Ethereum mainnet issues drive users to Layer 2s and Solana, analyst says

The limitations of the Ethereum mainnet's underlying infrastructure are driving users, applications, and capital to Layer 2 solutions and competing blockchains like Solana, as demand for faster, more scalable solutions increases, according to an analyst.

"Layer 2s on Ethereum are a result of the underlying infrastructure not being sufficient enough to handle users, transactions and data, and users and capital are migrating to Layer 2s and other Layer 1s out of necessity," Zeta Markets co-founder Anmol Singh told The Block.

QuarkChain and EthStorage founder Qi Zhou stated that the increasing number of Layer 2 solutions on Ethereum may contribute to liquidity fragmentation across different chains, affecting the overall ecosystem.

"Each Layer 2 network, such as Arbitrum, Optimism, and zkSync, has its own isolated liquidity pools, leading to fragmentation," Zhou said to The Block. "Users often need to bridge assets between Layer 2s, which increases friction and transaction costs. This dispersion can dilute liquidity, making it more challenging to achieve deep liquidity pools within any single ecosystem. With liquidity spread thin, there’s a risk of lower market efficiency, increased slippage, and higher fees for larger trades, potentially discouraging users from engaging with Layer 2s." 

However, Zhou pointed to potential solutions that could counteract liquidity fragmentation on Ethereum.

"Protocols are emerging to offer cross-Layer 2 liquidity, allowing assets to flow seamlessly between Layer 2s and reducing fragmentation," said Zhou.

The founder of QuarkChain and EthStorage stated that solutions like Ethereum’s native Layer 2 rollup-to-rollup transfers or shared liquidity hubs could help aggregate liquidity, making it more accessible across Layer 2s.

"As the ecosystem evolves, achieving a balance between scalability, liquidity concentration, and user experience will be crucial for Ethereum Layer 2s to maximize adoption and utility," he said.

Increased use of Solana-based platforms

In contrast to Ethereum's mainnet issues, Singh highlighted Solana’s "monolithic" architecture, which can process transactions and maintain liquidity within a single layer.

"Solana's throughput and low latency allow it to handle core DeFi needs at scale," Singh said. "Layer 2s on Solana, such as Bullet, are purpose-built for specific use cases like derivatives trading, where high throughput and low latency are essential."

Singh referenced data from October's a16z’s State of Crypto report, which showed around 100 million monthly active addresses on Solana compared to about 57 million on Ethereum and other EVM chains, suggesting higher user engagement on Solana. He attributed this growth to new applications like pump.fun, new platfrom entrants like daos.fun and a scalable ecosystem that has built strong fundamentals for expansion.

Singh said that Ethereum’s total value locked (TVL) has dropped significantly in recent months, down nearly $20 billion since the start of June, while Solana’s TVL has risen from $4.8 billion to $6.3 billion in the same period.

"Four of the top ten memecoins by market cap—Dogwifhat, Bonk, Popcat, and Mew—originated on Solana recently, showing that new opportunities are increasingly forming on Solana over Ethereum,” Singh added. He noted that memecoins are driving retail demand this cycle, indicating a broader shift in engagement.

Arbelos Markets CEO Joshua Lim also commented on the trend, observing that Ethereum and associated assets are facing stagnation while investor interest in Bitcoin and Solana rises.

“There’s been a general apathy towards Ethereum and Ethereum-adjacent assets like MKR,” Lim told The Block. “This has driven inflows toward Bitcoin, especially with the spot ETF, and to Solana, fueled by retail-driven memecoin enthusiasm.”

Lim noted that the expanding supply of Layer 2 and governance tokens on Ethereum introduces inflationary pressure, which may be eroding Ethereum’s “ultrasound” monetary appeal. Meanwhile, Solana has emerged as a strong contender for both DeFi and speculative trading, potentially challenging Ethereum’s position.

According to recent market data, Bitcoin dominance has risen to 56%, a level not seen since 2021, while Ethereum's market share has fallen to 12.5%, highlighting shifting investor preferences across major blockchains.