Reevaluating Ethereum’s Market Position: Insights into Layer-2 Growth and Investor Sentiment

Key Highlights

• Ethereum’s core network strengths continue to underpin its resilience, especially amid its robust ETH futures markets.
• Expansion in layer-2 transaction volumes signals ongoing ecosystem development and increased scalability.

Since May 13, Ether (ETH) has struggled to surpass the $2,700 mark, often falling short of this threshold. Despite this short-term dip, ETH has outperformed the overall cryptocurrency market by approximately 17% over the past month. This momentum suggests a potential for correction, especially as macroeconomic uncertainties persist.

Market participants remain cautious, primarily due to waning interest in decentralized applications (DApps) across various blockchain platforms. ETH’s current price remains about 48% below its all-time high of $4,870 recorded in October 2021. Meanwhile, the total value locked (TVL) within the Ethereum ecosystem stands at roughly $122 billion, representing a 43% decline from its December 2021 peak.

Ethereum’s Dominance and Layer-2 Ecosystem Expansion

Ethereum continues to command a commanding 54.2% share of the total DeFi TVL landscape. Additionally, Layer-2 solutions built on Ethereum have captured an extra 6.3% of the TVL, further solidifying Ethereum’s competitive edge over other blockchains. The deposits across Ethereum’s ecosystem are now more than four times greater than the combined totals of Solana and BNB Chain, its two largest rivals.

Despite Ethereum’s dominance, the industry faced criticism for being unprepared for the memecoin surge that characterized the first quarter of 2025. Notably, on-chain activity on Solana surged following the launch of the Trump (TRUMP) token in January. While some Solana-based DApps experienced significant growth, the overall profitability for SOL token holders remains uncertain.

For example, the top four Solana DApps- Meteora, Pump, Jito, and Axiom-generated approximately $356.3 million in fees over the past month. In contrast, the entire Solana network processed only about $48.5 million in transaction fees during the same period. This discrepancy often leads to project teams selling off treasury reserves, exerting downward pressure on SOL’s market value.

In comparison, the leading four Ethereum DApps collectively earned around $169 million in fees over the same period, with users paying approximately $38.3 million in network transaction costs. This indicates that Ethereum’s reliance on Layer-2 scaling solutions might offer a more stable revenue stream for ETH investors compared to Solana’s more volatile earnings distribution.

Market Sentiment and Futures Market Dynamics

To understand whether recent price declines have shifted investor sentiment toward bearishness, examining ETH futures markets provides valuable insights. Following a 9% drop in ETH’s price between May 29 and May 30, the futures market’s annualized premium remained around 6%. Typically, a premium between 5% and 10% suggests a neutral market, with sellers demanding compensation for delayed settlement.

Despite liquidations of approximately $159 million in bullish leveraged positions during this period, the overall futures premium remained stable, indicating that traders are not overly bearish at this stage. However, some investors express frustration over Ethereum’s perceived lack of clear competitive advantages. Recent network upgrades have not significantly shifted market sentiment.

Meanwhile, Ethereum’s Layer-2 ecosystem continues to grow rapidly, now handling over 15 times the number of transactions processed on the mainnet. This scalability boost enhances user experience and could serve as a key factor in future price stability and growth.

Outlook: Macro Factors and Long-Term Resilience

Investor outlook remains heavily influenced by macroeconomic trends, including recession fears and geopolitical tensions. The risk of ETH falling below the $2,400 level is closely linked to these broader economic factors. Nonetheless, Ethereum’s high TVL and expanding Layer-2 transaction capacity provide a buffer against downside risks, reducing the likelihood of underperformance relative to other altcoins.

In conclusion, while short-term price movements may evoke concern, Ethereum’s underlying network strength and ecosystem growth suggest a resilient position in the evolving crypto landscape. As macroeconomic conditions stabilize or improve, Ethereum’s scalability solutions and dominant market share could catalyze renewed investor confidence and price appreciation.

This analysis is intended for informational purposes only and should not be construed as financial advice. The opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.