Ethereum is still the most programmable, institutionally accepted smart contract platform, but its market dominance now hovers near the low teens (≈13%), squeezed from above by Bitcoin and from below by fast L1s like Solana and an ever growing constellation of L2s. Whether ETH keeps its #2 slot and defends share over the next 12 to 24 months will hinge on (1) successful rollout of post-Merge upgrades (Pectra, ePBS), (2) L2s shedding “training wheels,” (3) ETF demand, and (4) managing risks from MEV and restaking.
Where Ethereum stands in 2025
- Post-Merge upgrades have been shipping:
- Shapella (Apr 12, 2023) enabled withdrawals.
- Dencun (Mar 13, 2024) introduced EIP-4844 “blobs,” slashing L2 data costs and, in practice, L2 user fees.
- Pectra (Prague+Electra) activated on mainnet (May 2025) with two big levers:
-
- EIP-7702 (smarter EOAs → a major step toward account abstraction).
- EIP-7251 (raises the max effective balance per validator to 2,048 ETH to streamline the validator set).
- Staking and validators: ~1.08M validators secure Ethereum; 29% of ETH supply is staked healthy but not over concentrated. Lido’s share has trended down (24% mid-Aug 2025), reducing single provider risk.
- Dominance snapshot: As of mid August 2025, ETH ≈13% of total crypto market cap; Bitcoin ≈58 - 60%. That’s a competitive, but narrower, moat than in prior cycles.
- Institutional access: U.S. spot Ether ETFs launched July 23, 2024 (without staking). By their first anniversary (July 2025), cumulative net inflows were in the high single-digit billions (press-time estimates ~$8.7B).
The bull case: why Ethereum can defend (or grow) share
- Cheaper transactions (at scale) via L2s
Dencun’s EIP-4844 reduced L2 data costs (“blob” space), and users followed the cheap blockspace. This keeps Ethereum competitive on UX without compromising L1 neutrality. Expect further fee compression as blob markets/mempools mature. - Better UX with account abstraction
EIP-7702 lets regular wallets behave like smart accounts (batching, session keys, social recovery), complementing ERC-4337’s ecosystem that’s already in the hundreds of thousands to millions of smart accounts. This is the most credible path to Web2-level onboarding without sacrificing self-custody. - Rollup-centric moat
Ethereum’s L2s (OP Stack/Arbitrum/Base/zkSync/Starknet, etc.) give builders multiple execution flavors while settling to a battle-tested L1. As L2s advance through L2BEAT’s Stages framework toward Stage 2 (“no training wheels”), Ethereum’s effective capacity rises and security assumptions converge back to L1 guarantees. - Institutional legitimacy via ETFs
The first year of spot ETH ETFs brought persistent inflows and a new class of buy-and-hold demand (even without staking yield baked in). That’s a structural tailwind to market cap and visibility.
The bear case: what can erode Ethereum’s dominance
- Fast L1 competition (esp. Solana)
Solana has shown explosive user and tx growth since 2024, luring retail flows and some developers with high throughput and simple UX, while steadily addressing downtime. If consumer apps keep preferring monolithic speed over modular settlement, ETH share could drift down. - Rollup “training wheels” and bridge risk
Many L2s still rely on multisigs/security councils and centralized training wheels. Until most reach Stage-2, there’s residual governance and upgrade risk and every L2 introduces some liquidity fragmentation and bridge surface area. - MEV & censorship resistance not “done”
PBS today is largely off chain (MEV-Boost via relays/builders) and research shows centralization and censorship vectors remain. Enshrined PBS (ePBS) work is active, but unresolved design trade offs could ding neutrality if they linger. - Restaking risk
EigenLayer unlocked “restaked security” and spawned a vibrant LRT market but critics warn about hidden leverage and correlated risks if restaked ETH underwrites fragile services. Growth is real; so are systemic risk concerns. - Policy ambiguity around staking
The SEC allowed non-staking spot ETFs but hasn’t given a definitive, universal green light on staking economics across products/jurisdictions. Any adverse ruling or enforcement could chill demand.
What’s next on the roadmap (and why it matters)
- Pectra’s ripple effects
With EIP-7702 live, wallets can ship mainstream UX (one click bundles, passkeys, social recovery) without users changing addresses crucial for consumer apps. EIP-7251 helps reduce validator-set bloat, lowering operational overhead. - Toward ePBS & inclusion lists
Research and prototyping aim to bring PBS on-chain and strengthen censorship resistance (e.g., inclusion lists, preconfirmations). If Ethereum nails this, it reinforces the “credible neutrality” narrative an underappreciated moat versus high throughput chains. - More L2 decentralization
Watch L2s graduating to Stage 2 and adopting permissionless proofs/fault systems. Each step narrows the trust gap between L2 UX and L1 guarantees.
Scenarios for 2025–2026
- Base case (most likely): ETH retains #2 and oscillates in 12-15% dominance. L2 fees stay low; more chains reach Stage 1/2; ETFs keep steady inflows; account-abstraction UX lands in mainstream wallets.
- Bull case: ETH climbs toward ~18%+ dominance if (a) ePBS/inclusion lists ship smoothly, (b) multiple flagship apps leverage AA to reach millions of users, and (c) ETF demand accelerates (e.g., new wrappers/markets).
- Bear case: ETH slips toward single-digit share (~9-10%) if (a) a major L2/bridge incident hits confidence, (b) restaking related contagion emerges, (c) Solana/others win the consumer app wave, or (d) U.S./EU policy turns hostile to staking economics.
Metrics to watch (practical checklist)
- ETH dominance & ETH/BTC ratio (for relative trend). )
- ETF flows (monthly net flows, issuer dispersion).
- L2 health: fees (post-4844 blob prices), L2BEAT Stage progress, and bridge usage.
- MEV decentralization: builder/relay concentration; ePBS milestones.
- Staking composition: provider share (e.g., Lido), total validators, churn.
Bottom line
Yes—Ethereum can retain market dominance, but “dominance” likely means holding the #2 slot and defending a ~low- teens share while the modular ecosystem (L2s, restaking, AA wallets) compounds network effects. The moat isn’t automatic: execution on decentralization (L2s), neutrality (ePBS), and UX (EIP-7702 + 4337) will decide whether ETH grows back toward the high teens or cedes more oxygen to monolithic speedboats.
