Ethereum in the Bull Market
As the bull market enters the season of altcoins, it seems that time is running out for Ethereum (ETH). Since the beginning of this uptrend cycle in late 2023, the performance of ETH has been closely watched.
However, it appears that ETH has not performed as expected in the past year. In terms of price increase, the maximum increase since October 2023 has been 170%, and it has struggled to break through the $4,000 mark significantly.
On the other hand, during the same period, BTC has experienced a maximum increase of over 300%, and SOL has surged over 1,300%. Many people believe that ETH represents an opportunity in the season of altcoins, but its momentum is clearly insufficient as several established altcoins have experienced significant surges in the short term.
As the number one public chain, Ethereum, from an objective data perspective, is it being undervalued or performing normally? Can it still compete?
Stagnant On-Chain Data for a Year
From on-chain data, it is evident that Ethereum has not shown significant growth in the past year. Daily transaction volume is an important indicator of activity. Looking at the chart of Ethereum’s daily transaction volume over the past year, it shows a stable fluctuation pattern, similar to an electrocardiogram.
On December 8, 2023, the total transaction volume on the Ethereum mainnet was 1.18 million, and after a year, on December 8, 2024, it reached 1.22 million, almost unchanged. Only in January 2024 did it briefly increase to 1.96 million. For the rest of the year, it remained between 1 million and 1.3 million.
The trend of gas fees is even more indicative of on-chain activity. At the end of 2023 and the beginning of 2024, Ethereum’s gas fees were relatively high, averaging above 40 Gwei and reaching around 100 Gwei at the highest point. With the rise of new public chains like Solana, it is clear from the chart that Ethereum’s gas fees have decreased, especially from July to September, when it reached as low as 0.3 Gwei.
Although there has been a recent rebound, it has generally remained below 20 Gwei. Initially, Layer 2 solutions surged forward primarily due to the high gas fees on the Ethereum mainnet. Now that Ethereum’s gas fees have finally come down, it seems that users have left. Or rather, it is only with the users’ departure that Ethereum’s gas fees have truly decreased.
In terms of active addresses, it follows a similar pattern to the curve of daily signed transactions. According to data from Ethereum browsers, the number of daily active Ethereum addresses and ERC20 addresses has not increased significantly, and the data levels are similar to those before the start of the bull market.
User Flow to L2, Funds Stay on L1
Where have Ethereum’s users gone? Looking at the weekly on-chain activity data, about a year ago, Ethereum’s active addresses accounted for about 50% of all Layer 2 solutions, but over time, the data shows that the active addresses on Layer 2 solutions are increasing overall, while Ethereum’s mainnet active addresses account for about 24% of the total.
Analyzing the performance of each chain individually, in December 2023, the Ethereum mainnet was the most active chain, accounting for approximately 32.48%, but by December 2024, Base had become the most active chain, accounting for 50%. Ethereum’s mainnet came in second at 19%, followed by Arbitrum at 9.2%.
However, when it comes to TVL (Total Value Locked), the Ethereum mainnet still seems to be the top choice for large investors. Looking at the total amount of stablecoins locked on the chain, Ethereum’s mainnet accounted for about 95% in December last year, and while that ratio has slightly decreased, it still accounts for about 91%.
TVL data has been the only significant increase on the Ethereum mainnet in the past year. In December 2023, the TVL on the Ethereum mainnet was around $28.8 billion, and by December 2024, it had increased to about $77.5 billion, a growth rate of 2.69 times. This growth rate exceeds the growth rate of Ethereum’s price, which is related to the rise in asset prices during the bull market. Among Layer 2 solutions, Arbitrum and Base rank second and third in terms of stablecoin TVL.
In terms of revenue, the Ethereum mainnet is also the most profitable chain within the Ethereum ecosystem. Over the past year, Ethereum’s revenue has consistently accounted for over 80%, and as of December 8, it was 92%. Base has become the second-highest revenue chain in the Ethereum ecosystem this year.
The market capitalization of Ethereum has also remained at around 98%. Despite the decrease in on-chain activity, the market capitalization ratio seems to be consistent with the TVL ratio. Furthermore, Ethereum’s market capitalization share in the entire crypto market has been continuously decreasing over the past year and is currently only around 13.4%.
However, considering the growth of TVL, most large funds still choose to keep their assets on the Ethereum mainnet. Comparing the ratio of total TVL to the number of active users, Ethereum’s mainnet has a ratio of $178,700 per user, while Base is approximately $3,315 and Solana is around $1,972. From this perspective, the value per user on the Ethereum mainnet remains the highest in the entire network.
Uniswap’s Exodus May Pose Greater Concerns
From various indicators, it is clear that Uniswap is currently the undisputed largest 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. Uniswap has also consistently topped the list of gas burners on Ethereum, burning a total of 6,372 ETH in the past 30 days, while ETH transfers burned only 4,594 ETH.
Once Uniswap migrates most of its trading activity to its own Unichain, the activity and burn volume on the Ethereum mainnet may decrease significantly. According to Forbes, Ethereum validators may lose an annual income of about $400 to $500 million as Uniswap transitions to its own chain. However, the more significant concern is that this threatens the basic narrative of Ethereum as a deflationary currency.
Uniswap’s generic router is the largest account consuming gas fees, accounting for 14.5% of Ethereum’s gas fees, equivalent to burning $1.6 billion worth of ETH.
Summing up the above indicators, we can conclude some key features. The on-chain activity of the Ethereum mainnet has not increased in the past year, and its proportion within the entire Ethereum ecosystem has gradually decreased. This at least indicates that most new users have chosen other Layer 2 solutions or other public chains (after all, emerging public chains such as Solana, Sui, and Aptos have shown high-speed growth in these data).
Therefore, returning to the initial topic, have there been significant changes in the fundamentals of Ethereum? Is the price of ETH undervalued?
Based on the above data, it seems that the Ethereum mainnet is transforming into a deposit pool for large players and institutional funds. Even though gas fees have significantly decreased, it still cannot compete with Layer 2 solutions or other public chains in terms of transaction fees and speed.
Therefore, the Ethereum mainnet is clearly no longer a club for retail investors, and it no longer has the advantage of community size in popular sectors like MEME. It is more suitable for players who do not require high transaction frequency but have higher asset security requirements. From this perspective, we can only say that the role of the Ethereum mainnet ecosystem is undergoing a transformation, and liquidity and security have become its last moat.
This article is a collaboration and repost from DeepTech.
