In 2025, the Ethereum blockchain reached new heights of operational success, managing unprecedented transaction volumes and solidifying its hold over a significant chunk of the decentralized finance (DeFi) market. However, the native cryptocurrency, Ether (ETH), didn't quite follow suit, instead registering double-digit losses for the year. According to market data, ETH dipped by 10% year-to-date, trading below $3000, and also underperformed against Bitcoin, seeing its ETH/BTC ratio fall by 6%.
This stark divergence reveals a profound change in the economic landscape of the world’s most widely used commercial blockchain. While the network’s utility has undeniably soared, crucial technical upgrades designed to lower user costs have inadvertently cut down the revenue flowing back to the core network, decoupling Ether’s price trajectory from the burgeoning activity on its rails.
The $100 Million Fee Reallocation
One of the most defining elements of Ethereum’s financial journey this year was the significant reduction in “rent” paid by Layer-2 (L2) networks. These innovative networks play a vital role by bundling multiple transactions together to reduce costs before ultimately settling them on the main Ethereum blockchain. Historically, they served as a substantial source of fee revenue for the mainnet.
To put this into perspective, in 2024, Layer-2 networks collectively generated $277 million in revenue. Out of this, they contributed approximately $113 million, or 41%, directly to the Ethereum mainnet for data processing and network security. Fast forward to 2025, and this revenue model underwent a dramatic inversion.
Data from Growthepie indicates that the total revenue for Layer-2 networks tumbled by 53% to $129.17 million, largely due to reduced fees for end-users. However, the amount paid to the Ethereum mainnet for security and data settlement plummeted even more sharply. Layer-2 networks paid only about $10 million to Ethereum in 2025, representing less than 10% of their total revenue. This effectively means that the remaining $119 million was retained as profit by the various Layer-2 operators.
Ethereum made a strategic sacrifice of over $100 million in guaranteed fee revenue this year, a calculated move to ensure its long-term viability and growth.
This substantial decline stems directly from the “Dencun” upgrade, which was successfully implemented last year. The update effectively lowered transaction fees across the ecosystem, essentially subsidizing growth by reducing the income Ethereum collected from its crucial Layer-2 partners. This vital change allowed the network to handle significantly higher transaction volumes without leading to congestion on the main blockchain or a spike in gas fees.
Tokenomics and the Inflationary Shift
While Dencun was a technical triumph, making Ethereum more affordable and faster, it inadvertently removed a key driver of demand for the ETH token. In prior years, high network usage often translated into high fees, a portion of which would be “burned,” effectively reducing the supply and supporting the token’s price. With fees hitting historically low levels in 2025, the deflationary pressure on the token supply has significantly weakened.
Consequently, Ethereum has transitioned into an inflationary state. Its inflation rate has increased by 0.204% since the Merge event in September 2022, highlighting the new supply dynamics shaped by the Dencun upgrade and the staking boom.
Coinbase's Base Dominates the Profit Share
The reconfiguration of Ethereum’s economics has led to a more consolidated market for scaling solutions, with a single dominant player now capturing the lion’s share of the sector’s profits. Base, the Layer-2 network developed by the publicly traded U.S. cryptocurrency exchange Coinbase, emerged as a clear leader, generating over $75 million in revenue in 2025. This impressive figure represents nearly 60% of the entire Layer-2 sector’s revenue for the year.
Base’s financial performance significantly outstripped its decentralized competitors. Arbitrum, which previously held a commanding market lead, generated approximately $25 million in revenue, securing second place. Other competitors lagged further behind, with Polygon network bringing in $5 million, Consensys-backed Linea earning $3.94 million, and Optimism, another early leader, making around $3.83 million.
This concentration of revenue marks a notable departure from 2024, when the market was far more evenly distributed. Last year, Arbitrum recorded $42 million, Linea $36.6 million, and Scroll $35 million.
The meteoric rise of Base underscores the growing importance of distribution channels and user experience in the competitive landscape of scaling solutions. By seamlessly integrating the network directly into its exchange products, Coinbase has successfully steered a significant volume of retail activity onto its own Layer-2 rails. Consequently, a substantial portion of the value generated by the broader Ethereum ecosystem now accrues to the balance sheet of a distinct corporate entity, rather than being distributed among a wider array of network participants.
Ethereum's Unwavering DeFi Dominance
Despite the challenges in ETH’s price performance, the institutional adoption and overall utility of the Ethereum network continue to accelerate. Available data suggests that investors are not abandoning the ecosystem for faster or cheaper alternative blockchains, a trend that characterized the 2022 bear market. In fact, Ethereum’s dominance of the DeFi sector expanded throughout 2024 and 2025.
The blockchain network’s mainnet now secures approximately 64% of the total value locked (TVL) in DeFi applications, a significant climb from a cycle low of roughly 45% in 2022. Leon Waidmann, Head of Research at Onchain HQ, even suggests that when assets held on crucial Layer-2 networks like Base, Arbitrum, and Optimism are included, the Ethereum ecosystem’s market share rises above 70%.
This consolidation points to a “flight to quality” among large capital allocators. As the industry matures, institutions are increasingly prioritizing Ethereum’s robust security and emerging legal clarity over the more speculative upside offered by newer, more volatile blockchains.
Effectively, Ethereum has cemented its position as the foundational settlement layer for the entire industry, even as the specific mechanisms for capturing value from that activity remain under review and pressure. Simultaneously, analysts have observed that the ecosystem’s current stability stands in stark contrast to previous market cycles. Transaction volumes are picking up towards year-end without the typical “blow-off top” speculation often seen during market peaks, suggesting that current growth is driven by fundamental usage rather than short-term trading frenzies.
Investors Weigh Utility Against Value Capture
Nevertheless, the widening gap between Ethereum’s remarkable operational success and its market valuation presents a complex outlook for investors heading into 2026. The 10% year-to-date decline in ETH’s price reflects a degree of uncertainty regarding the token’s exact role in this new low-fee environment. With the mainnet essentially subsidizing the Layer-2 networks, the direct correlation between increased transaction volume and a rising token price has been disrupted.
Market observers point out that while the ecosystem as a whole is healthier and more robust than ever, the financial benefits are currently concentrated within the application and scaling layers. However, strong network supporters argue that this is a necessary and even desirable transition phase. They contend that by dramatically reducing costs and increasing capacity, Ethereum has successfully secured its position as the global standard for blockchain settlement.
According to this perspective, establishing such a formidable moat will ultimately drive long-term value back to the token, with some optimists like BitMine Chair Tom Lee even predicting that the asset could rise above $5000 next year.
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