Why is Ethereum weak? VanEck reveals 3 reasons
Ethereum ($ETH), known as the "King of Public Chains," has recently faced controversy over the foundation's token sales and financial expenditures, and now more organizations have revealed the reasons for its weak trend.
Crypto asset management company VanEck released its latest report yesterday (5th), reviewing the August market overview and pointing out that in the past month, Ethereum ranked 18th among the worst-performing assets, losing to Polygon ($MATIC), Avalanche ($AVAX) and other projects with relatively low market caps.
VanEck listed 3 major reasons for Ethereum’s dismal performance:
Reason 1: Decline in Ethereum revenue
Since 2022, Ethereum’s market share of blockchain fee revenue has dropped from 86% to 33%, while its share of decentralized exchange (DEX) trading volume has dropped from 42% to 29%.
VanEck pointed out that speculation in the currency circle has moved to blockchains with faster transaction speeds, and the second layer scaling solution (Layer2) project has also cannibalized Ethereum’s transaction fees and maximum extractable value (MEV) revenue.
Reason 2: Ethereum’s deliberate policy choices
VanEck pointed out that Ethereum’s strategy of reducing handling fees for Layer 2 through upgrades and relying on its development may be a double-sided sword.
Encouraging users to adopt Layer 2 transactions currently fails to bring value to Ethereum. Layer2 erodes economic benefits through multiple channels. At the same time, the user experience is still not ideal, and the transaction speed is far lower than other competing public chains.
Due to a significant drop in fee income, Ethereum has experienced inflation, currently at 0.74%, with an additional 944,000 $ETH issued annually, worth approximately $2.45 billion.
Reason three: Value extraction from service entities
VanEck emphasized that speculation is still the best application in the early stages of public chain development. The current monetization of smart contract platforms relies on users to transfer or trade assets on the chain. Only by generating revenue from handling fees and miners’ maximum extractable value (MEV) can value be created for token holders.
Without speculatively driven on-chain revenue, blockchain can only pin its value on uncertain long-term potential.
Source: VanEck Ethereum’s blockchain fee revenue market share declines
TRON ($TRX) rises 20% in August
Compared with the weakness of Ethereum, Tron’s $TRX rose by 20% in August, hitting a new high since April 2021, mainly related to the meme currency issuance platform Sun Pump.
As of August 28, Sun Pump has issued more than 56,000 meme coins, and the TRON chain has also received US$3.64 million in revenue, but it also faces centralization disputes.
For example, Tron DAO suddenly removed approximately US$732 million worth of Bitcoin from the $USDD stablecoin reserve. It was said that it was not approved by the community vote. Later, Justin Sun responded that in order to improve fund utilization, Tron jointly The reserve plan will take its time to upgrade $USDD.
Therefore, although Tron Chain has certain advantages in the stablecoin market, VanEck is cautious because its ecosystem is too controlled by Justin Sun.
Source: The market value of VanEck’s stablecoin issued through the TRON chain exceeds that of other leading public chains.
Base attracts developers, zkSync falls behind
Base blockchain performed outstandingly in August, becoming the Ethereum Layer 2 project with the most daily active addresses. A large number of developers deployed smart contracts, and the number of related addresses far exceeded other Layer 2 projects.
VanEck believes that the reasons why developers choose Base include that Coinbase’s unique combination of on-chain and off-chain users, developers and liquidity provides an attractive virtual space for crypto businesses.
In contrast, zkSync ($ZK), another Layer 2 project, plunged 24% in August, mainly due to user growth outpacing other rivals.
zkSync’s pre-launch airdrop program was criticized for its anti-witch policy, which resulted in some users receiving a disproportionate share of tokens and leaving many loyal community members unable to participate in the airdrop.
Image source: VanEckzkSync user growth lags behind Base, Arbitrum and other Layer 2
Judging from VanEck’s report, the cryptocurrency market presents a complex competitive landscape.
Ethereum is facing the challenges of declining revenue and Layer 2 competition. Although Tron has grown, it has centralization risks. Base has stood out in the Layer 2 track with the advantages of Coinbase, and zkSync has lost users due to improper airdrop strategies.
