Ethereum’s Waning Dominance: Navigating a Five‑Year Low and the Road Ahead

Main Points:

• Market Dominance Decline: Ethereum’s share of total crypto market cap has fallen below 9.4%—its lowest since 2020—and some trackers report it under 8%.
• Bitcoin’s Institutional Stronghold: Bitcoin commands roughly 60% dominance, driven by institutional inflows and product innovation.
• Technical Upgrades Insufficient: Despite the successful PoS Merge and Layer 2 rollout, fresh capital inflows have slowed and on‑chain activity has waned.
• On‑Chain Metrics Diverge: Network revenues and transaction counts are down year‑over‑year, even as staking participation rose by 5.1% in 2024.
• Staker Profitability: Approximately 60% of ETH stakers remain in profit, cushioning sell‑pressure despite price declines.
• Rising Layer 1 Competition: Solana, Avalanche, and Polkadot are capturing DeFi and NFT market share with high throughput and low fees.
• Strategic Imperatives: Ethereum must deliver sharding, simplify Layer 2 UX, bolster ecosystem incentives, and clarify regulatory pathways to reclaim leadership.

1. Ethereum’s Market Share at a Five‑Year Low

In early April 2025, data aggregators revealed that Ethereum’s market dominance—a metric measuring its share of total cryptocurrency market capitalization—had slipped below 9.4%, marking its lowest point since mid‑2020. Some platforms even place Ethereum’s share under 8%, a steep fall from its 2021 zenith above 20%. Meanwhile, Bitcoin’s dominance hovers around 60%, reflecting continued institutional demand and the proliferation of BTC‑denominated investment products such as futures ETFs and trust funds.

This divergence stems from two core dynamics. First, Ethereum’s relative position weakens as alternative Layer 1 blockchains attract developers and liquidity. Second, institutional capital has disproportionately favored Bitcoin’s simpler store‑of‑value narrative, diverting funds that might once have flowed into Ethereum. The result is a competitive landscape where Ethereum’s share of Total Value Locked (TVL) in DeFi has also dropped—from over 70% in early 2022 to roughly 45% today.

2. Technical Milestones vs. Market Response

The PoS Merge and Energy Efficiency

Ethereum’s landmark transition from Proof‑of‑Work to Proof‑of‑Stake in September 2022—the “Merge”—reduced the network’s energy consumption by over 99% and introduced staking rewards for validators. The move was lauded by environmental advocates and positioned Ethereum as a sustainable blockchain. Yet, despite the clear benefits, the Merge did not catalyze a sustained surge in new capital. Post‑Merge, ETH price performance was muted, and on‑chain metrics showed only a temporary uptick in activity.

Layer 2 Rollups and Sharding Roadmap

To address scalability, Ethereum’s roadmap emphasizes Layer 2 rollups—protocols that batch transactions off‑chain before settling on Ethereum’s mainnet—and future sharding, which will partition the network into multiple parallel chains. Rollups like Arbitrum, Optimism, and zkSync have lowered gas fees for end‑users, but they introduce complexity: bridging assets, managing separate wallets, and potential security considerations. Sharding, expected in phases over 2025–2026, promises to multiply throughput from roughly 15 transactions per second (TPS) to thousands TPS. However, repeated delays have tested developer and investor patience.

3. On‑Chain Activity and Network Revenue Trends

Declining Transactions and Fees

On‑chain analytics reveal a noticeable downturn in Ethereum’s core usage metrics. At its peak in late 2021, Ethereum processed over 1.5 million daily transactions and generated more than $30 million in daily gas fees. As of April 2025, daily transactions average around 900,000, with fees closer to $10 million per day. This contraction in usage directly reduces network revenue, impacting both validators and the wider ecosystem that depends on fee‑driven incentives.

Staking Growth Amid Price Weakness

Contrary to transaction metrics, Ethereum staking has maintained growth. In 2024, the total ETH staked increased by 5.1%, bringing the locked supply to approximately 29% of the total ETH supply. Staking yields, which range between 4% and 6% annually, have provided an attractive return in a market where speculative trading yields have diminished. Despite a 30% drop in ETH’s price over the past year, about 60% of stakers are still in profit when accounting for cumulative staking rewards. This profitability buffer has helped stabilize validator participation even as broader network activity softens.

4. The Ascent of Competing Layer 1 Platforms

Ethereum’s declining dominance cannot be viewed in isolation; it is part of a broader multi‑chain trend. Several Layer 1 blockchains have emerged as credible alternatives, each offering unique value propositions:

• Solana: With sub‑second block times and sub‑$0.01 transaction fees, Solana’s ecosystem supports hundreds of DeFi protocols, NFT marketplaces, and Web3 applications. Its rapid growth has drawn both developers and capital, particularly during periods of high Ethereum gas fees.
• Avalanche: Utilizing the Avalanche consensus protocol, which provides near‑instant finality and customizable “subnets,” Avalanche appeals to institutional use cases and gaming projects. Its interoperable design allows bespoke blockchain deployments tailored to specific applications.
• Polkadot and Kusama: By enabling parachain slots and cross‑chain messaging via the Relay Chain, Polkadot fosters an interoperable network of specialized blockchains. Kusama, its canary network, serves as a proving ground for experimental projects.

Developers seeking cost‑efficient, high‑throughput environments have gravitated toward these networks, eroding Ethereum’s share of DeFi TVL and user activity.

5. Institutional and Retail Demand Dynamics

Institutional Appetite for Crypto Assets

Institutional investors have historically gravitated toward Bitcoin, favoring its established market infrastructure and straightforward value proposition. Yet, Ethereum is gradually attracting institutional interest through futures, options, and emerging ETH‑based ETFs. The U.S. Securities and Exchange Commission’s approval of an ETH futures ETF in late 2024 marked a milestone, though inflows have yet to rival those of Bitcoin ETFs. Clearer regulatory guidelines for Ethereum‑based products—especially spot ETH ETFs—could unlock significant new capital.

Retail User Experience Challenges

On the retail front, high gas fees during network congestion have frustrated smaller traders and NFT enthusiasts. Although Layer 2 solutions offer relief, the process of bridging assets and managing multiple wallets can deter mainstream users. Simpler, low‑fee chains such as Solana present a more user‑friendly entry point, accelerating migration away from Ethereum for many retail participants.

6. Strategic Imperatives for Ethereum’s Reassertion

To reclaim its leadership position, Ethereum must execute on several fronts:

1. Timely Sharding Deployment: Roll out data and execution sharding to dramatically increase throughput and reduce reliance on Layer 2 rollups.
2. Unified Layer 2 Experience: Develop seamless UX for rollups—integrated wallets, one‑click bridging, and unified asset management—to lower barriers for end‑users and developers.
3. Ecosystem Incentives: Launch targeted grants, liquidity mining programs, and hackathons to attract DeFi, NFT, and gaming projects back to Ethereum.
4. Interoperability Enhancements: Strengthen cross‑chain bridges and messaging protocols, ensuring Ethereum remains the nexus of a multi‑chain ecosystem.
5. Regulatory Engagement: Collaborate with global regulators to establish clear frameworks for Ethereum‑based financial products, boosting institutional confidence and facilitating larger inflows.

By focusing on these strategic areas, Ethereum can leverage its first‑mover advantage and robust developer community to counter competitive threats.

7. Recent Developments and Community Initiatives

Several community‑driven and institutional efforts aim to bolster Ethereum’s position:

• EIP‑4844 (Proto‑Danksharding): Introduces “blobs” of data to rollups, significantly lowering Layer 2 transaction costs ahead of full sharding.
• Base and EigenLayer: Emerging restaking and modular execution frameworks that enhance security and composability for Layer 2s and sidechains.
• Institutional Consortia: Groups like the Ethereum Institutional Alliance are working to standardize custody, settlement, and compliance processes for large investors.

These initiatives reflect a concerted effort to address technical, economic, and regulatory challenges.

Ethereum’s slide to a five‑year low in market dominance underscores the intensifying competition within the blockchain space. While the Merge and staking growth demonstrate Ethereum’s innovative prowess, persistent delays in sharding and the friction of Layer 2 adoption have prompted liquidity migration to high‑performance alternatives. On‑chain metrics reveal a contraction in transactions and fees, even as staking participation remains robust. Looking ahead, Ethereum’s ability to deliver sharding, streamline Layer 2 UX, and foster a thriving  ecosystem—coupled with clear regulatory frameworks—will determine whether it can reclaim its mantle as the preeminent smart‑contract platform. For investors and practitioners seeking new crypto assets and revenue opportunities, the current environment offers both challenges and openings: by focusing on fundamentals, leveraging emerging data‑driven insights, and engaging with evolving protocols, stakeholders can position themselves to thrive in the next chapter of blockchain evolution.