Ethereum Price Growth Narrative Under Threat After 19% Drop in ETH DApp Volumes

On the positive side, Ethereum remains the dominant platform in terms of activity and development, although competitors are gaining momentum.

A decline in transaction volumes could negatively impact demand for Ether, both by reducing fees collected and by causing users to migrate to other networks.

One of Ethereum’s current issues remains its relatively high transaction costs, which average $1.70. While scalability solutions have helped to partially address this issue, they have also made the network more difficult for users to use and have called into question the long-term sustainability of the network’s security.

From an investment perspective, staking Ether does not seem particularly attractive, as its yield is 3.3%, which is lower than the yield of six-month US Treasury bonds at 4.6%. Notably, only 28.5% of the circulating ETH is staked, compared to 65.8% for Solana, 56.9% for Avalanche (AVAX), and 62.7% for Cardano (ADA). As a result, Ethereum staking is no longer the primary driver of inflows, offering fewer incentives to participate in the validation process.

While staking plays a significant role in Ethereum’s total TVL, applications like lending, trading, and synthetic assets also require ETH deposits. Therefore, a lower percentage of tokens staked is not necessarily a negative for Ether’s price. Ethereum still leads in TVL, with $44.15 billion in locked funds, nearly ten times more than BNB Chain or Solana.

While the 19% weekly drop in Ethereum DApp volumes may seem alarming, it’s important to compare it to its competitors to understand its full impact on fees and active addresses. For example, Solana DApp volumes grew by 24% over the same period, while BNB Chain saw volumes grow by 23%. This suggests that the decline in Ethereum DApp activity may not reflect an overall crypto market slowdown.

Among the notable negative changes on the Ethereum network was the performance of the leading decentralized exchanges (DEXs). Uniswap volumes are down 18% over the past seven days, CoW Swap is down 29%, and 1inch has seen an 18% decline. Meanwhile, BNB Chain’s Venus protocol has seen a staggering 236% increase in volumes over the same period, while the liquid staking DApp Bemo on the TON network has seen volumes increase by 54%.

Also, activity on Ethereum’s major Layer 2 solutions declined from September 10 to September 17. According to L2Beat, transactions per second fell from 119 to 94 during this period. Layer 2 platforms like Arbitrum One, Linea, Mantle, Immutable X, and Scroll all performed negatively. However, despite the drop in transaction speed, the total locked capital of Layer 2 on Ethereum remained relatively stable at 14.6 million ETH.

Other network metrics also remained stable. Ethereum’s total TVL held at 18.9 million ETH from September 10 to September 17. Likewise, the number of active addresses for Ethereum DApps remained at around 425,000, suggesting that despite the decline in volumes, there are no clear signs of investors leaving the network.

However, the growth in ETH deposits on exchanges is concerning, increasing from 12.02 million to 12.24 million ETH as of September 17, according to Glassnode. Higher volumes on exchanges usually signal a higher likelihood of short-term selling pressure, which could negatively impact price trends.

While the 17% decline in Ethereum DApp weekly volumes is concerning, this alone is unlikely to push Ether’s price below the $2,250 support level, especially given the stability of its active user count and TVL. Investors should continue to closely monitor network activity, but there is no clear risk posed by this decline at this time.