Binance Report Reveals Ethereum’s Market Share at 13.1% in 2024
Binance Research's report titled “The ETH Value Debate” examines Ethereum's evolving role in the crypto ecosystem and factors affecting its value. While Ethereum has been foundational to blockchain technology, its market dominance has dropped to 13.1%, the lowest since April 2021. In contrast, altcoin dominance rose to 28.2%, and Bitcoin exceeded $100,000.
The Dencun upgrade, part of Ethereum’s roadmap, altered fee dynamics by reducing Layer 2 (L2) transaction fees but left Layer 1 (L1) fee collections at a low. As a result, Ethereum's ETH burn rate has decreased, reversing the deflationary trends established after its transition to proof-of-stake (PoS) in 2022.
Market sentiment reflects challenges; Spot ETH ETFs launched in July 2024 with initial muted interest but later garnered over $1.7 billion in net flows post-U.S. elections. However, Ethereum’s trading volumes and search interest have stagnated compared to alt-Layer 1s like Solana, which saw a 131.7% year-to-date market cap growth.
L2 Growth and App-Chains Challenge Ethereum
Layer 2 adoption is rising, with over 4 million ETH bridged to these platforms, indicating Ethereum’s role in decentralized finance (DeFi). However, app-chains like Uniswap’s move to Unichain are shifting value distribution away from Ethereum.
Ethereum faces a prioritization dilemma: enhancing value capture through L2 scaling or preserving L1 strength to maximize demand for fees and maintain a vibrant decentralized application (dApp) economy.
Inflationary dynamics have also changed market perception, as ETH’s 30-day annualized inflation turned positive in 2024, diminishing the "ultrasound money" narrative.
Solana, Sui, TON Gain Ground
The emergence of alt-L1s and rollups has posed new challenges. Chains such as Solana, Sui, and The Open Network (TON) have surpassed Ethereum in user activity and growth metrics, capturing more trading and transaction volumes. Rollup-centric value generation mechanisms remain underdeveloped.
Future protocol upgrades, including the Pectra upgrade scheduled for early 2025, aim to enhance L2 scalability and user experiences. However, strategic ambiguity between L2 scaling and L1 value preservation may impact long-term value retention.
As economic value shifts towards L2s, Ethereum must address fragmentation, interoperability, and centralized sequencer risks. L2s may increasingly depend on affordable data availability providers like Celestia, further decentralizing fee collection.
Ethereum's Fee-Driven Future in Question
A central question in Ethereum’s value debate concerns whether transaction fees and miner extractable value (MEV) will drive greater value capture or if ETH's utility as a gas token, medium of exchange, and collateral asset will prevail. Despite an issuance rate below 1%, declining fee collections raise concerns about the effectiveness of its burn mechanism.
Ethereum remains vital in DeFi; in 2024, decentralized exchanges incurred $512.8 million in fees, with ERC-20 tokens and ETH transfers contributing $159.4 million and $148.9 million, respectively. However, with dApps like dYdX and Hyperliquid migrating to app-chains, Ethereum’s fee-based demand profile is changing significantly.
Despite these changes, demand for ETH as non-sovereign money within the L2 economy remains strong. The rollup-centric roadmap emphasizes this utility, positioning ETH as a reserve asset. As Ethereum moves forward, establishing a clear direction—through either L2 scaling or L1 fee preservation—is crucial for maintaining relevance.