Ethereum Shows Strength, but 23 Drop in DApp Activity Raises Concerns

Ether (ETH) recently saw a 9.4% price increase between October 10 and 15, reaching $2,687, the highest level in two weeks. However, despite this surge, ETH remains down 25% over the last three months, reflecting growing investor concerns. The launch of spot Ether exchange-traded funds (ETFs) has failed to meet expectations, and weak demand for ETH is evident, even as Ethereum continues to prioritize layer-2 scaling solutions.

Declining DApp Activity Raises Red Flags

One significant concern is the 23% drop in decentralized applications (DApp) activity on the Ethereum network in the past week. This downturn has fueled speculation that Ether’s price could follow suit if the downward trend continues.

Despite Ether’s price decline since mid-July, the broader cryptocurrency market cap (excluding stablecoins) remained relatively stable. Over the past three months, the crypto market cap has decreased by just 2%, while Ether’s price dropped significantly, from $3,450 to $2,590. This discrepancy suggests a shift in investor sentiment toward Ethereum, and the decline in Ethereum’s total value locked (TVL) further compounds the issue.

Ethereum’s Total Value Locked Stagnates

According to DefiLlama, Ethereum’s TVL has remained at approximately 19 million ETH for the past two months. While Ethereum still holds a dominant 55% market share in the crypto space, with $48 billion in onchain deposits, the stagnant TVL suggests that investor interest may be waning. Comparatively, BNB Chain's TVL has remained steady at around 8.1 million BNB during the same period.

A closer look at Ethereum’s DApp volumes reveals further concerns. Over the past week, Ethereum's 7-day DApp volumes dropped to $21.5 billion. Competitors also faced similar outcomes, with BNB Chain seeing a 33% decline, and Solana (SOL) experiencing a 26% decrease in activity. While the data indicates a broader trend in the market, it does not necessarily signal an imminent major drop in Ether’s price.

Weak Performance from Key Ethereum DApps

Key decentralized applications on Ethereum, such as Uniswap, saw a 16% drop in activity, while Balancer experienced a dramatic 54% decline. Other notable platforms like CoW Swap and 1inch Network also reported weaker performance, with onchain volumes down 18% and 23%, respectively.

Reduced Demand for ETH ETFs and Lower Supply Burn

Ether investors are also disappointed by the lack of inflows into spot Ether ETFs, with net outflows of $6 million reported in October. In contrast, Bitcoin ETFs saw significant inflows, with $810 million entering between October 11 and 14, signaling stronger demand for Bitcoin over Ether in current market conditions.

Additionally, Ethereum’s supply continues to increase, despite high network usage. Vitalik Buterin recently addressed this concern, proposing solutions like single-slot finality to improve transaction speeds, which currently take around 15 minutes and contribute to network congestion.

Impact of Layer-2 Solutions on Ether Supply Burn

The Ethereum network’s adoption of lower-fee layer-2 solutions, such as rollups, has reduced the ETH supply burn rate. The implementation of EIP-4844 in April 2023 aimed to improve layer-2 efficiency by bundling and processing transactions more effectively. While these solutions have contributed to the growing adoption of layer-2 protocols, they have also impacted the overall ETH burn rate, playing a role in Ether’s underperformance.

In summary, Ethereum’s recent price strength may not be sustainable if the current trends in DApp activity, ETF demand, and supply dynamics persist. As layer-2 solutions continue to evolve and impact network usage, investors will need to closely monitor Ethereum’s development to assess its long-term growth potential.