Key takeaways:
Ethereum’s core activity has diminished, with a decline in fees and TVL, indicating reduced demand despite the recent price recovery.
Layer-2 networks are experiencing rapid growth, providing support to Ethereum while base layer usage weakens and traders remain cautious.
Ether (ETH) surged to a three-week high near $3,400 on Tuesday, spurred by weak US job market data that reinforced expectations for a possible easing of US monetary policy sooner than expected.
Despite an 11.2% increase over the week, traders are concerned that the sluggish activity on the Ethereum network and limited demand for bullish leverage could hinder short-term gains.
Data from Nansen shows that Ethereum’s 30-day network fees plummeted by 62%, a more significant decline compared to the approximate 22% drop in Tron, Solana, and HyperEVM in the same timeframe.
Notably, some activities grew: transactions on Base increased by 108%, and Polygon experienced an 81% rise, indicating momentum in Ethereum’s expanding layer-2 ecosystem.
The Ethereum Fusaka upgrade on Dec. 3 introduced improvements for rollup efficiency, which likely contributed to the lower network fees observed throughout the month.
On Tuesday, the annualized funding rate for ETH perpetual futures remained near 9%, indicating a balanced distribution of leveraged positions between buyers (longs) and sellers (shorts). Typically, this metric fluctuates between 6% and 12% to cover capital costs; levels above this range often signal stronger bullish sentiment.
Traders grew more defensive after the US Bureau of Labor Statistics reported 1.85 million layoffs in October, the highest since 2023. Markets are anticipating a 0.25% interest rate cut by the US Federal Reserve on Wednesday, with attention turning to Fed Chair Jerome Powell’s remarks following the Committee meeting.
Ethereum’s layer-2 growth offsets base layer fee declines
Even with the recent upward trend, Ether is still trading 32% below its all-time high of $4,597 from August. To understand if demand for the Ethereum network is truly declining, one should examine the effects on decentralized applications (DApps).
Volumes on Ethereum-based decentralized exchanges fell to $13.4 billion over a week, down from $23.6 billion four weeks prior. Similarly, decentralized application revenues hit a five-month low of $12.3 million during the same timeframe. Overall, demand for Ethereum’s base layer processing has been declining since its peak in late August.
Several leading DApps on Ethereum witnessed a significant drop in total value locked (TVL), including Pendle, Athena, Morpho, and Spark. The aggregate TVL on the Ethereum base layer decreased to $76 billion from $100 billion two months ago. Nonetheless, Ethereum maintains its dominance with a 68% market share, while the second-place contender Solana has less than 10%.
Ether proponents argue that the network’s robust incentives for layer-2 scalability offer a more sustainable model compared to the heavier load and centralized coordination required by competitor blockchains. Ethereum is well-positioned to capture considerable future growth in decentralized finance (DeFi).
Related: US Treasurys lead tokenization wave as CoinShares predicts 2026 growth
US Securities and Exchange Commission Paul Atkins reportedly stated in a FOX Business interview that the tokenization of the US market could happen within “a couple of years,” emphasizing that blockchain provides “huge benefits” like predictability and transparency. Atkins advocated for the US to “embrace this new technology, bringing it onshore to function under American regulations.”
While Ethereum’s base layer fees have sharply decreased along with the drop in TVL, activity in the layer-2 ecosystem continues to expand. Currently, neither onchain nor derivatives data suggests significant weakness in ETH price trends.
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