The Declining Relevance of Ethereum L2s: A Strategic Shift in Blockchain Value Capture

The Ethereum Layer 2 (L2) ecosystem, once hailed as the cornerstone of Ethereum's scalability ambitions, is facing a paradigm shift in 2025. While L2s have historically enabled Ethereum to process high volumes of transactions at lower costs, recent developments suggest a growing tension between Ethereum's native Layer 1 (L1) upgrades and the competitive pressures from alternative blockchains like Solana. This article examines how Ethereum's strategic pivot toward L1 value capture, coupled with Solana's aggressive expansion in high-throughput use cases, is reshaping the long-term viability of L2 networks.

Ethereum's L1 Upgrades: A Direct Challenge to L2 Value Capture

Ethereum's 2025 Fusaka upgrade marks a pivotal moment in its evolution. By introducing PeerDAS (Peer Data Availability Sampling), the upgrade reduces bandwidth requirements for validators, enabling more efficient data verification and slashing L2 transaction costs by up to 60%. Simultaneously, the block gas limit has been increased to 60 million, allowing Ethereum to process 100,000+ transactions per second across its L2 ecosystem. These advancements position Ethereum to handle high-scale usage while retaining a larger share of value for ETH holders.

This shift is critical. As applications migrate to L2s, Ethereum's L1 fees have plummeted to $522 million in 2025, with its share of app revenue declining from 50%. The Fusaka upgrade directly addresses this by prioritizing L1 scalability and value accrual, effectively competing with L2s for transaction volume. Fidelity Digital Assets notes that scaling L1 offers "accretive potential" for ETH investors, as transactions on L1 generate more value for the network compared to L2 solutions. This strategic realignment raises questions about whether L2s will remain the primary scaling mechanism or become secondary to Ethereum's own L1 optimizations.

Solana's Aggressive Expansion: A New Benchmark for Speed and Cost

While Ethereum refines its L1 capabilities, Solana has emerged as a formidable competitor, particularly in sectors demanding high throughput and low costs. Solana's monolithic architecture and hybrid proof-of-stake (PoS)/proof-of-history (PoH) consensus model enable it to process up to 65,000 TPS, with average transaction fees of $0.017 and a median of $0.0011. These metrics make Solana an attractive alternative for applications in PayFi and DePIN, where speed and affordability are paramount.

In 2025, Solana's annual revenue reached $2.85 billion, with trading tools alone accounting for 39% of this total. This growth is driven by innovative models like "Buy Now, Pay Never," which leverages on-chain interest generation to facilitate real-time financial transactions. Additionally, Solana's DePIN infrastructure supports over 26 million transactions annually, enabling scalable microtransactions and reward distribution for projects like Helium and Render. Such capabilities challenge Ethereum's L2s, which, despite improvements from EIP-4844, still face higher costs and slower execution times compared to Solana's native performance.

Ethereum's Strategic Responses: Can L2s Adapt?

Ethereum's response to these challenges hinges on its modular vision: L1 as a settlement layer and L2s as the user layer. The Fusaka upgrade reinforces this by enhancing data availability and reducing L2 costs, but it also signals a shift in value capture toward L1. Meanwhile, Ethereum's L2 ecosystem has shown resilience, with rollups processing over 5,600 TPS and daily transaction peaks reaching 1.74 million. Transaction fees on L2s have dropped below $0.01, making complex applications more accessible.

However, institutional adoption remains a key battleground. Ethereum's TVL in DeFi reached $99 billion in 2025, outpacing Solana's $33 billion in non-vote transactions. Yet, Solana's institutional partnerships-such as HSBC and Bank of America tokenizing bonds and stocks-highlight its growing appeal for real-world applications. Ethereum's dominance in RWA and institutional finance provides a buffer, but the rise of Solana's high-velocity use cases suggests a fragmentation of the market.

The Long-Term Outlook: Coexistence or Convergence?

The future of Ethereum L2s depends on their ability to differentiate from both Ethereum's L1 and Solana's native solutions. While L2s offer security and data availability through Ethereum's infrastructure, they must address the growing preference for L1 value capture and Solana's performance advantages. The Fusaka upgrade's emphasis on L1 scalability may reduce the urgency for L2s, but L2s could still thrive in niche use cases where Ethereum's security and institutional trust are critical.

For investors, the key takeaway is clear: Ethereum's L2s are no longer the sole answer to scalability. The blockchain landscape is evolving toward a multi-chain reality, where Ethereum's L1, Solana's native solutions, and specialized L2s will coexist. However, Ethereum's ability to retain relevance will depend on its capacity to balance innovation with the economic incentives that drive developer and user adoption.