As the bull market pivots towards altcoin season, Ethereum (ETH) appears to be running out of time to prove its worth. Since the upward trend began in late 2023, ETH's performance has been under intense scrutiny. Over the past year, however, ETH seems to have fallen short of market expectations. The numbers tell a clear story: from October 2023, ETH's maximum gain has been approximately 170%, struggling to break and hold above the $4,000 barrier consistently. In stark contrast, Bitcoin (BTC) has posted gains exceeding 300% in the same period, while Solana (SOL) has skyrocketed by over 1300%. Many consider ETH a bellwether for the arrival of altcoin season. Yet, as several established altcoins have experienced explosive short-term gains, Ethereum's momentum appears lackluster.
As the "King of Smart Contracts," is Ethereum undervalued by the market? Or is this performance to be expected? Is it a case of a veteran showing it still has what it takes, or has it simply lost its edge?
A Year of Stagnation in Blockchain Metrics
An analysis of on-chain data reveals that Ethereum has neither significantly declined nor substantially grown over the past year. It has, for the most part, remained in a state of stagnation.
Daily transaction count, a key indicator of network activity, paints a picture of stability with minor fluctuations. A chart of Ethereum's daily transactions over the past year resembles a flat line with slight ripples, much like a heart rate monitor. On December 8, 2023, the Ethereum mainnet recorded 1.18 million daily transactions. Fast forward to December 8, 2024, and this number saw a marginal increase to 1.22 million. During this period, only January 2024 saw a temporary spike, reaching 1.96 million daily transactions, while volume mostly remained between 1 million and 1.3 million.
The trend in gas fees offers an even clearer reflection of on-chain activity on Ethereum. From late 2023 to early 2024, Ethereum's gas fees remained relatively high, averaging above 40 Gwei with peaks around 100 Gwei. However, with the rise of new blockchains like Solana, the chart shows a notable decline in Ethereum's gas fees. This drop was particularly pronounced between July and September, with fees dipping as low as 0.3 Gwei. Although there has been a recent uptick, gas fees generally remain below 20 Gwei. Previously, Ethereum's high gas fees drove rapid adoption of Layer 2 scaling solutions. Now that fees have finally decreased, the destination of users seems unclear. One could argue that it is precisely this user exodus that has led to the significant drop in fees.
As for active addresses, the pattern closely mirrors the trend in daily transactions. Data from Ethereum block explorers shows that the daily count of active Ethereum and ERC-20 addresses has shown little to no growth, essentially remaining at pre-bull market levels.
User Migration to L2, Capital Remains on L1
Where have Ethereum's users gone? Weekly on-chain activity data provides some clues. A year ago, Ethereum's active addresses accounted for roughly 50% of all Layer 2 activity. Over time, this proportion has gradually declined. Currently, the Ethereum mainnet's active addresses constitute only about 24% of the total active addresses across all Layer 2 solutions, while user activity on Layer 2 platforms shows a marked upward trend.
In December 2023, the Ethereum mainnet was the most active blockchain, accounting for approximately 32.48% of total activity. By December 2024, the most active chain had shifted to Base, which now commands a 50% share. The Ethereum mainnet has fallen to second place with 19%, closely followed by Arbitrum at 9.2%.
In terms of Total Value Locked (TVL), the Ethereum mainnet remains the preferred choice for large capital holders. In December 2023, the Ethereum mainnet accounted for about 95% of all stablecoin TVL. While its share has slightly decreased over the past year, it still maintains a dominant position at approximately 91%. Notably, TVL is one of the few metrics for Ethereum that has shown significant growth over the past year. In December 2023, Ethereum's TVL was around $28.8 billion. By December 2024, this figure had surged to approximately $77.5 billion, a 2.69x increase. This growth rate outpaces Ethereum's price appreciation, reflecting the overall rise in asset values during a bull market. Among Layer 2 solutions, Arbitrum and Base rank second and third, respectively, for stablecoin TVL.
Regarding revenue, the Ethereum mainnet remains the most profitable chain within the Ethereum ecosystem. Over the past year, Ethereum's revenue share has consistently remained above 80%, reaching 92% as of December 8, 2024. Base has emerged this year as the second highest revenue-generating chain within the ecosystem.
Ethereum also maintains a dominant share of the market capitalization within its ecosystem, at around 98%. Despite the decline in on-chain activity, its market cap proportion is quite close to its TVL share. However, in the broader crypto market, Ethereum's market share has steadily declined over the past year and now stands at just 13.4%.
Despite the drop in on-chain activity, large capital flows continue to favor the Ethereum mainnet. Comparing Total Value Locked to the ratio of active users, Ethereum boasts the highest "value per user" among all chains. This metric stands at $178,700 for the Ethereum mainnet, compared to $3,315 for Base and $1,972 for Solana. This highlights Ethereum's position as the chain with the highest "user value density" within the ecosystem. For those tracking these sophisticated capital movements, exploring more strategies for navigating this evolving landscape can be highly beneficial.
The Uniswap Question: A Cause for Concern?
According to available data, Uniswap remains the undisputed top application on Ethereum. In terms of DEX activity, Uniswap V2 and V3 together account for over 97% of the trading volume on the Ethereum mainnet. On Ethereum's burn leaderboard, Uniswap has long held the top position. As of December 9, Uniswap burned 6,372 ETH in the past 30 days, while simple Ethereum transfers burned only 4,594 ETH.
If Uniswap were to migrate a significant portion of its trading activity to its own Unichain, Ethereum's mainnet activity and burn rate could decline substantially. According to a Forbes report, a Uniswap migration to its own chain could result in Ethereum validators losing approximately $400-$500 million in annual revenue. However, this financial loss is secondary to the broader threat it poses to Ethereum's deflationary narrative. Uniswap's Universal Router is the largest gas consumer on Ethereum, accounting for 14.5% of total gas fees and having burned $1.6 billion worth of ETH to date.
Summarizing these metrics, several trends become apparent. Ethereum's on-chain activity has seen almost no growth over the past year, and its share within the Ethereum ecosystem is gradually declining. This suggests that new users are primarily opting for Layer 2 solutions or alternative blockchains. For instance, emerging chains like Solana, Sui, and Aptos are experiencing rapid growth in these areas.
This brings us back to the initial question: Has Ethereum's fundamental situation undergone a significant change? Or is ETH undervalued? The data suggests the Ethereum mainnet is evolving into a liquidity hub for institutions and large capital. Even though gas fees have decreased substantially, the mainnet still struggles to compete with Layer 2 solutions or other blockchains in terms of transaction fees and speed. The Ethereum mainnet is no longer a haven for small retail investors. It has also lost its community advantage in popular categories like meme coins. Instead, it now caters to users with lower transaction frequency but a higher need for security. From this perspective, Ethereum's ecosystem role is transforming—liquidity and security are becoming its final moats.
Frequently Asked Questions
Is Ethereum still a good investment in 2024?
Ethereum remains a core holding in many portfolios due to its established ecosystem, security, and upcoming protocol improvements. While its short-term price growth has lagged behind some alternatives, its long-term value proposition as a decentralized settlement layer and platform for decentralized applications continues to attract institutional capital. Its high "value per user" metric indicates strong capital confidence.
Why are Ethereum's gas fees so low now?
The significant drop in Ethereum's gas fees is primarily attributed to a combination of increased scalability from Layer 2 rollups absorbing transaction volume and a potential migration of some user activity, particularly retail, to competing chains with lower costs. This has reduced congestion on the mainnet, leading to lower fees for users who remain.
What is the biggest threat to Ethereum's dominance?
The most significant immediate threat appears to be the potential migration of major applications like Uniswap to their own application-specific chains. This could drastically reduce on-chain activity, fee revenue for validators, and the burn rate of ETH, potentially weakening its deflationary economic model and overall network effects.
How do Layer 2 solutions like Arbitrum and Base affect Ethereum?
Layer 2 solutions enhance Ethereum's scalability by processing transactions off-chain and posting compressed data back to the mainnet. This relationship is symbiotic: L2s rely on Ethereum for security and final settlement, while they help reduce mainnet congestion and make the ecosystem more accessible. They expand the overall Ethereum ecosystem rather than directly competing with the mainnet.
Is Ethereum losing developers to other blockchains?
While developer activity is growing on newer chains, Ethereum and its Layer 2 ecosystems still boast the largest and most active developer community in the smart contract platform space. The maturity of its tooling, programming language Solidity, and vast existing codebase provide a significant advantage that is not easily replicated elsewhere.
What is Ethereum's main value proposition if activity moves to L2s?
Ethereum's primary value shifts towards being a secure base settlement and data availability layer. It provides ultimate security and trust minimization for the numerous Layer 2 networks built on top of it. This role, akin to a foundational internet protocol, may be less visible to end-users but is critically important for the entire ecosystem's integrity. To understand how this infrastructure supports broader market activity, you can view real-time tools that track these complex interactions.