- Ethereum’s road map has not led it to the front of the pack, explained analysts at VanEck.
- The result is a massive drop in onchain revenues.
- Planned upgrades for this year could right the ship, however.
Ethereum is in trouble, but new initiatives could help the number-two cryptocurrency right the ship.
That’s according to VanEck’s Head of Digital Assets Research Matthew Sigel and Senior Analyst on Digital Assets Patrick Bush.
“Ethereum has struggled in the current crypto cycle, both in terms of usage and asset valuation,” they wrote in a Wednesday note to investors.
“This decline is largely due to the erosion of the core factors that once made Ethereum valuable.”
The note is the latest testament to Ethereum’s ongoing woes. While rivals XRP and Solana have surged over the past year, Ethereum has failed to keep up.
Zigging over zagging
Ethereum has lost its role as the top hub for onchain crypto trading, VanEck said. A combination of missteps have led to this.
Ethereum’s approach to scaling its chain was to encourage users to move from its “mainnet” to affiliated “layer 2” blockchains such as Arbitrum and Base, which can handle a greater number of transactions at lower cost. This caused fragmentation of users and liquidity between them.
At the same time, Solana secured market share from Ethereum. Users seemed to prefer a single chain where they could trade memecoins — VanEck estimated 80% of Solana’s revenues came from memecoin trading — easily, with faster transaction speeds and no fragmentation.
With crypto activity moving elsewhere, Ethereum’s usage has declined. A direct consequence of this reduced demand is that the cryptocurrency is no longer deflationary, which was a major selling point in the chain switching in 2022 to a proof-of-stake security approach.
Ether is burned as part of transacting on the network, so lower usage translates into fewer tokens being burned and greater supply.
Taken together, Ethereum’s revenue has dropped by 93% over the past year, VanEck wrote. Its share of blockchain revenue has dropped from 55% in February 2024 to 24% in February 2025.
The Ethereum Foundation, a non-profit that supports the development of the chain, has also been criticised for being run more like a daisy-garlanded cooperative than a business concern worth hundreds of billions, while co-founder Vitalik Buterin drew ire recently for a communism-related shitpost.
All eyes on upgrades
VanEck pointed to the upcoming Pectra update, which is expected in March, as a possible pivot point for Ethereum’s fortunes.
Pectra is meant to improve the functionality of the chain in several ways, including the addition of a wallet recovery mechanism and account abstraction. It will also increase efficiency of Ethereum’s validators, who are collectively responsible for validating and securing the blocks of information that form its chain.
It will also double the number of so-called blobs that Ethereum can handle, the “most significant upgrade in Pectra,” according to the analysts.
Blobs are the batches of transaction data that layer 2 blockchains send to Ethereum. Doubling the number of blobs Ethereum can handle is expected to reduce transaction fees on the network, according to the analysts.
The Ethereum Foundation has introduced the concept of “intents” as a way to avoid having users bridge their tokens between various layer 2 networks.
Instead of a user submitting a transaction, they submit a desired outcome, or intent. From there, a constellation of “solvers” competes to provide the user with that outcome in the most efficient way possible.
“With the introduction of intents, users may no longer need to rely on bridges, reducing both security risks and transaction delays,” wrote the analysts.
Bridges have collectively resulted in the loss of billions in crypto, as their complicated structures make them vulnerable to hacks; the largest to date was Ronin, in which hackers affiliated with North Korea stole $624 million in 2022.
“We are in war mode,” said Justin Drake, and Ethereum Foundation researcher, in January. “We are shifting gears and moving much faster.”
Andrew Flanagan is a markets correspondent for DL News. Have a tip? Reach out to aflanagan@dlnews.com.