Ethereum's Revenue Divergence: Assessing Long-Term Value Amid Price Gains

Ethereum’s 2025 price performance has defied expectations, surging 73% in Q3 2025 to $4,507.18 despite a 75% year-over-year decline in protocol revenue to $39.2 million—the lowest since January 2021 [1]. This divergence between price and on-chain monetization raises critical questions about the network’s long-term value proposition. While Ethereum’s price gains reflect speculative demand and institutional adoption, its declining revenue signals structural shifts in user behavior and fee dynamics.

The Price-Royalty Disconnect

Ethereum’s price rally in 2025 has been fueled by macroeconomic factors, including $4 billion in ETF inflows and staking yields of 3–5% [5]. However, these gains mask a weakening in on-chain monetization. Median gas fees have collapsed by 35% year-to-date, and Layer-2 adoption has diverted 47% of transaction volume from the mainnet [5]. This shift is not merely technical but behavioral: active Ethereum wallets surged to 127 million by March 2025, yet most users now transact on Layer-2 solutions like Arbitrum and Optimism, where fees are 90% lower post-Dencun [4].

The result is a decoupling of price and revenue. According to Messari, Ethereum’s network revenue has fallen to 15% of its 2023 peak, even as its market cap hit $408 billion in March 2025 [5]. This suggests that Ethereum’s value is increasingly derived from off-chain markets—derivatives, ETFs, and staking—rather than on-chain usage. As Glassnode notes, Ethereum’s price is now more sensitive to derivatives activity than Bitcoin’s, which benefits from higher spot trading volume [2].

Layer-2 Scaling and Fee Dynamics

Layer-2 scaling has been a double-edged sword for Ethereum. While it has enabled 1.43 million daily transactions and 431,200 active addresses in Q2 2025 [5], it has also eroded mainnet fee income. The Dencun upgrade, which reduced Layer-2 costs by 90%, accelerated this trend, with 36% of Q2 2025 transactions processed via rollups [4]. This shift is economically significant: for every $1 in Layer-2 fees, Ethereum forgoes $10 in mainnet revenue.

Yet Layer-2 adoption is not a zero-sum game. It has unlocked new use cases, such as AI-native workloads on Livepeer, which generated $63,700 in Q2 2025 despite a 11% drop in video transcoding minutes [1]. These high-value applications suggest Ethereum’s ecosystem is evolving beyond simple transaction processing. However, the revenue model remains unproven. As COINOTAG warns, “Ethereum’s monetization is now contingent on Layer-2 innovation rather than intrinsic network demand” [1].

Institutional Adoption and Staking Yields

Institutional flows have become a critical pillar for Ethereum’s price resilience. By August 2025, Ethereum ETFs attracted $4 billion in inflows, outpacing Bitcoin’s outflows [5]. This capital influx is driven by two factors:
1. Staking Yields: Institutional investors are locking 35.7 million ETH (29.6% of supply) to earn 4.5–5.2% annualized returns [1].
2. Regulatory Clarity: U.S. approval of Ethereum ETFs has normalized its inclusion in institutional portfolios, with public companies accumulating $3.0 billion in ETH [3].

These dynamics create a feedback loop: higher staking yields attract capital, which drives up ETH’s price, which in turn reduces the incentive to transact on-chain. This is evident in Ethereum’s cost basis distribution (CBD), where consolidation phases are now dominated by derivatives activity rather than on-chain fee burning [2].

Strategic Investment Guidance

The divergence between Ethereum’s price and revenue presents both risks and opportunities. For long-term investors, the key is to distinguish between temporary imbalances and structural weaknesses:
- Monitor Layer-2 Monetization: Track DEX volume (currently $3.3 billion/day) and AI-driven use cases like Livepeer’s AI Subnets [1]. If these applications generate sustainable fees, Ethereum’s ecosystem could offset mainnet revenue losses.
- Assess Staking Sustainability: While 3–5% yields are attractive, they are volatile and depend on ETH’s price. A 20% price drop could halve institutional inflows.
- Watch Institutional Flows: ETF redemptions (e.g., $447 million on Sept 5, 2025) highlight macroeconomic sensitivity. Diversify exposure across Ethereum-based derivatives and restaking protocols like EigenLayer [3].

In the short term, Ethereum’s price is likely to remain decoupled from on-chain metrics. However, this divergence is not inherently negative. As Messari notes, “Ethereum’s value is increasingly derived from its role as a settlement layer for DeFi and RWAs, not just a transaction processor” [2]. For investors, the challenge is to balance optimism about Ethereum’s technological trajectory with caution about its revenue model’s fragility.

Source:
[1] Messari Researcher Warns Ethereum May Be Weakening [https://www.bitget.com/news/detail/12560604954944]
[2] Ethereum Price More Influenced By Off-Chain Markets [https://www.mitrade.com/insights/news/live-news/article-3-1090885-20250903]
[3] Ethereum TVL Nears $95B, Highest Since 2021 [https://www.bitget.com/news/detail/12560604915274]
[4] State of Ethereum Q2 2025 [https://messari.io/report/state-of-ethereum-q2-2025]
[5] Ethereum’s Price Surge and the Onset of a New Expansion [https://www.bitget.com/news/detail/12560604936924]