Only for institutions now? Users are fleeing in droves

Ethereum started with a clear vision: become the world computer, the basis for a better financial system and a fairer internet.

Ethereum started with a clear vision: to become the world computer, the foundation for a better financial system and a fairer internet. A digital world without censorship, with full privacy and equal access for everyone. But looking at the state of the network today, something feels off: Ethereum is grappling with an identity crisis. Ordinary users seem to be slipping away, and that’s understandable. Mass adoption? You can hardly tell. At the same time, network usage is actually growing. Just not by everyday users, but by big institutions.

The biggest banks, asset managers, and tech companies, from BlackRock to PayPal and Sony, are experimenting with Ethereum or its so-called “Layer 2” networks. Is the dream of a democratized digital world turning into an upgrade of the existing system? Time for a sober mid-year assessment.

Ethereum has a user problem

Ethereum remains, despite everything, the undisputed market leader among smart contract platforms. Most developers, most dApps, and vastly the most capital sit on Ethereum. Of the roughly $90 billion in capital in DeFi, more than half is anchored on Ethereum. What’s missing: active users.

According to a recent Santiment report, transaction costs are at their lowest level since 2020. Sounds good, right? In reality, it’s a bad sign: “Fewer transactions mean less demand for block space, and thus lower fees,” Santiment notes. Daily active addresses have fallen 11% to 450,000. Daily transactions remain at 1.5 million—no growth, no decline. For comparison: Solana has about 4 million active addresses and 250 million transactions per day.

Some point to the growth of Layer-2 solutions like Arbitrum or Base. There is some movement: collectively they have about 2 million active addresses and 12 million transactions per day. But big adoption is still out of reach. One reason: the lack of user-friendly apps for the general public, excluding stablecoins.

And even if they exist, another problem persists: the user experience is downright intimidating. Crypto journalist “Web3 Kristel” wrote about her frustration transferring USDT across networks. Without ETH on Arbitrum, she couldn’t pay gas to send her USDT. And without gas, she couldn’t buy ETH. Her conclusion: “Who thinks you’ll bring in new users this way? Dumb system, busted system.”

Even well-known journalist Camila Russo warned last year: “Ethereum folks, I love you—but stop pretending the Layer-2 experience isn’t disastrous. It’s painful even for seasoned users. For beginners, it’s unacceptable.”

Ethereum is popular with institutions

On the other hand, a clear pattern is emerging among major players: Ethereum is the go-to blockchain for institutions. Especially in the Real World Assets (RWA) space, that’s obvious: of the $11 billion in tokenized assets, more than half sits on Ethereum. Zksync, a Layer-2, hosts another $2 billion.

BlackRock built its fast-growing RWA fund BUI DL on Ethereum (currently worth more than $2 billion). Visa uses Ethereum for its tokenization platform. Sony launched its platform Sonieum as an Ethereum Layer-2. And PayPal chose Ethereum for the rollout of its own stablecoin PYUSD.

For institutions, Ethereum is attractive: it’s proven, secure, and sufficiently decentralized to inspire trust. The wild-west days feel over. Plus, the network is modular: institutions can build their own Layer-2 like Sony did and still benefit from Ethereum’s security. The high gas fees don’t scare them away when they’re moving millions, and they don’t fret over $10 or $50 in fees. And if the tech gets too hard, there’s money for experts and consultants.

The future: solutions on the horizon?

Ethereum seems slowly to be shifting from an open plaza to a private-jet terminal: theoretically accessible to everyone, in practice mainly usable by those with resources. For institutions, it’s a good deal. For the average user, not so much for now.

But work is ongoing. MetaMask aims to make token swapping much easier. The concept of “Account Abstraction” tries to take the complexity away from the user and have the system handle it for you. Whether this scales remains to be seen. But the intent is there. Ethereum has weathered big storms before and adapted each time.

The question is: can Ethereum revive its original dream, or will it become the plaything of the giants for good?