Ethereum’s early 2025 performance has been discouraging for long-term holders. With Bitcoin struggling in Q1, Ethereum followed suit — registering a 45% decline from recent highs. Since the March 2024 Dencun upgrade, ETH has remained under selling pressure, leading many investors to question: Is Ethereum still central in an increasingly multi-layer DeFi world?
Ethereum’s Role: From Execution Layer to Infrastructure Hub
Ethereum rose to prominence as the go-to smart contract platform, reaching an all-time high of $4,878 in 2021. Since then, it has lost more than 70% of that value. The network’s evolution has shifted dramatically — now serving as the base layer for Layer 2s, rather than the primary site of transactional activity.
The Dencun upgrade drastically reduced Layer 2 settlement costs, accelerating DeFi migration off mainnet. Platforms like Base have thrived, generating $94 million in profit while remitting only $4.9 million to Ethereum.
Is Ethereum Getting Cannibalized by L2s?
Critics argue that while Layer 2s benefit from Ethereum’s security, they are extracting value without reinvesting. ETH fee revenue and burn rates — essential to Ethereum’s “ultrasound money” model — have dropped significantly. Annual ETH supply is now projected to grow just under 1%, according to Ultrasound Money.
With total value locked (TVL) across Ethereum’s ecosystem around $44 billion, the platform’s on-chain revenue continues to decline — raising long-term sustainability concerns.
Institutional Backing: Confidence or Fatigue?
Previously bullish institutional sentiment is starting to wane. The Ethereum Foundation has reportedly sold ETH holdings, and newly launched ETH ETFs in the U.S. have struggled to gain momentum. Investors are shifting focus from TVL and transactions to metrics like protocol revenue and net burn.
Can Pectra Spark a Technical Revival?
Ethereum’s next upgrade — Pectra — will roll out later in 2025. It includes several key improvements:
- EIP-7691: Expands blob capacity
- EIP-7623: Raises calldata costs
- EIP-7702: Enables gasless transactions
While these changes are crucial for efficiency and UX, they’re geared toward developers and L2 scaling, not institutional capital. Regulatory frameworks and compliance remain Ethereum’s largest blind spots.
ETH Volatility: Bearish or Opportunity?
Dr. Sean Dawson of Derive.xyz reports a surge in ETH volatility:
- Implied volatility has risen from 71.5% to 122%
- Odds of ETH falling below $1,400 by May 30 rose to 33%
Macro pressure, weak ETF flows, and ETH’s shifting architecture have made price action more unstable. Still, many view ETH as a critical building block in the Web3 world — assuming it can evolve to capture value more directly.
Reset or Rebirth? Ethereum’s Defining Moment
Ethereum’s ecosystem is thriving — but ETH’s value capture is lagging. The Pectra upgrade will improve scalability, but the true test lies in adoption and monetization. Ethereum must prove it can balance its infrastructure role with sustainable economics — or risk falling behind in a multi-chain era.
