What's happening with Ethereum (ETH)?

Ethereum is the second largest cryptocurrency by market capitalization and is widely used for smart contracts and decentralized applications (dApps). According to CoinMarketCap, Ethereum had a market capitalization of around $400 billion as of January 2025, second only to Bitcoin, which had a $1.2 trillion market capitalization.

However, the project has been facing serious challenges lately. The departure of key developers, criticism of the Ethereum Foundation (EF), and competition with Bitcoin and Solana all affect the network's future.

Developer departures and Ethereum Foundation's internal problems

Ethereum Foundation (EF) is a non-profit organization responsible for developing the network. In recent months, the community has heavily criticized it. The main complaints are related to the slow pace of innovation and the lack of transparency in project management. For example, a significant update to Ethereum Cancun-Deneb was scheduled for 2024, but its launch was delayed by several months, displeasing developers and investors.

Several leading experts have left EF. Among them is Eric Conner, one of the developers of Ethereum's commission mechanism update — Ethereum Improvement Proposal 1559 (EIP-1559), who said on social network X (formerly Twitter), "Maybe someday the leadership will start working for the community again, but for now I'm leaving."

According to the Decrypt portal, the Ethereum Foundation has lost more than 15 top professionals, including researchers and engineers, in the last six months. This raises concerns among investors, as the team's instability could affect the speed of new technology adoption.

Ethereum centralization: myth or reality?

Ethereum has always been positioned as a decentralized network, but critics argue it is becoming increasingly centralized. In particular, Anthony Di Iorio, one of Ethereum's co-founders, said that the project increasingly resembles a centralized organization run by a few individuals. According to Glassnode, over 60% of Ethereum's staking assets are controlled by five major platforms, including Lido, Coinbase, and Kraken. This gives these platforms significant influence over the network.

Another example of Ethereum's centralization is the concentration of nodes. Most Ethereum nodes are hosted on cloud platforms such as Amazon Web Services (AWS), making the network vulnerable to outages of these services. In 2023, a study by DappRadar found that more than 32% of all Ethereum nodes are hosted on AWS.

The rise of government regulation is also worth noting. In 2024, the U.S. Securities and Exchange Commission (SEC) launched an investigation into the Ethereum Foundation, adding uncertainty to the project's future. If regulators recognize ETH as a security, it could significantly restrict its use.

According to Bloomberg, the SEC has increased its scrutiny of Ethereum following the network's move to Proof-of-Stake (PoS). The regulators' main argument is that the ETH staking mechanism is similar to securities, as users are rewarded for "investing" in the network. In October 2024, more than 40% of all Ethereum staking assets were owned by U.S. users, making regulation critical to the network.

Experts such as Jeremy Hogan, an attorney specializing in cryptocurrencies, believe that recognizing ETH as a security will significantly decrease the asset's liquidity in the U.S. market and fewer institutional investors. In 2023, the U.S. was the largest market for cryptocurrency funds, and if ETH faces legal restrictions, it could lead to capital outflows and a price drop.

Ethereum vs Solana: who will win in the race for dominance?

Despite the problems, Ethereum remains the largest platform for smart contracts. However, the competition with Solana is getting more serious. In 2024, the average transaction confirmation time on the Ethereum network was about 12 seconds, and transaction fees averaged $5-10 dollars. In contrast, Solana offers transaction confirmation in 0.4 seconds and a fee of less than 0.01 dollars. These metrics appeal to developers and users.

But Ethereum has strengths. According to DefiLlama, in January 2025, Ethereum's TVL (total value locked) was $70 billion, while Solana's was around $15 billion. This shows that Ethereum remains the dominant platform in the DeFi sector despite the competition.

Are investors losing confidence in Ethereum?

One of the key questions is the economic value of ETH. Ethereum lost 15% of its value in 2024, while bitcoin saw a 30% increase. This suggests that investors are increasingly choosing BTC as a more stable asset.

Crypto analyst Stephen Zheng notes: "This has led to investors being unsure of its value proposition, at least in the short term."

The main reasons for doubts are high competition and uncertainty in the network's development. In addition, the transition to Proof-of-Stake has led to a decrease in the yield of staking: while in 2023 the average yield of ETH stakers was 5.5% per annum, by 2025, it had fallen to 3.2%, which reduces the coin's attractiveness.

Why is Ethereum still profitable?

Despite criticism, Ethereum continues to be profitable. In 2024, the network earned about $3 billion in transaction fees, more than most competing blockchains. According to Messari, Ethereum remains the leading platform for DeFi and NFT, and Layer-2 solutions such as Arbitrum and Optimism are actively reducing the load on the core network and lowering fees.

It's also worth considering that major financial organizations use Ethereum. JPMorgan launched its Ethereum-based blockchain infrastructure in 2024, and Fidelity introduced products for institutional investors using ETH. Companies like BlackRock, Goldman Sachs, and Citi use Ethereum for their blockchain solutions.

In 2024, Visa launched an Ethereum-based pilot program for instant cross-border payments, and Mastercard has implemented Ethereum-based USDC support on its network.

According to analytical company Delphi Digital, Ethereum retains long-term growth potential, and its market share of DeFi and smart contracts remains dominant. Time will tell whether it will be able to maintain its leadership in the blockchain world or lose ground to competitors.