Over the past 12 months, Ethereum's network faced several technology-related challenges. The Dencun upgrade, which lowered overall fees for Layer 2's, contributed to a sharp decline in network revenue, with fees dropping to a low of $566,000 in August. Consequently, Ethereum’s share of total blockchain fees plummeted from 86% in 2022 to 33% in 2024, as users migrated to more scalable and cost-effective alternatives.
These challenges also undermined Ethereum's "ultrasound money" narrative, which relies on high network activity and fee burns to maintain a deflationary supply of its native token, Ether (ETH). With reduced on-chain activity and lower fees due to the Dencun upgrade, the burn rate fell significantly, leading to periods of net inflation, which subsequently raised questions around Ethereum’s ability to sustain its position as a premier store of value.
Despite these headwinds, there seems to now be emerging signs of resilience within the broader Ethereum ecosystem. Over the past week, tokens built on Ethereum’s base layer have begun outperforming tokens on competing platforms Solana, Base, and emerging network Sui. This suggests that while Ethereum faces challenges at the network level, its broader ecosystem of tokens and applications look to be attracting investor interest, potentially underscoring the enduring strength of its foundational infrastructure.
What’s going on?
To understand what's driving this momentum shift, a key indicator to consider is Total Value Locked (TVL), which represents the level of capital locked in a network. It is widely considered to act as a proxy for adoption and utilisation. After a sluggish year, the rate of TVL growth on the Ethereum network has recently accelerated, possibly demonstrating increased activity and renewed confidence in the network's utility, and may suggest users and developers are returning to build and transact in the ecosystem
Another important indicator is the decline in Bitcoin dominance over the past two weeks, which coincides with the Ethereum network's token rally, as seen in the chart above. Similar to previous bull cycles, a reduction in Bitcoin dominance generally marks profit-taking and a rotation into altcoins. With Ethereum's Layer 1 network being one of the most vibrant and established altcoin ecosystems, it stands to reason that it is well-positioned to capture a significant share of this capital redeployment.
Conclusion
While the Ethereum network has faced significant challenges over the past year, including a decline in revenue, market share, and a weakening of its "ultrasound money" narrative, recent trends suggest a potential turning point. Accelerating TVL growth and a resurgence in Ethereum token performance points to the network's enduring strength and maturity. By investing in an index of Ethereum network tokens, investors can look to capture this potential upside, while momentum remains.
