The Downfall Of Ethereum: From Crypto Darling To Declining Asset

CANADA - 2025/02/23: In this photo illustration, the Ethereum logo is seen displayed on a smartphone ... More screen. (Photo Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Ethereum, second only to Bitcoin in the cryptocurrency world, has experienced a dramatic decline in 2025. With its price plummeting over 50% year-to-date, falling below its 50 and 200 day moving averages, investors and analysts are questioning the future of what was once considered the backbone of decentralized finance. So what’s contributing to Ethereum’s downfall and what might lie ahead for the pioneering blockchain platform?
ETH Price History
Revenue Diversion
One of the most significant challenges facing Ethereum has been the proliferation of Layer 2 scaling solutions. Networks such as Arbitrum, Base, Optimism, and ZKsync Era were initially developed to address Ethereum's scalability issues, but they've inadvertently created a revenue problem for the main chain.
When users conduct transactions on these Layer 2 networks instead of directly on Ethereum, transaction fees flow to these third-party organizations rather than to the Ethereum network itself. This revenue diversion has weakened Ethereum's economic model.
Implementing a fee on Layer 2 transactions might seem like a logical solution, but it would undermine the very purpose of these networks. Layer 2 solutions were designed specifically to reduce transaction costs by processing operations off-chain and submitting only batched results to the main network. Adding fees would increase costs and diminish their competitive advantage.