VanEck: Multiple Factors Driving Ether's Weak Price Action

2 min read | September 06, 2024 06:51 PM AEST | By Team Kalkine Media

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VanEck: Multiple Factors Driving Ether's Weak Price Action — Image source: shutterstock

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VanEck has highlighted several factors contributing to Ethereum's recent decline in decentralized exchange trading volume, which has dropped from 42% in 2022 to 29% in 2024. The presentation in VanEck's Crypto Monthly Recap for August 2024, identifies three primary issues affecting Ethereum’s performance: a general decrease in network revenue, strategic policy decisions, and the impact of layer-2 solutions and competing service providers.

The report attributes part of Ethereum’s revenue decline to a shift in consumer preference towards higher-throughput layer-1 blockchains, such as Solana. VanEck noted that Ethereum, which initially capitalized on the burgeoning interest in digital assets and decentralized finance, is now facing intensified competition from networks like Solana, Sui, and {Aptos} (APT). These competitors, capable of processing thousands of transactions per second, are drawing speculative demand away from Ethereum. Additionally, the deployment of new tokens on these faster networks is aimed at enhancing user experience and avoiding the congestion issues associated with Ethereum's sequential transaction processing.

The report also points out that Ethereum’s revenue has been further undermined by its own layer-2 solutions. The emergence of these scaling solutions, which was accelerated by the Dencun upgrade in March 2024, has led to a significant reduction in Ethereum’s network fees—down by 99%. The Dencun upgrade introduced measures to lower fees for layer-2 networks, leading to a rapid expansion of these solutions within the Ethereum ecosystem.

Anoma co-founder Adrian Brink has observed that the proliferation of Ethereum layer-2 solutions may have exceeded the necessary amount to manage network traffic effectively. Brink suggests that the industry now has roughly ten times the number of scaling solutions needed.

Overall, Ethereum is experiencing a dual challenge: internal revenue pressures from its own scaling solutions and external competition from faster layer-1 blockchains. These dynamics are reshaping Ethereum’s position in the blockchain ecosystem.

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