VanEck analysts have identified several factors contributing to Ethereum's poor price performance, as detailed in their August 2024 Crypto Monthly Recap. The decline in Ethereum's share of decentralized exchange trading volume from 42% in 2022 to 29% in 2024 is highlighted. The report categorizes the issues into three main areas: a general decline in network revenue, policy choices, and competition from layer-2 solutions and other high-throughput layer-1 blockchains like Solana, Sui, and Aptos. These competitors are drawing speculative demand away from Ethereum by offering faster transaction processing capabilities. Additionally, Ethereum's layer-1 revenues are being undercut by its own layer-2 networks, further exacerbated by the Dencun upgrade in March 2024, which significantly reduced network fees and led to an oversupply of Ethereum layer-2 solutions, according to Anoma co-founder Adrian Brink.

Asset manager VanEck outlined multiple factors contributing to Ether’s ( ETH ) poor price performance in its Crypto Monthly Recap for August 2024. The report divided the issues plaguing Ethereum into three main categories: a general decline in network revenue, “deliberate policy choices,” and value extraction from layer-2 solutions and service providers. According to VanEck, a consumer shift to higher-throughput layer-1 blockchains like Solana ( SOL ) is partially to blame for the general revenue decline on Ethereum. Analysts for VanEck asserted that the “best use case for public blockchains at this early stage is speculation.” The report explained that Ethereum had the first-mover advantage in the smart contract arena, becoming the first network to capitalize on the speculation of digital assets by being the go-to hub for decentralized finance. However, the increased competition from Solana, Sui ( SUI ), and Aptos ( APT )—which can each process thousands of transactions per second—is pulling this speculative demand away from the Ethereum network. Similarly, the report noted that developers are increasingly deploying new tokens on these higher-throughput networks to provide a better experience to the end-user and avoid the bottlenecks created by Ethereum’s sequential processing of transactions. Related: Why is Ethereum (ETH) price underperforming compared to wider crypto market? Ethereum layer-1 revenues have been “cannibalized” by competing Ethereum layer-2 networks, according to VanEck. This competition has placed Ethereum between a rock and a hard place—squeezing revenue from within the Ethereum ecosystem as second and third-generation layer-1 blockchains erode its market share from the outside. As a result, Ethereum network fees have declined by 99% since the introduction of the Dencun upgrade in March 2024. The Dencun upgrade, which drastically reduced fees for layer-2 networks, created a rapid proliferation of Ethereum layer-2 networks. The sharp increase in scaling networks for Ethereum drew the attention of Anoma co-founder Adrian Brink, who recently told Cointelegraph that he believes there are currently too many Ethereum layer-2 solutions. According to Brink, the industry has approximately 10 times the number of Ethereum scaling solutions required to handle traffic. Magazine: Ethereum price will lag for ‘months’ as Bitcoin surges: X Hall of Flame, Roman 

VanEck Report Highlights Factors Behind Ethereum's Poor Price Performance