Ethereum’s price drop is linked to reduced mainnet fees and rising activity on Layer 2 networks.
L2 growth has shifted revenue away from ETH, lowering burn and weakening short-term value capture.
Future upgrades and revenue-sharing models may reconnect L2 expansion with stronger ETH value.
Ethereum price is hovering near $3,100–$3,200 at press time, down from its August peak near $4,950. This represents a decline of about 45%. At the same time, Ethereum’s on-chain fees have decreased, ETFs have seen significant outflows, and user activity has shifted heavily to Layer 2 networks such as Arbitrum, Optimism, and Base.
Despite this, Ethereum remains the leading smart-contract platform and continues to dominate decentralized finance (DeFi). The real issue is not simply the price of ETH, but how Ethereum captures value in a world where most transactions now happen on L2s.
Layer 2 networks are built on top of Ethereum to increase speed and reduce costs. Most L2s are rollups, which bundle transactions and submit them to Ethereum for final settlement. This structure makes them extremely efficient.
By late 2025, Ethereum L2s collectively secure more than $40 billion in value. They host hundreds of thousands of daily users and handle billions of dollars in monthly transaction volume.
On the Ethereum mainnet, DeFi remains strong with a TVL of around $65–$70 billion. Across all blockchains, Ethereum holds roughly 59% of total DeFi capital, far ahead of alternative Layer 1 networks.
However, user behavior has shifted. L2 TVL has grown steadily in 2025, and a significant portion of that value now comes from stablecoins, real-world assets, and bridged tokens. In some ecosystems, these assets comprise more than 45% of total value. This suggests that while Ethereum remains the foundation, much of the day-to-day activity has migrated to L2s.
Also Read: Why Ethereum Dropped and What it Means for December 2025
That all changed with the Dencun upgrade, which launched on March 13, 2024. With this upgrade came something called proto-danksharding and a new kind of transaction, called "blobs," which made it dramatically cheaper for L2s to post their data to Ethereum.
A massive cost reduction for Ethereum Layer 2s was noticed. Blob data is so inexpensive that it allows L2s to offer extremely low transaction fees, often just cents or even fractions of a cent. So, most everyday activities moved to L2s and thereby became the default environment for gaming, trading, and DeFi interactions.
The second impact was that Ethereum's own fee revenue and ETH burning declined. Pre-Dencun, extremely high transaction fees usually meant large amounts of ETH were burned, ultimately reducing supply and strengthening the "ultra-sound money" narrative. In the wake of Dencun, Ethereum's fee revenue dropped dramatically. With lower gas usage at the base layer, ETH burning fell; thus, ETH's supply trend went from deflationary to near-flat or mildly inflationary.
This raised concerns that Ethereum had succeeded in scaling, but at the cost of weakening the economic engine that supports ETH's value.
One is that L2s drain the value of Ethereum. As L2s process most transactions and retain most transaction fees, Ethereum's value proposition is muted. The base layer incurs only low-cost data-availability fees, and at lower burn levels, ETH loses some of its scarcity appeal.
Institutional activity adds to this concern. In November 2025, Ethereum ETFs recorded about $1.4 billion in outflows. This has led some investors to believe that institutional capital is rotating toward Bitcoin or fast-growing alternative chains.
However, this view overlooks the bigger structural picture. Ethereum still secures one of the most extensive asset bases in crypto. Staking services such as Lido secure close to $38 billion in staked ETH, anchoring the security of the entire Ethereum ecosystem, including the L2s that settle back to it.
Ethereum remains the center of global DeFi. More than half of all DeFi value remains on either Ethereum mainnet or L2s, relying on ETH as the primary collateral asset. Ethereum still commands the largest share of smart-contract activity across all chains.
Many researchers now consider the L2s along with Ethereum as one single "super-ecosystem." When the combined value of L2s is included in the valuation models, some studies make the case that ETH is actually significantly undervalued. In some cases, estimates suggest more than 200% upside based on current fundamentals.
This perspective treats L2s as extensions of Ethereum, not a competition. While they do offload some transactions, they still actually rely on Ethereum for settlement and security.
While L2s rely on Ethereum, the challenge is how to make their growth strengthen the value of ETH directly. New designs are being explored by developers to solve this.
L2 sequencers capture significant fee revenue; proposals exist where a portion of this revenue could flow back to Ethereum validators or to restaked ETH. This would increase staking yields and provide a direct relationship between the use of L2s and the value of ETH.
Upgrades are also being designed with value capture in mind. Pectra in 2025 improved user experience and expanded staking flexibility by raising the validator cap from 32 ETH to 2,048 ETH. While it did not solve ETH's price weakness, it represented a step forward for a more scalable and flexible architecture. Future upgrades, like Fusaka, are likely to be more heavily focused on enhancing how value flows from L2s back to Ethereum.
Another important trend is high-value settlement. In general, institutional transactions, tokenized real-world assets, and high-value transfers are increasingly using the Ethereum mainnet due to its security guarantees. Even while L2s may continue to dominate retail-level transactions, these high-value activities can support stronger fee generation and ETH burning over time.
Also Read: Will Ethereum (ETH) Reach $4,200 by the End of 2025?
Layer 2 networks have changed the way Ethereum captures value. They've reduced transaction costs, lowering mainnet fees and the ETH burn rate, and shifting economic activity to L2 sequencers. These factors have all combined with ETF outflows and broader market pressure to take ETH down about 45% from its recent peak.
Ethereum is far from losing relevance. It still anchors most of DeFi, secures tens of billions in staked assets, and remains the settlement layer for a large and growing network of rollups. L2s increase total demand for Ethereum’s security, even if ETH’s current tokenomics do not yet fully reflect that expansion.
The problem is not that Ethereum is collapsing. The problem is that value has moved to new layers faster than Ethereum’s economic model has adapted. As upgrades, revenue-sharing models, and institutional adoption evolve, more of the growing L2 economy may begin flowing back to ETH.
This period may eventually be seen not as a decline, but as a transition from a single-chain system to a modular, multi-layer ecosystem with Ethereum at the center and ETH as the asset that binds everything together.
1. Is Ethereum losing value due to Layer 2 networks?
Layer 2 growth has reduced mainnet fees and ETH burn, which affects short-term value, but L2s still rely on Ethereum for security and settlement.
2. Why has the price of ETH dropped recently?
ETH has fallen partly due to lower on-chain fees, decreased burn, ETF outflows, and a broader shift of user activity to L2s.
3. Do Layer 2 networks replace Ethereum?
No. L2s scale Ethereum by handling transactions at lower cost, but they still depend on Ethereum for final settlement and security.
4. How do ETFs affect Ethereum’s price?
Large ETF outflows reduce market demand for ETH, contributing to downward price pressure in the short term.
5. Can Ethereum regain stronger value capture?
Yes. Upcoming upgrades, revenue-sharing proposals, and high-value institutional use on mainnet may increase ETH’s long-term value flow.
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