Ethereum is still a leader in terms of total value locked, but its layer-2 scaling model is a contested one.
ETH inflation reached 0.8 percent as on-chain activity decelerated, and US macro uncertainty continued to affect derivatives markets.
Ethereum recovered to be above the $2,100 level following a savage 43 percent reduction in nine days, which hit a low of around 1,750 on Friday. It has been a relief in the short term, as the rebound of about 22 percent since April 2025 lows. Nevertheless, derivatives positioning implies that traders are very cautious of further decline. Despite the fact that the macro fears may be the major force, the chances of a long-term bullish run in the near future seem to be low.
The trade in monthly ETH futures was approximately three percent higher than spot on Monday. That is lower than the 5% range that is generally considered neutral indicating reserved confidence. This can be described as a dampened feeling over the past weeks, despite price testing the waters at the 1,800 levels. Bears will not go out of the way without definite indications of aggression on the part of bulls through dip-buying.
Up to 2026, ETH is trailing the overall crypto market capitalization by approximately 9 percent. The brevity of that performance has questioned where the capital is spinning. On a bigger scale, the deterioration of the demand for decentralized applications is not exclusive to Ethereum. Including the layer-2 ecosystem, the network is still a leader in the Total Value Locked and fee generation.
Ethereum base layer in itself contains approximately 58 percent of all blockchain deposits. With the inclusion of Base, Arbitrum, and Optimism that number increases to over 65. The largest Solana application by comparison has less than 2 billion in deposits and the largest base-layer DApp in Ethereum has over 23 billion in TVL. The Jupiter by Solana, in this case, would not make the list of the best 14 Ethereum applications.
Supply Growth and Layer-2 Design Are Overhangs.
Within the last month, the base layer of Ethereum earned about 19 million in fees, which is the third highest among networks. Its layer-2 solutions were a bonus of an additional $14.6 million. Nevertheless, criticism has been piled on the fact that Ethereum has become highly dependent on subsidizing the scalability with optimistic rollups.
Vitalik Buterin has admitted that the existing strategy still needs to be streamlined, and it is time to pay more attention to the base-layer scalability. He has also observed that the layer-2 network decentralization has turned out to be a more complicated process than originally anticipated. A significant number of solutions currently are based on multisignature-controlled bridges, which cannot match the long-term vision of Ethereum security.
With that said, layer-2 networks will not disappear. The need of privacy oriented chains and application design which is not necessarily limited to financial applications should continue to exist.
The other cause of frustration to the investors is ETF's inability to remain on a deflationary profile. Base-layer activity is an important component of the burn mechanism. In cases where demand for block space decreases, issuance is higher than burn leading to an increase in net supply. In the last 30 days, ETH supply has increased by 0.8 per annum, which is significantly high as compared to the flat inflation of a year ago.
Concurrently, the risk appetite is being burdened by larger macro uncertainty. Fears of US labor markets and the sustainability of massive infrastructure investments in AI products have dampened the mood across the asset classes. The ETH derivatives markets seem to be soft due to the exclusion of risk aversion as well as decelerating on-chain activity. It can hardly be expected that these conditions are instantly reversed and it may take time before confidence has a significant reformation.
This analysis is based on publicly available market data and reflects current market conditions. It does not constitute financial advice.
