Asset manager VanEck outlined multiple factors contributing to Ether’s (ETH) poor price performance in its Crypto Monthly Recap for August 2024.
The report divided the issues plaguing Ethereum into three main categories: a general decline in network revenue, “deliberate policy choices,” and value extraction from layer-2 solutions and service providers.
According to VanEck, a consumer shift to higher-throughput layer-1 blockchains like Solana (SOL) is partially to blame for the general revenue decline on Ethereum. Analysts for VanEck asserted that the “best use case for public blockchains at this early stage is speculation.”
The report explained that Ethereum had the first-mover advantage in the smart contract arena, becoming the first network to capitalize on the speculation of digital assets by being the go-to hub for decentralized finance. However, the increased competition from Solana, Sui (SUI), and Aptos (APT)—which can each process thousands of transactions per second—is pulling this speculative demand away from the Ethereum network.
Ether’s price performance compared to other digital assets. Source: VanEck
Similarly, the report noted that developers are increasingly deploying new tokens on these higher-throughput networks to provide a better experience to the end-user and avoid the bottlenecks created by Ethereum’s sequential processing of transactions.
Related: Why is Ethereum (ETH) price underperforming compared to wider crypto market?
Ethereum faces internal and external price suppression
Ethereum layer-1 revenues have been “cannibalized” by competing Ethereum layer-2 networks, according to VanEck. This competition has placed Ethereum between a rock and a hard place—squeezing revenue from within the Ethereum ecosystem as second and third-generation layer-1 blockchains erode its market share from the outside.
As a result, Ethereum network fees have declined by 99% since the introduction of the Dencun upgrade in March 2024. The Dencun upgrade, which drastically reduced fees for layer-2 networks, created a rapid proliferation of Ethereum layer-2 networks.
The sharp increase in scaling networks for Ethereum drew the attention of Anoma co-founder Adrian Brink, who recently told Cointelegraph that he believes there are currently too many Ethereum layer-2 solutions.
According to Brink, the industry has approximately 10 times the number of Ethereum scaling solutions required to handle traffic.
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