Ethereum Deep Dive: L2 Scaling, Competition, and TradFi Integration
Introduction
This article investigates Ethereum’s market dominance, the role of its L2-centric approach, and competing L1 blockchains to develop a foundational understanding and outlook for technology-focused L1s and supplemental L2s. Taking a bottom-up approach, we will break down Ethereum’s adoption story, examine its decision to scale the ecosystem through a rollup-centric L2 strategy, and explore the competitive landscape of L1s that aim to challenge Ethereum or carve out their own specialized use cases in the sector.
Valuing companies in the equity space typically involves assessing Valuation Ratios, Profitability Metrics, Financial Health, Liquidity, Growth Indicators, and Dividend Metrics, among other important factors. However, these measures don’t translate directly when evaluating digital assets. Instead, we must consider tokenomics, developer activity and commits, daily and monthly active users, fees collected, DEX volumes, and stablecoin transfers. This article will evaluate these factors to gauge the health of Ethereum, investigate the L2 blockchains that both compete with and support the Ethereum ecosystem, and examine other competing L1s. The goal of this article is to help you understand the blockchain ecosystem, the key metrics used to assess value and usage, and Ethereum’s current and future value proposition.
Brief overview of Ethereum and its Competition
History of Ethereum
Ethereum was introduced in 2015 by Vitalik Buterin and a group of co-founders with a vision to extend the capabilities of blockchain technology beyond simple transactions. Unlike Bitcoin, which was designed as a decentralized currency and store of value, Ethereum aimed to be a platform for decentralized applications (dApps) and smart contracts—self-executing agreements running on the blockchain. This ambition was encapsulated in Ethereum's vision of becoming the "world's computer," a decentralized infrastructure for global computation that could power a wide range of use cases, from finance and gaming to supply chain and governance.
Early in its development, the Ethereum community faced a critical decision: whether to prioritize the blockchain as a global computing platform or position it as a direct competitor to Bitcoin as a digital currency. The decentralized autonomous organization (DAO) governance mechanism played a pivotal role in shaping this decision. A DAO is a blockchain-based entity governed by smart contracts and community consensus rather than centralized leadership, enabling transparent and decentralized decision-making. DAO stakeholders ultimately aligned on Ethereum's core purpose as a technology platform rather than solely a currency. This direction leveraged the flexibility of Ethereum’s programmable nature, with the ETH token primarily serving as a utility for network operations (e.g., gas fees) rather than being a direct currency like Bitcoin.
The decision to position Ethereum as a "world computer" rather than a currency had profound implications. It opened the door to innovation in decentralized finance (DeFi), non-fungible tokens (NFTs), and countless other applications that could leverage Ethereum's robust infrastructure. While Bitcoin remained focused on its role as “digital gold,” Ethereum's commitment to technology and programmability established it as the foundation for Web3—a decentralized internet powered by smart contracts and decentralized applications. This strategic choice laid the groundwork for Ethereum’s unique identity within the blockchain ecosystem and its rise as a central pillar of the decentralized economy.
Ethereum and Bitcoin: The World’s Computer vs Digital Gold
Bitcoin and Ethereum often find themselves compared, but this juxtaposition overlooks their fundamentally different purposes and use cases. Bitcoin, designed as a decentralized currency and store of value, serves as "sound money" in the digital age, offering a hedge against inflation and a secure means of transacting without intermediaries. On the other hand, Ethereum positions itself as the "world's computer," a decentralized platform for running applications and smart contracts. These distinct goals mean that while both leverage blockchain technology, their roles in the ecosystem are complementary rather than competitive.
While some in the Ethereum community advocate for viewing ETH as "ultra-sound money" due to its deflationary mechanisms introduced through updates like EIP-1559, this narrative, though compelling, is secondary to Ethereum’s primary function as a technology platform. The Ethereum blockchain focuses on providing an infrastructure where developers can build decentralized applications, with ETH functioning as the "gas" that powers this global computation engine. This distinction underscores why Bitcoin and Ethereum should not be directly compared; Bitcoin is positioned as a currency, while Ethereum is better understood as a foundational technology, enabling innovation in decentralized systems. Recognizing their unique roles helps define how each contributes to the broader blockchain landscape.
Ethereum’s deflationary model, central to its “ultrasound money” narrative, has recently come under scrutiny as its supply climbed back to 120.5 million ETH, reversing the deflationary trend established after The Merge in 2022 [A]. The March 2024 Dencun upgrade, which introduced blob transactions to enhance scalability for Layer 2 networks, significantly reduced transaction costs but also lowered the burn rate, resulting in net supply growth of 0.5% per year. While Ethereum researcher Justin Drake remains optimistic that future reductions in issuance and increased activity will restore its deflationary status, the current supply expansion raises questions about Ethereum’s position as a store of value.
Despite this shift, Ethereum validators have signaled support for raising the network’s gas limit, a move aimed at increasing transaction throughput and potentially boosting fee burns. As Ethereum continues to evolve, its core value remains its role as a technology platform. Whether it can sustain its deflationary narrative or pivots further toward its technological strengths will shape its long-term positioning in the blockchain ecosystem.
Ethereum’s Scaling Issues
Ethereum, as the leading smart contract platform, faced significant scaling challenges as network usage surged. High demand led to network congestion, resulting in slow transaction times and soaring gas fees, which hindered accessibility for everyday users and developers. Early discussions on scaling considered increasing the base Layer 1 (L1) blockchain's capacity by expanding block sizes or throughput. However, these solutions risked compromising Ethereum’s core principles of decentralization and security, as they could make it harder for individuals to run nodes and participate in network consensus. Balancing scalability with decentralization became a critical challenge.
To address this, Ethereum ultimately adopted a rollup-centric approach. The strategy leverages rollups, which process transactions off-chain and post essential data to L1. Rollups allow the base chain to remain lean and decentralized, while scaling efficiently. The March 2024 Dencun upgrade marked a significant milestone in Ethereum's rollup scaling strategy, by enhancing data availability for Layer 2 solutions. A key innovation introduced in this upgrade was Proto-Danksharding, which enables the use of "blobs”. Blobs are large, temporary data packets that store transaction data off-chain, while remaining accessible for verification on Layer 1 (L1). Enabling rollups to submit transaction data in cost-efficient data blobs significantly reduced data storage costs on the base layer, allowing Layer 2 solutions to handle a higher volume of transactions, without overburdening the main blockchain. The innovation ensured Ethereum could scale while preserving decentralization and security, paving the way for a sustainable and robust ecosystem built on efficient data management.
Pectra Upgrade & Gas Limit Increase Proposal
The Ethereum network is preparing for the Pectra upgrade, scheduled for March 2025, designed to enhance scalability and efficiency. A key component of this upgrade is the increase in the "blob" target from 3 to 6, effectively doubling the capacity of Layer 2 solutions. Blobs facilitate off-chain transaction processing, reduce network congestion and lower transaction fees. Pectra is expected to improve the performance of decentralized applications and financial services operating on Ethereum. In conjunction, Ethereum developers have approved and raised the network's gas limit to 36 million units. The gas limit determines the number of transactions and computational operations that can be included in each block. Increasing the limit allows more transactions per block, alleviating congestion and enhancing network throughput. However, developers are approaching this change cautiously to ensure that it does not compromise network stability or security. These combined efforts reflect Ethereum's commitment to evolving its infrastructure to meet growing demand while maintaining decentralization and security. By expanding L2 capacity and optimizing network efficiency, Ethereum will reinforce its long-term vision of scaling through rollups and off-chain solutions, solidifying its role as the foundation for a high-performance decentralized ecosystem.
Ethereum, ETH L2s & Competing L1 Ecosystems
As Ethereum continues to refine its scaling strategy through rollups and network optimizations, it is essential to examine how competing Layer 1 (L1) blockchains and supplemental Layer 2 (L2) solutions are positioning themselves in the evolving landscape. Alternative L1s aim to challenge Ethereum’s dominance by offering higher throughput and lower fees. Emerging L2s are complementary scaling solutions that leverage Ethereum’s security and increase efficiency. This section explores the strengths, trade-offs, and innovations of competing L1s and complementary L2s, providing a comprehensive description of the broader blockchain ecosystem that is adapting to meet the demands of scalability, decentralization, and user adoption.
The analysis considers a selection of 14 networks from the Smart Contract Universe, chosen based on their high usage, measured by daily active addresses (DAUs). Collectively, these networks account for 12.5 million DAUs, representing 80% of the total ecosystem activity.
To provide a comprehensive comparison, these networks are categorized into three segments:
ETH as a standalone L1
ETH’s broader L2 ecosystem
Other major L1 competitors (Alt-L1s)
In order to provide a clearer perspective on the ecosystem, I analyze Solana independently in its own segment, because a significant portion of Alt-L1 activity originates from Solana and is primarily driven by Memecoins. Ethereum experienced inflated fundamental metrics during the NFT craze of 2001-2002, and Solana is experiencing a comparable trend with Memecoins. While NFTs and Memecoins may continue to play a role in the future, their long-term sustainability remains uncertain. This analysis prioritizes their current market impact while focusing on Ethereum’s more structured growth drivers, such as stablecoins and tokenization, which have clearer institutional adoption paths.
I analyze Ethereum’s L1 and L2 as separate but interconnected segments, rather a single aggregate ecosystem. This distinction reflects the rollup-centric design of Ethereum, where L2s expand the network’s capacity and utility, but divert some value away from the ETH token. In the absence of a standardized framework to project L2 growth, segmenting L1s and L2s offers a clearer perspective on Ethereum’s performance.
Source [1]
Overview of ETH L2 Ecosystem
L2 technologies enhance Ethereum’s scalability by handling transactions off-chain, while leveraging Ethereum’s security. This section highlights six prominent L2 networks—Arbitrum, Polygon, Base, Optimism, zkSync, and Mantle—each offering unique approaches to improving transaction speed, reducing costs, and expanding Ethereum’s ecosystem.
Arbitrum – One of the market-leading optimistic rollups [B], Arbitrum provides fast and cost-efficient transactions by bundling multiple off-chain transactions, before posting them to Ethereum. It is known for its strong developer adoption and compatibility with Ethereum’s tooling.
Polygon – Initially launched as a sidechain, Polygon has expanded into a multi-chain ecosystem, including zk-rollups [C] and optimistic rollups. It offers high-speed, low-cost transactions while maintaining interoperability with Ethereum.
Base – Developed by Coinbase, Base is an Ethereum L2 built on Optimism’s OP Stack. It focuses on providing a secure and developer-friendly environment for building decentralized applications (dApps) and leverages Ethereum’s security and liquidity.
Optimism – An optimistic rollup that enhances Ethereum’s scalability by processing transactions off-chain and submitting proofs to the mainnet. Optimism also pioneered Retroactive Public Goods Funding, reinvesting network fees into ecosystem development.
zkSync – A zero-knowledge rollup (zk-rollup) that leverages advanced cryptography to batch transactions and verify them efficiently on Ethereum. zkSync offers near-instant finality [D] and lower fees while ensuring high security and privacy.
Mantle – A modular L2 that combines optimistic rollups with data availability innovations to improve scalability and transaction efficiency. Mantle aims to create a seamless environment for dApp developers by reducing costs and increasing performance.
The L2 solutions play a crucial role in Ethereum’s long-term scalability strategy by ensuring the network can handle increased demand while maintaining decentralization and security.
Overview of Alternative L1’s
Alt-L1 blockchains serve as the foundational networks for decentralized applications (dApps), smart contracts, and digital assets. While Ethereum remains the dominant L1, several competing blockchains—Solana, Near, TON, TRON, Sui, Celo, and BNB Chain—offer alternative solutions with different trade-offs in scalability, decentralization, and security. This section analyzes these networks and their unique value propositions in the evolving blockchain ecosystem.
Solana – A high-performance blockchain designed for fast, low-cost transactions. Solana utilizes a unique Proof-of-History (PoH) consensus mechanism combined with Proof-of-Stake (PoS) to achieve high throughput, making it a popular choice for DeFi, NFTs, and on-chain trading.
Near Protocol – A developer-friendly L1 that uses sharding to increase scalability. Near’s Nightshade mechanism enables parallel transaction processing, reducing costs and improving network efficiency, while maintaining decentralization.
TON (The Open Network) – Originally developed by Telegram, TON is a scalable blockchain optimized for mass adoption, particularly for messaging-based applications and micropayments. Its architecture supports infinite sharding, making it highly efficient and scalable.
TRON – A blockchain designed for high transaction throughput with a focus on entertainment, gaming, and digital content distribution. TRON uses a Delegated Proof-of-Stake (DPoS) system, enabling fast and inexpensive transactions at the cost of a more centralized validator set.
Sui – A novel blockchain that employs a parallel execution model, allowing transactions to be processed simultaneously, instead of sequentially. Built on Move, a Rust-based programming language, Sui is optimized for fast execution and user-friendly dApp development.
Celo – A mobile-first blockchain designed to make financial services more accessible to people in developing economies and unbanked communities. Celo enables fast, low-cost transactions using stablecoins and decentralized identity solutions, allowing users to send and receive payments without relying on traditional banking infrastructure. Its focus on affordability and ease of use makes it particularly suited for digital payments and remittances in emerging markets.
BNB Chain – Originally launched by Binance, BNB Chain is a highly scalable blockchain with low fees and fast transaction speeds. It uses a Proof-of-Staked-Authority (PoSA) consensus model, striking a balance between decentralization and efficiency, making it a dominant force in DeFi, gaming, and NFT applications.
Each of these L1s presents a different approach to scalability, usability, and decentralization, competing to carve out their position in the broader Web3 ecosystem. While some focus on high-speed transactions, others emphasize developer experience, financial inclusion, or integration with existing platforms like Telegram and Binance.
Competing Ecosystems and Market Share
Evaluating the value and utilization of digital assets requires a fundamentally different approach than traditional finance, where metrics like price-to-earnings (P/E) ratios, cash flow, and industry-specific KPIs dominate. In the decentralized world, blockchain networks derive value from adoption, utility, economic activity, and developer engagement rather than centralized revenue models. To assess the strength of competing L1s and L2s, we analyze key on-chain fundamentals that provide a real-time snapshot of network health and sustainability. Adoption and utility metrics like market capitalization, monthly active addresses, and total value locked (TVL) indicate how widely a network is used and how much capital is deployed within its ecosystem. Profitability is measured through fees and revenue, which reflect demand for blockspace and long-term sustainability. Developer activity, including weekly developer count and core commits, highlights innovation and the rate of protocol evolution. Lastly, transaction activity, such as stablecoin transfers and DEX trading volume, showcases real-world usage and liquidity within the ecosystem. By analyzing these fundamentals, we gain a deeper understanding of a blockchain’s economic viability, growth trajectory, and competitive positioning beyond simple token price speculation.
Below are the key on-chain fundamentals for each category.
Table data as of Jan 13, 2025
Adoption and Utility
On-chain fundamental metrics provide a holistic view of blockchain adoption, network usage, and economic activity, demonstrating which ecosystems are thriving and where users and capital are flowing.
Market Capitalization
Source [2]
Market Capitalization
Ethereum remains the dominant L1 in market cap, indicating its position as the most valued smart contract platform.
Solana has grown significantly, cementing itself as the leading Alt-L1 to Ethereum.
BNB Chain and Polygon maintain strong market caps, reinforcing their positions as major networks supporting DeFi and gaming ecosystems.
Other Alt-L1s (Near, TON, Tron, Sui, Celo, and Mantle) have relatively smaller market caps but continue to carve out niches.
Monthly Active Addresses (MAA)
Monthly Active Addresses (MAA) refers to the number of unique blockchain addresses that participate in transactions within a given month, serving as a key indicator of network usage, adoption, and overall activity.
Source [2]
Monthly Active Addresses (MAA)
Solana dominates in active users, significantly surpassing other chains with 127M monthly active addresses, indicating strong adoption and engagement.
BNB Chain follows with 46.2M active addresses, showing sustained network activity and a large user base.
Base and Tron exhibit strong growth, with 17.2M and 23.8M active addresses, respectively, suggesting increasing traction.
Other networks, including Ethereum, Arbitrum, Optimism, zkSync, and Near, have significantly lower activity levels in comparison, highlighting the competition among chains for user engagement.
Total Locked Value (TVL)
Total Value Locked (TVL) represents the total amount of capital deposited in decentralized finance (DeFi) protocols, including lending platforms, staking pools, and liquidity pools. It serves as a key metric for measuring network adoption, liquidity, and overall economic activity within a blockchain ecosystem.
Example of TVL in DeFi
If a DeFi lending protocol like Aave has $10 billion locked in smart contracts, this means users have deposited $10 billion worth of assets as collateral, earning interest or facilitating borrowing. A higher TVL indicates strong liquidity and trust in the ecosystem.
Comparison to Free Float in Traditional Finance (TradFi)
In TradFi, free float refers to the number of publicly available shares of a company that can be traded on the market. Similar to TVL, free float represents the available liquidity and market participation.
Higher TVL = More active capital in DeFi protocols, just as higher free float = more liquid stocks in TradFi.
A sudden drop in TVL can indicate a declining DeFi ecosystem or capital flight, much like reduced free float liquidity can signal lower investor participation or confidence in a stock.
Source [2]
Total Value Locked (TVL)
Ethereum continues to hold the highest TVL, demonstrating its dominance in DeFi liquidity.
Solana has made substantial gains in TVL, reinforcing its role as a major alternative DeFi ecosystem.
L2 solutions like Arbitrum and Optimism are gaining traction, showing that Ethereum’s scaling approach is driving real value capture.
Alternative L1s (Tron, Near, and others) exhibit lower TVL compared to Ethereum and Solana, indicating that their DeFi ecosystems are still growing.
Takeaways
The Adoption and Utility metrics highlight the evolving competitive landscape among blockchain ecosystems. While Ethereum remains the dominant smart contract platform, its market share in active users and total value locked (TVL) is being challenged by alternative L1s and L2s. Solana has emerged as a leader in user adoption, with a surge in monthly active addresses, while BNB Chain, Tron, and Base also show strong network engagement. L2 solutions like Arbitrum and Optimism continue to gain traction, reinforcing Ethereum’s rollup-centric scaling strategy. As blockchain adoption expands, networks that offer high efficiency, low fees, and strong developer ecosystems are positioning themselves for long-term sustainability and growth.
Profitability
Together, fees and revenue provide insight into a blockchain’s profitability, economic demand, and network usage. While Ethereum dominates, the rise of Solana and L2s highlight the shift toward scalable and cost-effective blockchain solutions.
Fee’s
The costs users pay to process transactions on a blockchain, which can vary based on network demand, congestion, and the computational resources required for execution.
Source [2]
Fees
Ethereum continues to generate the highest transaction fees, indicating strong demand for block space and network security incentives for validators.
Solana shows a growing share of total fees, though still significantly lower than Ethereum, reflecting its lower-cost transaction model while gaining adoption.
BNB Chain and other alternative L1s have relatively low fees, reinforcing their role as cheaper transaction networks compared to Ethereum.
L2s like Arbitrum and Optimism generate minimal fees compared to Ethereum, demonstrating their cost-efficiency while still benefiting from Ethereum's security.
Overall, transaction fees serve as an indicator of blockchain demand, congestion, and economic sustainability, with Ethereum maintaining dominance while competitors seek alternative fee models to drive adoption.
Since 2020, Ethereum has amassed nearly $19 billion in fees, while primary alternative Layer 1s earned $1.6 billion. However, fee generation is becoming more distributed. [5]
Revenue
The total income generated by a blockchain network, primarily from transaction fees paid by users and distributed to validators, miners, or protocol treasuries.
Source [2]
Revenue
Ethereum remains the leader in blockchain revenue generation, driven by its high transaction fees and sustained DeFi, NFT, and dApp activity.
Solana revenue is growing but remains far below Ethereum, reflecting its focus on high-speed, low-cost transactions that attract significant user activity.
Alt-L1s (Near, Tron, TON, etc.) show relatively low revenue, suggesting that despite having active ecosystems, they rely on alternative monetization strategies beyond transaction fees.
L2s contribute to Ethereum’s revenue, but their individual revenue remains lower due to their cost-efficient rollup models.
Revenue is a critical measure of blockchain sustainability, as it reflects a network’s ability to fund development, incentivize validators, and maintain long-term economic viability.
Takeaways
Supported by research from Jamie Coutts at Real Vision, Ethereum’s dominance in fee revenue has steadily declined as competition from alternative Layer 1s (Alt L1s) intensifies. In July, Ethereum’s base chain market share fell below 50% for the first time, down from 68.5% a year ago to 45% today, while Alt L1s increased their share from 20% to 52% over the same period. Since the implementation of EIP-1559, a significant portion of blockchain revenue has shifted away from Ethereum, signaling a growing preference for alternative networks that offer lower costs and higher throughput.
Development Activity
These trends suggest a changing landscape in developer interest, with Solana emerging as the most actively developed blockchain in recent months. Ethereum, while still a major player, appears to be experiencing a shift in developer focus, possibly toward L2s and protocol stabilization rather than rapid iteration.
Weekly Developer Count
The number of unique developers actively contributing to a blockchain’s codebase each week, serving as a key indicator of ecosystem growth and innovation.
Source [2]
Developer Activity – Weekly Active Developers
Solana has overtaken Ethereum in active developer count over the last three months, indicating a strong and growing ecosystem.
Ethereum’s developer count has declined significantly, suggesting either a shift in focus to L2 solutions or broader market trends impacting core development.
Alternative L1s, including Near, Tron, and Sui, show stable or slightly declining developer engagement, with no major spikes in activity.
Layer 2 networks (Arbitrum, Optimism, Base, zkSync, etc.) have maintained a steady developer base, reinforcing the continued adoption of Ethereum’s rollup-centric scaling model.
Overall developer engagement has seen a downturn, likely influenced by macroeconomic factors, developer incentives, and shifting interest toward alternative ecosystems.
Weekly Core Commits
The number of code changes or updates made to a blockchain’s core protocol repository each week, reflecting ongoing development and network improvement efforts.
Source [2]
Developer Activity – Weekly Core Commits
Solana has seen a dramatic increase in core commits, surpassing Ethereum and signaling an aggressive development push.
Ethereum’s core commits have remained stable but have not shown significant growth, reflecting a more mature development cycle.
Alternative L1s continue to contribute at a steady rate, but no single competitor (other than Solana) shows breakout activity.
Layer 2 networks have experienced moderate development efforts, with some contributing to Ethereum’s rollup infrastructure.
A recent spike in core commits across non-Ethereum ecosystems suggests major protocol upgrades or strategic shifts in blockchain development.
Takeaways
Ethereum remains a major force in blockchain development, but Solana has emerged as the most actively built blockchain in recent months. This suggests a strong belief in Solana’s growth potential, lower transaction costs, and improved tooling for developers. L2 solutions continue to attract developers, reinforcing Ethereum’s long-term scaling strategy, while other alternative L1s maintain steady engagement but have yet to experience explosive developer growth.
Transaction Activity
Stablecoin Transfer Volume
The total value of stablecoins moved across a blockchain within a given period, reflecting network utility, liquidity, and adoption for payments, trading, and on-chain settlements.
Source [2]
Transaction Activity – Stablecoin Transfers
Solana has become the dominant blockchain for stablecoin transfers, significantly surpassing Ethereum in volume, highlighting its efficiency for high-speed, low-cost transactions.
Ethereum’s share of stablecoin transfers has declined, as users migrate to alternative networks offering lower transaction fees and faster settlements.
BNB Chain, Tron, and various L2s (Arbitrum, Optimism, Base, etc.) continue to see steady stablecoin activity, reinforcing their roles in payments and DeFi.
The overall growth in stablecoin transfer volume suggests increasing reliance on blockchain networks for payments, remittances, and settlements.
DEX Trading Volume
The total value of assets traded on decentralized exchanges (DEXs) within a given period, indicating liquidity, user activity, and the overall health of on-chain trading ecosystems.
Source [2]
Transaction Activity – DEX Trading Volume
Solana has seen a massive surge in DEX trading volume, reversing its previous downtrend and now rivaling, if not surpassing, Ethereum in certain periods.
Ethereum’s DEX trading volume has remained significant but is no longer the undisputed leader, as traders increasingly turn to Solana for lower fees and faster execution.
Layer 2 solutions (Arbitrum, Optimism, Base, etc.) are also capturing a growing share of DEX volume, further fragmenting Ethereum’s previous dominance.
Alternative L1s (Tron, Near, Sui, etc.) remain secondary players in DeFi trading, with limited market share compared to Ethereum and Solana.
DEX trading activity has experienced strong growth overall, reflecting increasing liquidity and user participation in decentralized trading platforms.
Key Takeaways
Base has seen significant growth in stablecoin transfers, signaling rising adoption and positioning itself as a major Layer 2 payments hub.
Solana remains the dominant blockchain for stablecoin activity, while Ethereum’s share continues to decline.
Ethereum’s rollup-centric approach is proving successful, as L2s like Base, Arbitrum, and Optimism absorb more transactional volume.
The growing importance of stablecoin transfers across multiple chains highlights the increasing role of blockchain in global TradeFi, with Solana, Base, and Ethereum leading the charge.
Takeaways from Fundamental Analysis
In 2024, Ethereum disrupted itself with the EIP-4844 upgrade, reshaping its scaling strategy. However, in the aftermath, it lost momentum, community mindshare, and strategic cohesion. While Ethereum continues to execute on its roadmap. Promising developments—particularly on Base—have emerged as bright spots. Base has demonstrated how L2s can effectively leverage Ethereum’s security while fostering rapid ecosystem growth, proving that rollups can succeed when strategically aligned with real-world use cases. However, despite these advancements, Ethereum is increasingly viewed as a "value play" in a market that thrives on attention, speculation, and hype. To reclaim its dominance, Ethereum needs a catalyst—perhaps a major TradFi institution launching an L2, following the successful Coinbase/Base playbook.
Meanwhile, Solana has surged ahead, capturing significant market share, user activity, and developer interest, largely fueled by memecoin speculation and high-speed trading [E]. According to Messari, Solana’s "chain GDP" skyrocketed 213% in Q4, growing from $268 million to $840 million, making it the second-largest DeFi chain with $8.6 billion in TVL. Memecoin platforms like Pump.fun ($235M in Q4 revenue) and Photon ($140M in Q4 revenue) have driven much of this explosive growth. Tokens like AI16z ($2.5B market cap) and FARTCOIN ($1.5B market cap) exemplify the speculative frenzy driving Solana’s dominance. With its low fees, lightning-fast execution, and thriving memecoin ecosystem, Solana has cemented itself as the primary alternative L1, pulling liquidity, users, and attention away from Ethereum.
While Ethereum remains the most secure and decentralized smart contract platform, Solana and Base represent two diverging paths forward—Solana through speed, low-cost transactions, and retail speculation, and Base through thoughtful L2 integration and sustainable growth within the Ethereum ecosystem. The question now is whether Ethereum can reignite excitement and reclaim market leadership, or if the future of blockchain will continue to fragment across multiple chains and execution layers.
ETH’s Future - The Bedrock for TradFI
The current wave of Web3 creation and adoption bears striking parallels to the DotCom boom of the late 1990s and early 2000s, when the internet reshaped industries and introduced transformative technologies. Just as the DotCom era saw the rise of foundational tech companies like Microsoft, the Web3 era is witnessing Ethereum take a similar role as the backbone of this new decentralized internet. Ethereum, with its robust ecosystem and first-mover advantage, is becoming the de facto platform for Web2 and traditional finance (TradFi) entities entering the Web3 space. Much like businesses in the DotCom boom that standardized on Windows and Microsoft’s enterprise tools, many organizations are now adopting Ethereum as their base layer for blockchain development.
This adoption is multifaceted. Some companies are directly utilizing Ethereum, while others are building on its Layer 2 solutions to scale their operations and reduce costs. Additionally, some will leverage Ethereum's technology to create their own specialized Layer 2 networks tailored to their needs. This mirrors how enterprises in the early internet era either adopted off-the-shelf solutions from major players or customized their technology stacks to fit their unique requirements. Ethereum’s flexibility and wide adoption position it as the Microsoft of Web3—setting the standard for foundational infrastructure.
However, just as the DotCom boom gave rise to challengers that carved their niches, an "Apple equivalent" in Web3 will likely emerge. Solana, SUI, or NEAR could play this role, focusing on specific innovations like speed, user experience, or niche ecosystems. These platforms may appeal to a subset of companies seeking alternatives to Ethereum’s dominance, much like Apple’s focus on design and user experience differentiated it from Microsoft’s enterprise-first approach.
The staying power of Ethereum should not be underestimated. Once a company adopts a technology platform, it becomes deeply embedded in its operations, creating significant costs and logistical challenges to migrate away. This phenomenon is evident in traditional IT, where many organizations still rely on legacy Windows servers, outdated rack servers, and other antiquated systems due to the sheer complexity and expense of upgrading. Shifting away from Ethereum, after significant investment in its ecosystem, would similarly be a slow and resource-intensive process—akin to turning a battleship. This inherent inertia suggests that Ethereum’s adoption by enterprises will solidify its role as a cornerstone of Web3, much like Microsoft’s technologies remain critical in today’s digital landscape. History has a habit of repeating itself, and Ethereum is poised to play a central role in shaping the future of decentralized technology.
Integration of Ethereum in Traditional Finance
As traditional finance (TradFi) deepens its integration with blockchain technology, Ethereum has solidified itself as the preferred settlement layer for major financial institutions. Two key factors driving this trend are stablecoin dominance and the tokenization of real-world assets (RWAs).
Ethereum remains the undisputed leader in stablecoin settlement, with $113.9 billion in stablecoins issued on-chain—far surpassing competitors like Tron ($59.8B), BNB Chain ($6.3B), and Solana ($5.9B). The decision by Coinbase to build Base on Ethereum further reinforces the network’s role as the foundation for large-scale financial infrastructure. Additionally, the rise of tokenized RWAs, led by BlackRock’s BUIDL fund [F], highlights Ethereum’s unique ability to support on-chain financial instruments with deep liquidity and institutional backing.
In the following sections, we will explore Ethereum’s dominance in stablecoins and the accelerating adoption of RWA tokenization, illustrating why the network is the preferred blockchain for TradFi institutions, enterprises, and asset managers.
Stablecoin Supply by Chain
Stablecoin Supply by Chain – The total amount of stablecoins issued and held on a specific blockchain, indicating its role in storing and settling digital dollars within the crypto ecosystem.
How It Differs from Stablecoin Transfers – Stablecoin supply measures the total available stablecoins on a blockchain, while stablecoin transfers track the movement of those stablecoins between addresses, reflecting transaction activity and network usage.
Source [2]
Stablecoins have become a cornerstone of the cryptocurrency TradFi ecosystem, offering the stability of fiat currencies while leveraging the efficiency of blockchain technology. As of December 1, 2024, the total market capitalization of stablecoins reached $193 billion. Projections suggest this could soar to $3 trillion by 2029, driven by increased institutional adoption and the integration of stablecoins into TradFi systems. [7]
The adoption of stablecoins is reshaping the crypto landscape and TradFi. A study by Juniper Research forecasts that by 2028, businesses could save up to $26 billion globally through the use of stablecoins, particularly in cross-border payments where they can eliminate intermediaries and reduce transaction costs. [8]
The stablecoin market is poised for significant growth. Analysts predict that the total stablecoin supply will double to exceed $400 billion in 2025, driven by regulatory clarity and the integration of stablecoins into traditional financial operations. This growth is expected to be bolstered by at least ten stablecoin launches backed by TradFi partnerships, as financial institutions seek to stay ahead of the trend by building foundational infrastructure to drive future business development. [9]
In summary, Ethereum's leading role in stablecoin issuance, combined with the projected expansion of the stablecoin market, underscores its position as the preferred blockchain for traditional financial institutions aiming to leverage digital assets for efficient, secure, and scalable financial solutions.
Tokenization of Real World Assets (RWA’s)
The process of representing real-world assets (RWAs), such as bonds, real estate, or commodities, as digital tokens on a blockchain to enhance liquidity, transparency, and accessibility.
Source [4]
The tokenization of real-world assets (RWAs) is one of the most significant trends in blockchain adoption, and Ethereum remains the dominant platform for these assets. As institutions increasingly explore bringing financial instruments on-chain, Ethereum’s established security, liquidity, and developer ecosystem make it the primary settlement layer for tokenized assets.
Ethereum’s Lead in Tokenization
According to research by Jamie Coutts (Real Vision), Ethereum and its Layer 2 networks host the majority of tokenized assets, particularly in U.S. Treasury debt, corporate bonds, and private credit. The recent rise of BlackRock’s BUIDL fund has further reinforced Ethereum’s position as the go-to blockchain for institutional-grade tokenization.
Source [5]
While alternative Layer 1s like Solana, Stellar, and Avalanche are starting to gain traction—with firms like Franklin Templeton exploring multi-chain strategies—Ethereum is still expected to be the primary beneficiary of tokenization in the near term. Over the last year, the total value of tokenized RWAs has grown from $7.3 billion to $11.3 billion, even amid regulatory uncertainty.
Projected Growth and Ethereum’s Revenue Potential
According to research by Jamie Coutts at Real Vision, tokenization is expected to be a major driver of blockchain adoption, with Ethereum positioned as the primary beneficiary. While tokenized assets currently represent a relatively small segment of the market, Wall Street analysts project that between $10 to $30 trillion in traditional assets could be tokenized over the next 5 to 10 years.
Using historical turnover ratios [G] from the S&P 500 as a baseline, Coutts estimates that blockchain networks could generate significant fee revenue from tokenized assets. The analysis assumes a conservative 1 basis point (bps) transaction fee, which would result in blockchain fee revenues ranging from $317 million (low estimate) to $3.17 billion (high estimate).
Ethereum's Layer 1 (L1) and Layer 2 (L2) networks are projected to capture a significant portion of this revenue, with L1 accounting for 20% market share and L2 securing 30% market share under both scenarios. This could translate into $65.8 million to $657.9 million in annual Ethereum-based fee revenue, reinforcing Ethereum’s dominance in the tokenized asset sector.
As institutions increasingly adopt tokenization, Ethereum’s robust security, liquidity, and infrastructure give it a first-mover advantage. However, alternative Layer 1s such as Solana, Stellar, and Avalanche are beginning to attract institutional interest, signaling that the tokenization market could become increasingly multi-chain in the long run.
Source [6]
Conclusion: The Multi-Chain Future of Tokenization and Finance
While Ethereum is the dominant player in tokenization, alternative Layer 1s like Solana and Sui are well-positioned to capture a share of this growing market. As seen with Base expanding to other blockchains, it’s clear that institutions are open to multi-chain strategies that prioritize efficiency, speed, and low costs.
High-performing blockchains such as Solana and Sui are positioning themselves as on-chain venues for high-velocity financial activities, aspiring to replicate and surpass traditional trading platforms like NASDAQ. These blockchains are optimized for throughput, low latency, and cost-efficiency, making them ideal for tokenized assets and high-frequency trading. Their design and focus on scalability could lead to significant adoption within sectors that demand speed and reliability, such as decentralized finance (DeFi), tokenized securities, and real-time payment systems.
As stablecoin adoption and tokenization accelerate, we could see a fragmented but interoperable ecosystem, where Ethereum leads in stablecoin supply, tokenized asset settlement, and security, while high-performance chains like Solana and Sui handle high-velocity trading and execution. With stablecoins acting as the primary bridge between traditional finance and blockchain-based markets, and tokenization bringing real-world assets on-chain, Ethereum’s dominance in both reinforces its role as the foundational settlement layer. If these networks continue to improve developer tooling and liquidity depth, they could emerge as major competitors in TradFi’s shift toward blockchain-based financial markets.
The crypto market thrives on attention, speculation, and hype, where Solana is currently winning the narrative battle. However, Ethereum and its L2s are shaping up to be the stronger long-term value bet. The success of Base on Ethereum has demonstrated how enterprises can leverage Ethereum’s security and liquidity while customizing their own L2 environments. BlackRock’s BUIDL fund is already following this approach, using Ethereum as the foundation for tokenizing TradFi assets. If this model proves successful, it could serve as the next major catalyst, reinforcing Ethereum’s role as the settlement layer for institutional finance and blockchain-based asset markets.
References
C. Rosa, HarmonIQ Insights, 2025
C. Rosa, HarmonIQ Insights. Available: https://app.artemisanalytics.com/home
J. Coutts, The Ethereum Dilemma Part 2: Still a Solid Bet, Real Vision, 2024, p. 10
D. Duong, 2025 Crypto Market Outlook, Coinbase Institutional, 2024, p. 21. Available: https://coinbase.bynder.com/m/18348e25ea106276/original/Coinbase_Institutional_Crypto-Market-Outlook_2025_v1.pdf
J. Coutts, The Ethereum Dilemma Part 2: Still a Solid Bet, Real Vision, 2024, p. 18
J. Coutts, The Ethereum Dilemma Part 2: Still a Solid Bet, Real Vision, 2024, p. 19
J. Kirui, Stablecoins Could Reach $3 Trillion Market Cap by 2029, Finance Magnates, 2025. Available: https://www.financemagnates.com/cryptocurrency/stablecoins-could-reach-3-trillion-market-cap-by-2029-amid-institutional-etf-adoption
S. Smith, Stablecoins to Save Businesses $26 Billion Globally by 2028, Juniper Research, 2025. Available: https://www.juniperresearch.com/press/stablecoins-to-save-businesses-26bn
S. Basar, TradFi Expected to Issue Stablecoins in 2025, MarketsMedia, 2025. Available: https://www.marketsmedia.com/tradfi-expected-to-issue-stablecoins-in-2025
Glossary
The Merge (2022) - The Merge refers to Ethereum’s transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism, which occurred in September 2022. This upgrade eliminated energy-intensive mining, significantly reducing Ethereum’s energy consumption by over 99%. It also set the stage for future scalability improvements by integrating Ethereum’s execution layer with the Beacon Chain, the PoS-based consensus layer. The Merge was a key milestone in Ethereum’s development, aimed at enhancing network security, sustainability, and long-term efficiency.
Optimistic Rollups – A Layer 2 scaling solution that processes transactions off-chain before submitting bundled data to Ethereum. Transactions are assumed valid by default but can be challenged if fraudulent. This approach significantly reduces costs and increases throughput while maintaining Ethereum’s security. Arbitrum is a leading optimistic rollup, known for fast, cost-efficient transactions and strong developer adoption.
ZK-Rollups – A Layer 2 scaling solution that bundles multiple transactions and submits a zero-knowledge proof (ZKP) to Ethereum for verification. ZK-rollups enhance security by proving transaction validity without revealing specific details. This reduces costs and increases throughput while maintaining Ethereum’s trust model. Polygon has expanded into a multi-chain ecosystem that includes zk-rollups, offering high-speed, low-cost transactions with strong Ethereum interoperability.
Finality refers to the point at which a transaction is irreversible and permanently recorded on the blockchain, ensuring it cannot be altered or reverted. In traditional blockchains like Ethereum, finality occurs once a transaction is confirmed and deeply embedded in the chain, making it computationally impractical to modify.For zk-Rollups like zkSync, near-instant finality means transactions are verified and finalized on Layer 2 almost immediately, with cryptographic proofs ensuring validity before submission to Ethereum. This reduces waiting times and enhances efficiency while maintaining security.
Transactions per second (TPS) measures the number of transactions a blockchain network can process per second. Higher TPS improves scalability and user experience but often involves trade-offs between decentralization, security, and efficiency. Higher TPS allows for faster, lower-cost transactions, improving usability for DeFi, NFTs, gaming, and financial applications. While Ethereum prioritizes security and decentralization, L2s and alternative L1s like Solana and Sui focus on high-speed execution, shaping a multi-chain future with specialized trade-offs. Below is a comparison of Solana, Ethereum, Ethereum Layer 2s, and select alternative L1s:
Solana - Hypothetical TPS ~ 65,000
Ethereum - Hypothetical TPS ~ 15-30
Arbitrum - Hypothetical TPS ~ 40,000
SUI - Hypothetical TPS ~ 300,000
Base - Hypothetical TPS ~ 10,000
BlackRock BUIDL Fund – A tokenized U.S. Treasury money market fund launched by BlackRock, built as a Layer 2 (L2) solution on Ethereum’s L1 ecosystem. It enables investors to earn yield from short-term U.S. government securities while benefiting from Ethereum’s security, transparency, and settlement infrastructure. The fund represents a major step in traditional finance (TradFi) adopting blockchain for real-world asset (RWA) tokenization, reinforcing Ethereum’s role as the foundation for institutional-grade financial instruments.
Turnover rates refer to the frequency at which assets are traded within a given period relative to their total market value. In traditional finance, turnover is commonly used to measure stock market activity, calculated as the total trading volume divided by the market capitalization. A higher turnover rate indicates more liquidity and active trading.In the context of tokenized assets, turnover rates help estimate how frequently tokenized real-world assets (RWAs) will be transacted on blockchain networks. Jamie Coutts’ research references the S&P 500’s 317% turnover rate, meaning that the total trading volume was 3.17 times the market cap of the index. Since tokenized assets are expected to have even higher velocity due to integration with DeFi applications, these turnover rates provide a framework for estimating blockchain fee revenue.