Ethereum & Layer 2s
ETH fundamentals, staking yields, the rollup ecosystem, and the competitive dynamics between L2s vying for DeFi and consumer app dominance.
Current Situation
Last updated: July 25, 2026
Ethereum maintains its lead in total value locked and stablecoin supply, though it now nearly ties with Solana in application fees and perpetual volume. A stark divergence has emerged within the ecosystem, where total revenue across all DeFi applications fell to its lowest level since 2024. Conversely, Real-World Asset (RWA) lending and Cedefi categories have reached their highest revenue levels, supported by over $6 billion in new capital entering RWAs year-to-date.
The shift toward tokenization is further evidenced by the growth of tokenized gold, which increased from $1.1 billion in 2025 to over $6 billion by early 2026. Institutional infrastructure is expanding regionally, with Coinbase planning to increase its Singapore headcount from 150 to 200 by year-end. This institutional growth contrasts with the collapse of legacy entities, highlighted by BitMEX ceasing all operations.
Investment implications shift from general DeFi utility toward AI-integrated infrastructure and RWA growth. Stablecoin dynamics on the EVM show supply rates at 3.23%, with USDC leading at 4.06%, while borrow rates sit at 4.06%. The broader market is moving away from traditional DeFi revenue models toward the AI-driven demand for cryptocurrency cited by Binance founder CZ.
Key variable to watch: the continued divergence between declining traditional DeFi revenues and the scaling of RWA and AI-linked capital inflows.
Background
Ethereum's Design
Ethereum is a programmable blockchain — unlike Bitcoin (which transfers value), Ethereum runs smart contracts: code that executes automatically when conditions are met. This enabled DeFi, NFTs, stablecoins, and token issuance, making Ethereum the foundational layer for most of the crypto economy beyond simple value transfer. ETH (ether) is the native asset and serves two functions: gas-fee currency (every transaction requires ETH for computation) and, since The Merge (September 2022), a yield-bearing staked asset earning ~3–5% annually.
The Merge and Proof of Stake
The most significant technical event in Ethereum's history was The Merge — the transition from Proof of Work (energy-intensive mining) to Proof of Stake (validators post ETH as collateral). It cut energy use ~99.95%, changed supply dynamics (issuance to validators fell sharply, and combined with EIP-1559 fee burning, ETH is deflationary in periods of high activity), and created the staking yield that lets ETH be framed as a productive asset.
Layer 2 Scaling
Ethereum's base layer (L1) processes ~15–30 transactions per second — too few for mass adoption — and fees spike to $50–200 in congestion. The solution is Layer 2 (L2): separate chains that batch thousands of transactions and post compressed proofs back to Ethereum, inheriting its security at far lower cost.
Arbitrum is the largest L2 by total value locked (TVL), using "optimistic rollup" technology — transactions are assumed valid unless challenged in a dispute window. Optimism / OP Stack is the second optimistic-rollup ecosystem, notable for the "Superchain" concept — Coinbase's Base, Binance's opBNB, and others are built on the OP Stack. Base (Coinbase, 2023) is the fastest-growing L2, driven by Coinbase's distribution, low fees, and product integration — the primary home for retail DeFi and meme-coin activity. zkSync / StarkNet / Polygon zkEVM use zero-knowledge proofs — cryptographic proofs verifying millions of transactions without revealing the underlying data. ZK rollups are theoretically more secure (no dispute window) and considered the longer-term direction, though tooling is less mature.
The Foundation and Governance
Ethereum has no company — it is stewarded by the Ethereum Foundation, a non-profit that funds core development and research but does not "control" the network. Its decisions on budget, staffing, and priorities are watched as signals of the protocol's direction. Periodic restructurings matter because they shape who builds the network's future and how aggressively it pursues institutional adoption versus pure decentralisation.
Stablecoins and Tokenization
A large share of Ethereum's economic activity is stablecoins — tokens pegged to fiat (mainly the US dollar) that provide the settlement and collateral layer for DeFi. Tether (USDT) and Circle (USDC) dominate, and the volume of stablecoins issued on Ethereum and its L2s is a direct measure of the network's use as financial infrastructure. The forward thesis is tokenization: putting traditional assets (stocks, bonds, mortgages, money-market funds) on-chain. If clearer regulation drives traditional finance to tokenize real assets at scale, Ethereum's infrastructure is a primary candidate to host them — which is why updates tie ETH's outlook to stablecoin frameworks and tokenization legislation.
ETH vs BTC Narrative
ETH's thesis differs from BTC's. Bitcoin is a macro/monetary asset — digital gold, store of value, fixed supply. ETH is more like a productive infrastructure asset — network fees, staking yield, and the growth of the application ecosystem on top. ETH bulls value it like equity in a tech platform; bears argue its monetary properties are weaker than Bitcoin's and L1 competition (Solana and others) is real. The "flippening" — ETH market cap surpassing BTC — has never occurred but is tracked as a sentiment gauge; the ETH/BTC ratio is a clean read on relative preference for application infrastructure vs monetary store of value.
Market Exposure
ETH Spot / Futures: CME futures for regulated exposure; spot on major exchanges; perpetuals on Hyperliquid and Binance.
Spot ETH ETFs: Approved in the US in May 2024 (BlackRock's ETHA, Fidelity's FETH). Staking yield is not available inside the ETF structure due to regulatory constraints — a key limitation versus holding ETH directly.
L2 Tokens: ARB (Arbitrum), OP (Optimism) — governance tokens for their networks. They give exposure to L2 activity growth but face a structural headwind from token unlocks: large tranches allocated to teams, investors, and the treasury vest on a schedule, and each unlock increases circulating supply, creating recurring selling pressure that can suppress price even when network usage grows. Tracking unlock calendars is essential for trading these names.
DeFi on Ethereum/L2s: Uniswap (UNI), Aave (AAVE), Curve (CRV) — protocols capturing fees from DeFi activity, more equity-like with real fee-revenue streams.