arrive, heralding the age of fast and cheap access to Ether dApps. Arbitrum, Optimism, and other Layer 2 solutions reduced congestion and fees, making Ethereum more accessible. What was unforeseen, however, was the fragmentation they introduced. Users now face the challenge of navigating multiple Layer 2 ecosystems, each with its own set of rules, fees and interfaces. This complexity has made it difficult to know which ETH Layer 2 to use, diluting the user experience and contributing to Ethereum’s struggle to retain its dominance.
ETH By The Numbers
To assess whether Ethereum is losing its grip as the number two cryptocurrency, it’s crucial to compare it against its main competitors using key Layer 1 metrics. Ethereum’s numbers are competitive but fragmented when combined with its Layer 2 solutions like Arbitrum and Optimism. In contrast, blockchains like Solana offer a seamless user experience by consolidating all transactions on a single layer.
Daily Active Addresses
Daily active addresses (DAA) are a vital measure of user engagement and network activity. Ethereum’s DAA on its mainnet has remained stagnant, showing minimal growth. However, when combined with its leading Layer 2s like Arbitrum and Optimism, Ethereum’s DAA becomes stronger, albeit fractured across different networks.
ETH and L2s DAA vs Solana DAA. Source
The combined DAA of Ethereum and its largest Layer 2s is 2.1 million. A significant number when combined, which beats all other competition with the exception of this cycle’s leading Layer 1, Solana, which boasts more than double the DAAs at 4.8 million.
Total Value Locked (TVL)
Total value locked is a critical metric for evaluating the popularity and utility of a blockchain within the DeFi ecosystem. Ethereum still leads the pack, with a TVL of $115 billion ($72.6B USD) — excluding its Layer 2s. When the TVL of its Layer 2 solutions is included, Ethereum’s total exceeds $128 billion ($81B USD).
TVL across ETH and its L2s vs Solana. Source
In comparison, Solana has seen rapid growth in TVL, reflecting its thriving DeFi ecosystem and growing developer confidence. Even with this emergence, Solana still only has a TVL of $14 billion ($8.9B USD), which is significantly behind ETH. To further illustrate how far ahead ETH is in this category, Sui — hyped as the emerging L1 of this cycle — has only $1.9 billion ($1.2B USD) in TVL.
Daily Transactions
Daily transactions measures network usage. Ethereum’s mainnet transactions have plateaued, but when combined with its Layer 2s — especially Base, which accounts for the majority of transactions in the ecosystem — the total becomes more competitive, reaching 31.4 million daily transactions.
Daily onchain transactions of ETH and its L2s vs SUI. Source
Among other leading Layer 1s, Sui stands out with a respectable 5 million daily transactions, showing activity levels comparable to many of the Layer 2s. However, what isn’t shown on this graph is the comparison with Solana. At the time of writing, Solana processes 110 million daily transactions at the time of writing, but just a month ago, it peaked at an impressive 500 million daily transactions.
These numbers demonstrate that modern blockchains are making progress toward balancing transation scalability with security and decentralisation
What Could Turn ETH Around?
Ethereum’s path to regaining its dominance isn’t guaranteed, but several possibilities could help reverse its current challenges. Two potential areas of focus are shifting the leadership strategy of Vitalik Buterin and the Ethereum Foundation (EF), and addressing Layer 2 fragmentation to enable seamless interoperability.
The Ethereum Foundation’s Leadership
Vitalik Buterin has been the visionary behind Ethereum and has remained a key technological and strategic leader. However, the Ethereum Foundation, an organisation concerned with advancing the network, has faced leadership issues over the past 12-24 months.
The Foundation’s communication and direction have been questioned by many in the community, leading to Buterin himself saying the EF must improve its two-way communication to push Ethereum forward.
Additionally, the EF underwant a major leadership shuffle, with Executive Director Aya Miyaguchi stepping aside and letting Hsiao-Wei Wang and Tomasz Stańcza take the reins as co-directors.
By actively promoting Ethereum’s strengths and countering competitors’ narratives, the leaders could help restore confidence and inspire renewed interest.
Vitalik posting on X trying to rally bullish sentiment for ETH.
Solving Fragmentation and Seamless Interoperability
Ethereum’s reliance on multiple Layer 2s has fragmented its ecosystem, complicating user experience. If Ethereum can enable seamless interoperability across all layers, it would create a unified experience where users can move assets and interact with dApps without friction. This could reignite developer interest, enhance liquidity and strengthen its overall ecosystem.
Conclusion
Ethereum’s position as the number two cryptocurrency is under significant threat. While it remains a behemoth in terms of TVL and developer adoption, the lack of growth in daily active addresses and transactions concerns many in the community. Compounding this issue is the rapid rise of high-performance Layer 1s like Solana and Sui, which are attracting users and developers with faster, cheaper and more scalable solutions.
The narrative is shifting, and unless Ethereum can accelerate its development and regain user momentum, its status as the second-largest cryptocurrency may be at risk. Ethereum is far from dead, but the crypto landscape is evolving rapidly. It must adapt to maintain its position, or it risks losing its standing to faster, more innovative competitors. As it stands, Ethereum’s time as the undisputed number two is no longer a certainty.
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