Ethereum Foundation Internal Conflict and Falling DApp Volumes Put Cloud on ETH Price
Ether (ETH) has struggled to close above $3,500 since January 7, indicating weakness despite the broader cryptocurrency market gaining 6% over the same period. This underperformance is partly due to a decrease in the volume of decentralized applications (DApps) based on Ethereum, raising concerns that the price of ETH will continue to lag among traders.
Ethereum onchain activity is down 38%, underperforming its peers.
The on-chain activity on Ethereum is very low compared to its peers. In a 7-day period, volumes fell by 38% to $ 36.5 billion, Dapradar.
Top blockchains ranked by 7-day DApps volumes, USD. Source: Dapradar
On the contrary, the activity on the BNB chain increased by 112%, Solana gained 36%. Notable decliners in Ethereum included Balancer, which fell by 65%, and Morphone and Uniswap, which dropped 40% in volume.
Adding to Ethereum's challenges, it failed to rank among the top five blockchains in weekly payouts. Between January 14 and January 21, Ethereum generated only $46 million in payments. Solana raised $71 million in comparison, and contributions from Radium, Gito, and Meteora combined for a total of $309 million over the same period, according to Defillama data.
Criticism has grown over Ethereum's methodology for supporting layer-2 balancing solutions, particularly using blob space and low-cost state bridging to aggregate transactions. Average transaction fees at Ethereum's base layer are at $5.50, a level that many DApps find unsustainable.
The ongoing debate centers on balancing low transaction costs to sufficiently reward ETH reserves. Proposed solutions include increasing fees or reducing inflation. Ethereum's leading scaling solutions – Base, Arbitrum, Polygon and Optimism – currently account for $25.8 billion in weekly decentralized exchange (DEX) volumes.
Weekly DEX Volumes, USD Source: Defillama
To put things into perspective, Solana remains the leader in total onchain volumes, recording $118.6 billion in activity in 7 days, according to Defillama data. This increase was triggered by the official Trump (TRUMP) memecoin on January 18, a record-breaking token approved by the President of the United States, Donald Trump. As a result, platforms like Radium, Orca, and Meteora have seen increases of 200% or more.
Despite this, Ethereum holds the top position in Total Value Locked (TVL), holding steady for more than a week at $66 billion, according to Defillama. Ethereum Layer-2 solutions also saw deposits in Basic, Arbitrum, Polygon and Optimum grow to $8.2 billion. However, Solana deposits have increased by 29% in 7 days, reaching a peak of $11.2 billion, which has increased pressure and uncertainty on ETH investors.
Related: Trump and Melania memecoins attract investors for the first time – survey
Management disputes in the Ethereum Foundation have shocked investors
Additional concerns among Ethereum owners stem from the internal debate within the Ethereum Foundation (EF). In May 2024, EF implemented a conflict of interest policy following criticism that some of its researchers had taken on paid consulting roles at EigenLayer. Recently, on January 21, the founder of Ethereum, Vitalik Buterin, declared sole authority over the management of EF.
Buterin responded to the criticism of X, stating that his responsibility will remain until the reforms of management decisions are established “correct board”. His comments followed widespread criticism of EF chief executive Aya Miyaguchi, who has been accused of ineffectiveness during her tenure since 2018.
These controversies, combined with reduced stock incentives for ETH, have hampered Ethereum's market activity. Meanwhile, Solana (SOL) has capitalized on memecoin's frustrations by challenging Ethereum's dominance. As a result, there seems to be no clear incentive for Ether to outperform its competitors in the short term.
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.
