ETH DApp Volumes Fall 19% After Forced Ethereum Value Rise Narrative

Ether (ETH) has struggled to break above $2,450 for more than two weeks, and the recent 17% drop has raised concerns about Ethereum's decentralized application (DApp) movement, especially as it affects the Layer-2 ecosystem. Traders are asking if the current support level of $2,250 will last longer.

On the positive side, Ethereum remains the main platform in activity and development, although competitors are gaining.

The increase in Ethereum transaction fees will have a negative impact on the price of Ether

Low transaction volumes can negatively impact demand for Ether, either by reducing the fees collected or signaling that users may migrate to other networks.

An ongoing challenge for Ethereum is the relatively high transaction costs, which currently average $1.70. While metering solutions have helped solve this problem to some extent, they have introduced additional complexities for users and raised questions about the long-term sustainability of the network's security.

From an investment perspective, the 3.3% yield was less than the 4.6% return offered by the US 6-month Treasury bill, so holding Ether wasn't particularly attractive. Notably, only 28.5% of ETH is currently in circulation, compared to 65.8% for Solana (SOL), 56.9% for Avalanche (AVAX), and 62.7% for Cardano (ADA). As a result, Ethereum staking is no longer the main driver of the revenue stream, providing few incentives to participate in the validation process.

While staking plays a major role in Ethereum's Total Value Locked (TVL), other applications such as lending, trading, and synthetic assets require ETH deposits. Therefore, the small share of tokens participating in the stake is not a negative indicator for the price of Ether. Ethereum still leads in TVL, with $44.15 billion locked up, ten times more than BNB Chain (BNB) or Solana.

Although the 19% weekly drop in Ethereum DApp volumes seems shocking, it is important to compare this with competing blockchains to assess the full impact on payments and the number of active addresses. For example, during the same period, Solana DApp volumes increased by 24 percent, while BNB Chain saw a 23 percent increase. This suggests that the decline in Ethereum DApp activity may not reflect a broader slowdown in the cryptocurrency market.

Not every metric on the Ethereum network points to low activity.

Among the negative developments known on the Ethereum network is the performance of leading decentralized exchanges (DEXs). Uniswap is down 18% in the last seven days, CoW Swap is down 29%, and 1inch is down 18%. In contrast, BNB Chain's Venus Protocol has seen an impressive 236 percent increase over the same period, while Ton Network's Bemo Liquid Staking DAP has seen a 54 percent increase.

Ethereum's top layer-2 solutions saw a decrease in activity between September 10th and September 17th. According to L2Beat, transactions per second decreased from 119 to 94 during this period. Layer-2 platforms, including Arbitrum One, Linea, Mantle, Immutable X and Scroll, were among the downside. However, despite the slowdown in trading, Ethereum's Layer-2 total value locked (TVL) remained relatively stable at 14.6 million ETH.

Other network parameters are also silent. The total TVL of Ethereum between September 10 and September 17 was recorded at 18.9 million ETH. Similarly, the number of active addresses for Ethereum DApps remained around 425,000, which shows that, although the number is decreasing, there are no clear signs that investors are leaving the network.

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However, one trend is the increase in Ether deposits, which rose from 12.02 million ETH to 12.24 million ETH as of September 17, according to Glassnode data. A higher volume of coins on exchanges indicates a higher risk of short-term selling pressure, which can negatively impact price trends.

Although the 17% decrease in Ethereum DApp volumes per week may raise concerns, this alone is unlikely to push the price of Ethereum below the $2,250 support level, especially with active users and the stability of TVL. Investors should continue to closely monitor the network's performance, but for now there doesn't seem to be any danger from this downturn.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.