The State of Crypto 2025 Sneak Peek: ETH

Each year, we publish our State of Crypto: Market Outlook research report, where we share our top predictions for the year ahead. In the upcoming 2025 edition, we’ve highlighted twelve key forecasts, covering everything from Ethereum’s evolving scaling solutions to emerging sectors such as DePin and AI. While this year’s full report will be released in the coming weeks, we wanted to give our audience a sneak peek at what’s in store. This week’s sneak peek will focus on Ethereum, focusing on its battle between scaling and revenue and the transformative developments expected to shape its trajectory in the year ahead.

Ethereum’s Battle Between Scaling and Revenue: A 2025 Perspective

In 2024, Ethereum faced mounting challenges as users and capital migrated toward alternative Layer 1 (L1) networks like Solana and Sui. These competitors offered faster transaction speeds and lower fees, drawing away developers and users alike. This shift has been reflected in Ethereum’s underwhelming price performance, which lagged significantly behind both Bitcoin and Solana. The rise of Layer 2 (L2) solutions such as Optimism and Arbitrum has further disrupted Ethereum’s dominance, capturing market share while reducing activity and revenue on Ethereum’s mainnet.

Layer 2 solutions emerged as a necessary response to Ethereum’s scalability limitations, which previously caused significant network congestion and sky-high transaction fees. By processing transactions off-chain while relying on Ethereum for security and settlement, L2s have alleviated these issues, providing faster and cheaper transactions. This scalability challenge was further addressed with the introduction of EIP-4844, also known as "Proto-Danksharding," which brought a groundbreaking solution to enhance Layer 2 efficiency and affordability.

EIP-4844 introduced “BLOB space” to lower L2 transaction fees. By enabling data blobs to be temporarily attached to blocks, congestion and costs are reduced, making L2 rollups more efficient and affordable. While BLOB space has accelerated the growth of L2 networks, it has inadvertently drawn users and activity away from Ethereum’s mainnet, leaving it underused and like a ghost town; this success, while beneficial to the broader ecosystem, has introduced new challenges for Ethereum L1 by generating fewer fees, raising concerns about the network's long-term economic sustainability.

Despite these challenges, Ethereum’s outlook for 2025 shows promise, with several key developments potentially reversing its fortunes.

2025: Ethereum’s Revenue Revival and Layer 2 Renaissance

Ethereum is poised for a revenue resurgence in 2025, as demand for Blob space intensifies, as seen in figure 1, and strategic integrations with L2 networks bear fruit. The rapid onboarding of new crypto users through L2 solutions is expected to channel increased activity back to Ethereum's mainnet. As demand for BLOB space grows—potentially exceeding 100% of its target capacity—Ethereum’s economic sustainability could be restored, supporting its long-term growth.

‍

Figure 1: Blob Space - Average Blob Count Per Block

Source: 21Shares, Dune

‍

Additionally, Ethereum may implement revenue-sharing agreements with L2 networks or raise minimum Blob fees. These changes could redirect more value to the Ethereum mainnet, reinforcing its position as the go-to blockchain ecosystem. The adoption of such strategies would not only stabilize Ethereum’s revenue but also encourage further innovation in its ecosystem.

Meanwhile, the trend of alternative Layer 1 networks pivoting to Ethereum is expected to accelerate. Networks like Celo and Sonic (formerly Fantom) are actively building bridges to Ethereum, transitioning into Layer 2 solutions to capitalize on Ethereum’s robust infrastructure and ecosystem. This convergence highlights Ethereum’s growing influence as the foundational layer for blockchain innovation, attracting networks seeking a broader user base and enhanced interoperability.

The Expanding Role of Legacy Players in Ethereum’s Ecosystem

The growing interest from legacy institutions further highlights Ethereum’s potential. Crypto-native firms like Coinbase have already demonstrated the revenue-generating capabilities of Layer 2 solutions with their Base network, which generated over $90 million in revenue and amassed over $3.6 billion in TVL, making it the 6th largest chain by TVL. Inspired by these successes, traditional companies such as Sony have launched their own L2 signaling a shift toward deeper involvement in Web3.

‍

Figure 2: Coinbase TVL

Source: 21Shares, Defillama

‍

As legacy companies like Sony enter the Web3 space, other players are likely to follow. Web2 giants such as Robinhood and PayPal, as well as traditional financial institutions like Visa, are well-positioned to leverage Ethereum’s Layer 2 technology. Robinhood, in particular, could emerge as a frontrunner, utilizing Layer 2 scalability and cost-efficiency to unlock new revenue streams and attract a broader user base.

Sector- and app-specific Layer 2 solutions are also expected to proliferate, enabling decentralized applications (dApps) to optimize performance and user experience. For instance, Uniswap’s anticipated “Unichain” could cater specifically to defi users, setting a precedent for other projects to follow in sector-specific use cases. These tailored solutions will drive Ethereum’s adoption across a range of industries, reinforcing its relevance and utility.

Furthermore, the integration of legacy tech and traditional finance with Web3 has the potential to reshape both industries. As these players embrace Ethereum’s scaling solutions, they bring credibility and resources to the ecosystem, accelerating its evolution and expanding its reach to new user segments.

A Transformative Year Ahead

Ethereum’s 2024 challenges may well serve as the catalyst for its most transformative year yet. The innovations in Layer 2 scaling, the increasing participation of legacy companies, and the strategic alignment of alternative Layer 1 networks signal a turning point for Ethereum. While 2024 was marked by a battle between scaling and revenue, 2025 is shaping up to be a year of revival and growth.

As demand for Blob space surges and revenue-sharing models gain traction, Ethereum’s economic sustainability is likely to improve. The ecosystem’s ability to attract both crypto-native and legacy players will further solidify its role as a cornerstone of the blockchain landscape. In the process, Ethereum will not only reclaim its position as a leader in decentralized technology but also pave the way for the next wave of innovation and adoption in Web3.

The challenges of scaling and competition have tested Ethereum’s resilience, but its capacity for adaptation and innovation remains unparalleled. With 2025 on the horizon, Ethereum’s evolution promises to redefine the boundaries of what is possible in blockchain technology, making it a pivotal year for the network and the broader crypto ecosystem.