Ethereum, the “default smart-contract” platform, is having one of its most important years. It needs to address increasing competitiveness, scaling issues and complexities of restaking. Ethereum still holds overwhelming dominance over the DeFi space and has a strong developer community. Indeed, as it stands today, it is still well behind Solana’s daily active addresses and transaction counts. The imminent Pectra upgrade and the ongoing development of layer-2 scaling solutions are both essential to Ethereum’s long-term success.
DeFi Dominance and NFT Market Trends
Ethereum has become the backbone of decentralized finance (DeFi) landscape. It currently has a staggering Total Value Locked (TVL) of $47 billion, over 2 times the amount of that of its closest competitor. This really emphasizes Ethereum’s role as a central core of the DeFi ecosystem, earning most of this capital and activity. That’s not the case in the NFT market.
With NFT volumes on ETH down 24% year-over-year, this indicates a clear lack of interest, excitement, and sustained activity in this boom sector. Our whole PEEP cohort learned about “utility fatigue” from the article, which could be a culprit. It’s an indicator that the novelty of NFTs may be wearing off as users seek more tangible, long-lasting applications. The shift in NFT market dynamics comes as another challenge to Ethereum. To remain relevant in an ever-changing digital asset world, the platform will need to continue to change and be creative.
Pectra Upgrade and Enhanced Scalability
This Pectra upgrade will be a great improvement to the Ethereum network with EIPs 6110, 7002, and 7251. This upgrade will double the maximum validator balance from 1,024 ETH to 2,048 ETH, lowering the need for further decentralization of staking and thus, network security. Perhaps the biggest goal of the Pectra upgrade is to get finality in less than five seconds. As a result, transaction speeds will increase dramatically and user experience will improve substantially.
The implementation follows Ethereum’s long-term plan to fix the scalability problems and high gas fees. While Ethereum's scaling story is still unfolding, with occasional gas-fee spikes exceeding $20, the Pectra upgrade represents a step forward in enhancing the network's performance and efficiency. These user experience improvements are profoundly important for Ethereum to stay competitive and attract a more mainstream user base.
Layer-2 Solutions and Restaking Risks
Ethereum’s layer-2 roll-ups, such as Arbitrum, Optimism, and Base are currently handling an average of 62 networks. These roll-ups guarantee between $35 billion to $45 billion in value. They handle on average over 70 transactions per second, which massively alleviates the burden on the core Ethereum chain. Account abstraction (EIP-4337) would greatly improve the user experience. This enables intelligent wallets to arbitrage and constantly rebalance gas tokens across layer-2 solutions.
With the expansion of restaking comes significant risk to the Ethereum ecosystem. Restaking TVL Recently, combined restaking TVL has crossed the $25 billion mark! With this brigade comes the danger of cascading slashes should a major Actively Validated Service (AVS) fall flat. That interconnectedness presents some systemic vulnerabilities that, if exploited, could have nationwide consequences. We project restaking-powered AVSs will produce around $20 billion in annual fees by 2026. At the same time, we need to be thoughtful about the risks that come with it to protect the security of the Ethereum network.
Competition and Institutional Investment
Despite its strengths, Ethereum faces growing competition from other blockchain platforms, such as Solana, which now frequently surpass Ethereum in daily active addresses and raw transaction counts. Ethereum is certainly meeting this challenge head-on. They’ve been focused on blending in long-term scalability solutions such as the Firedancer upgrade, which plans to reach 100,000 transactions per second in the second half of 2025. This upgrade is possibly the most important upgrade to Ethereum. This, in turn, allows the platform to remain competitive, adjusting to the blockchain’s rapidly evolving landscape.
As you may have already heard, institutional investment in Ethereum is skyrocketing. Nine U.S. spot ETFs and Hong Kong’s new dual-currency products have recently been funneling regulated capital onto the platform. These investment vehicles combined manage over $33 billion in Assets Under Management (AUM). This first figure illustrates a high degree of optimism in Ethereum’s long-term future. With continued institutional adoption, Ethereum stands to gain from greater liquidity and market stability.
