As one of the leaders in the cryptocurrency field, Ethereum has recently continued to lose its position as the "second largest cryptocurrency in the world", especially in the face of pressure from its competitor Solana.
Since March, Layer-2 networks such as Arbitrum and Optimism have seen a surge in transaction volume, with growth rates as high as 430%, while Ethereum’s transaction fees have plummeted 87%.
The Solana network not only has a faster processing speed, but also has much lower transaction fees than Ethereum. According to statistics from Blockworks Research, after October 19, Solana's daily on-chain fees have exceeded Ethereum for many consecutive days, and on October 24, its revenue even exceeded 10 million US dollars. The popularity of the Meme track has allowed various funds to continue to enter the Solana ecosystem, making it the hottest ecosystem in the circle.
Although Ethereum’s founders and supporters remain hopeful about its future, the current situation is not optimistic judging by market performance and the results of technological upgrades.
Ethereum’s dilemma: falling transaction fees and declining user activity
Although Ethereum has undergone multiple technical upgrades, its actual results have not been satisfactory. In particular, the recent changes have caused Ethereum’s market performance to decline in terms of user activity and transaction fees.
According to Bloomberg, since March this year, the transaction volume of Layer-2 networks such as Arbitrum and Optimism has increased significantly, with a growth rate of up to 430%, while Ethereum's transaction fees have plummeted by 87%. Layer-2 solutions greatly reduce transaction costs and improve transaction efficiency by building a second-layer network on the Ethereum main chain.
Ethereum's token, Ether, has risen about 75 percent in the past year, but that still pales in comparison to the performance of Bitcoin, which has more than tripled in the same period, hitting new all-time highs.
In addition, Ethereum ETFs (Exchange Traded Funds) have not received a warm response from investors. In 2024, the inflow of funds for Bitcoin ETFs reached $31 billion, while the inflow of funds for Ethereum ETFs was only $242 million.
In 2022, Ethereum underwent a major upgrade called “The Merge”, which aimed to reduce energy consumption by switching to a Proof of Stake mechanism while keeping Ethereum’s token supply stable.
However, the results of the upgrade have not fully achieved the expected goals. Since the "Dencun" upgrade in March this year, Ethereum's token supply has been inflated, the number of tokens has continued to increase, and the market's confidence in its long-term value has been shaken.
Solana is seizing the market with low cost and high efficiency
While Ethereum is facing difficulties, the rise of competing networks such as Solana has put considerable pressure on Ethereum.
Solana is considered a strong competitor to Ethereum. Its network not only has a faster processing speed, but also has much lower transaction fees than Ethereum.
According to statistics from Blockworks Research, after October 19, Solana's on-chain daily fees have exceeded Ethereum for many consecutive days, and on October 24, its revenue even exceeded 10 million US dollars. The popularity of the Meme track has allowed various funds to continue to flow into the Solana ecosystem, making it the hottest ecosystem in the circle.
Data from DefiLlama shows that Solana's token has risen 300% in the past year, far outperforming Ethereum. Eliezer Ndinga, vice president and head of strategy and business development at 21.co, said that lower-cost networks such as Solana appear to be catching up with Ethereum.
Max Resnick of Special Mechanisms Group believes that Ethereum is falling into a “danger zone,” especially as the rise of Solana could threaten Ethereum’s market position:
“Ethereum must focus on scaling ‘in order to protect its users and moat in the short term.’”
Some analysts disagree, pointing out that while Solana may have surpassed Ethereum’s base layer activity, it is still not enough to surpass Ether given Ethereum’s Layer-2 network.
According to DefiLlama, Solana accounted for 35.4% of decentralized exchange trading volume in November, up from 27.2% in October. In contrast, Ethereum and its Layer-2 ecosystem accounted for 45.2% of the market share in November, down from 50.1% in October.
Despite the many challenges, Vitalik Buterin, one of the founders of Ethereum, remains confident in the future of Ethereum. He said that many Layer-2 platform teams are interested in strengthening cooperation with the Ethereum ecosystem and are "looking for ways to strengthen collaboration and support the Ethereum ecosystem."