Ether (ETH), the native cryptocurrency of the Ethereum network, is not going through its best moment. One example of this is that the total value of ERC-20 tokens on Ethereum is greater than the market capitalization of ETH.
According to data from the Ultra Sound explorer, the Ethereum network has a market capitalization of over $500 billion, with $237.11 billion in ETH and $262.85 billion in ERC-20 tokens. The remaining 2.5% is held by non-fungible tokens (NFTs).
The top ERC-20 tokens that control the majority of the valuation are USDT, Tether's stablecoin, at $143 billion; BNB at $89 billion; and USDC, Circle's stablecoin, at $58 billion.
But what does it mean that these tokens' market caps are larger than Ethereum's? It means that Ethereum is a robust and widely adopted network, with decentralized finance (DeFi) and stablecoin projects highlighting its utility and relevance.
However, the gap between the market capitalization of ERC-20 tokens and that of ETH calls into question whether the Ethereum mainnet is managing to capture the value generated by its applications.
In other words, while Ethereum remains the foundation of the ecosystem, the diversification of value across Layer 2 (L2) networks and ERC-20 tokens decreases buying pressure on ETH, impacting its market price.
This decrease in the ETH price is also explained by the fact that the activation of Dencun improved data organization on Ethereum's L1s, allowing second-layer networks (such as Polygon, Optimism, and Arbitrum) to reduce their transaction costs when interacting with the main network.
This may have reduced the need to use ETH directly to pay fees, thus reducing its demand and affecting its market capitalization.
Furthermore, as CriptoNoticias previously reported, the cryptocurrency market is suffering the impact of the trade war unleashed by Donald Trump after imposing taxes on products from Mexico, Canada, and China.
The measure was postponed until April in some cases, but that wasn't enough to dispel the specter of a recession in the US economy. In times of political tension and economic uncertainty, investors tend to shy away from assets considered risky, such as Bitcoin (BTC) and cryptocurrencies.
In the case of Ethereum, it's also worth mentioning that, beyond the macroeconomic context, it has experienced tensions within its community due to decisions being made by the Ethereum Foundation, a non-profit organization tasked with promoting the network's development.
The discontent among much of the community stems from the repeated sales of ether to raise funds to cover operating costs . For this reason, members spent several months demanding changes in the foundation's executive leadership.
Also, the recent change in the Pectra update date may have negatively impacted the price of ETH.
For Christine Kim, Galaxy's cryptocurrency market analyst, the only way forward for Ethereum is for "new users on the chain who buy ETH-denominated assets and bring fees and revenue from L2 to Ethereum's L1 to break the network out of its stagnation." She further notes:
“L2 scaling has dispersed activity across more than 50 protocols, hampering ETH's price appreciation. In contrast, Solana, with more concentrated activity, has seen an immediate impact on price, though it may also need to adopt an L2 framework in the future.”
Christine Kim, Galaxy Cryptocurrency Market Analyst.
