Ethereum's Ascension Dilemma: Why Strong Fundamentals Can't Prevent Price Declines?

In 2025, Ethereum experienced a classic “fundamental-price divergence” crisis. Technology was advancing, the ecosystem was thriving, but the price was declining—an awkward reality faced by all holders. In August, ETH price reached a historic high of $4.95K, with market sentiment hitting “extreme greed”; now it has fallen back to around $3.01K. Over the past year, it has declined by 9.69%, with a volatility of 141%.

Paradoxically, during this year, Ethereum delivered impressive technical achievements: successfully implementing the Pectra and Fusaka milestone upgrades, thoroughly restructuring network scalability; Layer 2 ecosystems exploded in growth, with Base chain’s annual revenue surpassing many public chains; giants like BlackRock established Ethereum as the preferred settlement layer for real-world assets (RWA) through the BUIDL fund, which exceeds $2 billion.

On one side are advancing technology and ecosystems; on the other, falling token prices. What exactly is happening behind this divergence?

The Demise of Deflation: The Shockwaves of the Dencun Upgrade on Token Economics

To understand this divergence, we must start with the Dencun upgrade on March 13, 2024.

The core of this upgrade is the introduction of EIP-4844, which provides a dedicated data availability layer for Layer 2 via Blob transactions. Technically perfect—L2 transaction costs plummeted over 90%, greatly improving user experience on networks like Arbitrum and Optimism. But in terms of token economics, it triggered intense turbulence.

Under the EIP-1559 mechanism, ETH’s burn rate (deflationary force) directly depends on network congestion. Dencun significantly increased data availability supply, but demand did not keep pace. Although L2 transaction volume grew, Blob space supply exceeded demand, causing Blob fees to hover near zero for a long time.

Data best illustrates the problem. Before the upgrade, during Ethereum’s peak periods, daily burns could reach thousands of ETH; after Dencun, due to Blob fee collapse, total burns sharply declined. More critically, ETH issuance (about 1,800 ETH/day per block) began to surpass burns, causing Ethereum to shift from a deflationary to an inflationary state.

According to ultrasound.money data, Ethereum’s annual inflation rate in 2024 turned from negative to positive, meaning the total ETH supply no longer decreased but grew net daily. This completely overturned the narrative foundation of “Ultra Sound Money.”

The Double-Edged Sword of Layer 2: Ecosystem Prosperity Eroding Mainnet Value

A harsh fact is staring us in the face: the more successful L2 is, the weaker the mainnet’s value capture; the better the user experience, the more ETH holders suffer.

From a financial statement perspective, Ethereum’s Layer 1 situation is concerning. Coinbase’s developed Base chain generated over $75 million in revenue in 2025, accounting for nearly 60% of the entire L2 profit share. In contrast, Ethereum L1, despite active transactions in August, had only $39.2 million in protocol revenue—less than a single quarter of Base.

“The L2 is a parasite, draining Ethereum’s blood.” This is the mainstream market view.

But deeper analysis reveals things are far from simple. All economic activity on L2 ultimately denominates in ETH. On Arbitrum or Base, users pay gas fees in ETH; core collateral in DeFi protocols is ETH. The more prosperous L2 becomes, the stronger ETH’s liquidity as a “currency.”

Ethereum is undergoing a fundamental shift in its business model—from directly serving users to serving L2 networks. The Blob fees paid by L2 to L1 are essentially purchases of Ethereum’s security and data availability. Although current Blob fees are low, with the explosion of L2s, this B2B revenue model could be more sustainable than relying solely on retail B2C.

An analogy is: Ethereum is no longer a retailer but a wholesaler. Although profit per transaction is lower, the scale effect could be greater. The problem is, the market has yet to grasp the deeper implications of this business model shift.

The Divergence in Competition: How Ethereum Can Maintain Its Financial Dominance

According to Electric Capital’s 2025 annual report, Ethereum remains the undisputed developer leader, with 31,869 active developers throughout the year—the number of full-time developers is unmatched by other ecosystems.

But in the battle for new developers, Ethereum is losing its edge. Solana’s active developers reached 17,708, an 83% increase year-over-year, and performed remarkably among new entrants.

The track is increasingly polarized. In PayFi (payment finance), Solana has established dominance with high TPS and low fees. The issuance of PayPal USD (PYUSD) on Solana surged, and institutions like Visa are testing large-scale commercial payments on Solana.

In the DePIN (decentralized physical infrastructure) track, Ethereum faced a heavy setback. Due to fragmentation between L1 and L2 and gas fee volatility, star project Render Network migrated to Solana in November 2023. Helium, Hivemapper, and other leading DePIN projects also chose Solana.

But Ethereum is not entirely defeated. In RWA (real-world assets) and institutional finance, Ethereum maintains absolute dominance. BlackRock’s $2 billion BUIDL fund operates mostly on Ethereum. This demonstrates that, when handling large-scale asset settlements, traditional financial institutions trust Ethereum’s security and legal certainty.

In the stablecoin market, Ethereum accounts for 54%, about $170 billion, remaining the main carrier of “network dollars.” Ethereum has the most experienced architects and researchers, suitable for building complex DeFi and financial infrastructure; competitors, however, attract many application developers transitioning from Web2, suitable for consumer-facing applications.

The Dilemma of Institutional Entry Conditions

“It seems that mainstream Wall Street financial institutions have not given strong recognition.” This feeling is not an illusion.

Data from The Block shows that by the end of the year, ETH ETFs had a net inflow of about $9.8 billion, while Bitcoin ETFs reached $21.8 billion. Why are institutions so “cold” toward Ethereum?

The core reason is: due to regulatory restrictions, spot ETFs launched in 2025 have eliminated staking features. Wall Street values cash flow most. Ethereum’s native 3-4% staking yield was its key competitive advantage against US Treasuries. But for clients of BlackRock or Fidelity, holding a “zero-yield” risk asset (ETH in ETF) is far less attractive than directly holding Treasuries or high-dividend stocks.

A deeper issue is the ambiguous positioning. In the 2021 cycle, institutions viewed ETH as a “tech stock index” of the crypto market—high beta asset. But by 2025, this logic no longer holds. If seeking stability, institutions prefer BTC; if pursuing high risk and high return, they turn to other high-performance public chains or AI-related tokens. ETH’s “alpha” returns are no longer clear.

However, institutions are not entirely abandoning Ethereum. BlackRock’s $2 billion BUIDL fund is a clear signal: when handling hundreds of millions of dollars in asset settlement, traditional finance only trusts Ethereum’s security and legal certainty. Their attitude is more like “strategic acknowledgment, tactical wait-and-see.”

The Path to Elevation: Five Key Turning Points Reshaping Ethereum’s Narrative

Given the current downturn, where are Ethereum’s opportunities for ascent?

First, the breakthrough of staking ETFs. The 2025 ETFs are only “semi-finished.” Institutional holders cannot earn staking yields. Once ETFs with staking features are approved, ETH will instantly become a dollar-denominated asset with an annualized yield of 3-4%. For global pension funds and sovereign wealth funds, this asset—combining technological growth (price appreciation) and fixed income (staking returns)—will become a standard component of asset allocation.

Second, the explosion of RWA. Ethereum is becoming Wall Street’s new backend. By 2026, with more government bonds, real estate, private equity funds on-chain, Ethereum will carry trillions of dollars of assets. While these assets may not generate high Gas fees, they will lock in vast amounts of ETH as liquidity and collateral, greatly reducing market circulation.

Third, the supply-demand reversal in the Blob market. Currently, Blob space utilization is only 20%-30%. As blockbuster applications (like Web3 games, SocialFi) emerge on L2, Blob space will be filled. Once the market saturates, fees will rise exponentially. Liquid Capital analysis suggests that, with growing L2 transaction volume, by 2026, Blob fees could contribute 30%-50% of ETH’s total burn. At that point, ETH will return to a deflationary “ultrasound” trajectory.

Fourth, breakthroughs in L2 interoperability. Fragmentation of L2 ecosystems is a major obstacle to large-scale adoption. Optimism’s Superchain and Polygon’s Aggregator Layer are building unified liquidity layers. More importantly, shared sequencers based on L1 technology will allow all L2s to share a single decentralized sequencer pool, solving cross-chain atomic swaps and enabling L1 to regain value (sequencers need to stake ETH).

Fifth, the 2026 roadmap. Glamsterdam (first half of 2026) will focus on optimizing execution layers, greatly improving smart contract development efficiency and security, and reducing Gas costs. Hegota (second half of 2026) and Verkle Trees are key to the final stage. Verkle Trees will enable stateless clients, meaning users can verify Ethereum on mobile phones or browsers without downloading terabytes of data.

From Retail Platforms to Global Settlement Layer

Ethereum’s “poor” performance in 2025 is not because it has failed, but because it is undergoing a painful transformation from a “retail speculation platform” to a “global financial infrastructure.”

It sacrifices short-term L1 revenue for unlimited Layer 2 scalability. It sacrifices short-term price explosion potential for compliance and security moat in institutional assets (RWA). This is a fundamental shift in business model: from B2C to B2B, from earning transaction fees to building a global settlement layer.

For investors, today’s Ethereum is like Microsoft in the mid-2010s transitioning to cloud services—although its stock price is temporarily subdued and faces challenges from emerging competitors, its deep network effects and moat are accumulating strength for the next phase of ascent.

The question is not whether Ethereum can ascend, but when the market will recognize the value of this transformation.