Key Takeaways:
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Ethereum base layer activity has cooled as fees and TVL have fallen and seen lower demand despite the recent price rally.
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Layer 2 networks are growing rapidly, helping to support Ethereum, at the same time as base layer usage slows and traders remain cautious.
Ether (ETH) rallied to a three-week high near $3,400 on Tuesday after weak U.S. jobs data bolstered expectations that U.S. monetary policy could turn out to be less restrictive prior to previously thought.
Despite the 11.2% weekly gains, traders still fear that the Ethereum network's sluggish activity and limited demand for bullish leverage could slow the short-term uptrend.
Blockchains sorted by 7-day network fees, USD. Source: Nansen
Nansen data shows that Ethereum's 30-day network fees fell by 62%, a far steeper decline than the roughly 22% drop seen on Tron, Solana and HyperEVM over the identical timeframe.
However, some activity stood out: Transactions on Base increased by 108%, while Polygon saw an 81% increase, suggesting continued momentum in Ethereum's expanding Layer 2 ecosystem.
The Ethereum Fusaka upgrade on December 3 introduced changes to enhance rollup efficiency, which can have contributed to the lower network fees in the course of the month.
As of Tuesday, the annual funding rate for ETH perpetual futures was near 9%, reflecting a reasonably even distribution of leveraged positions between buyers (longs) and sellers (shorts). Under normal market conditions, this indicator tends to fluctuate between 6% and 12% to consider the price of capital; Values above this range normally signal stronger bullish positioning.
Traders turned more defensive after the US Bureau of Labor Statistics reported 1.85 million layoffs in October, the best since 2023. Markets at the moment are pricing in a 0.25% rate of interest cut by the US Federal Reserve on Wednesday, as attention turns to Fed Chair Jerome Powell's comments after the committee meeting.
Ethereum’s layer 2 growth offsets the decline in base layer fees
Despite the recent bullish momentum, Ether remains to be trading 32% below its August all-time high of $4,597. To assess whether demand for the Ethereum network is really declining, it is useful to think about the impact on decentralized applications (DApps).
Volume on Ethereum-based decentralized exchanges fell to $13.4 billion in seven days, in comparison with $23.6 billion 4 weeks ago. Likewise, decentralized application revenue hit a five-month low of $12.3 million in the course of the same period. Overall, demand for Ethereum base layer processing has declined since its peak in late August.
Some of Ethereum's leading DApps saw a pointy decline in Total Value Locked (TVL), including Pendle, Athena, Morpho, and Spark. The aggregate TVL on the Ethereum base layer fell to $76 billion from $100 billion two months earlier. Nevertheless, Ethereum’s dominance stays intact with a market share of 68%, while runner-up Solana holds lower than 10%.
Ether bulls argue that the network's strong incentives for Layer 2 scalability offer a more sustainable model than the upper load and centralized coordination that competing blockchains require. Ethereum is positioned to capture a major share of the longer term growth in decentralized finance (DeFi).
Paul Atkins of the US Securities and Exchange Commission reportedly said in an interview with FOX Business that the tokenization of the US market could occur in “a couple of years,” adding that blockchain offers “tremendous advantages” equivalent to predictability and transparency. Atkins said the U.S. should “embrace this latest technology and convey it to shore where it could actually operate under American rules.”
While Ethereum base layer fees have plummeted together with the drop in TVL, activity continues to extend across the Layer 2 ecosystem. Currently, neither on-chain nor derivatives data suggests any significant weakness in ETH price momentum.
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