Beneath the Bear: Why Ethereum, Solana, and Avalanche Fundamentals Are Thriving Amidst Price Declines

While the past year has brought significant headwinds to the cryptocurrency market, with the prices of Ethereum (ETH), Solana (SOL), and Avalanche (AVAX) halving, a starkly different picture is emerging from the underlying fundamentals of these three major public blockchains. We’re observing a continuous surge in on-chain activity, a substantial reduction in transaction fees, and persistently high interest from institutional investors, alongside record staking participation. This raises a crucial question: behind the relentless price drops, why is “smart money” accelerating its influx into these foundational networks?

Kam Benbrik, Head of On-chain Research at Bitwise, remarked recently, “We’re witnessing a significant divergence between network fundamentals and market sentiment.”

“Compared to the potential prosperity of future bull runs, current coin prices do appear subdued. However, on-chain data reveals that blockchain transaction costs have become more accessible, and actual on-chain activity is growing against the prevailing market trend.”

Cheaper Transactions, Surging Activity, Yet Declining Revenue: The Paradox Explained

Bitwise’s recently released inaugural “Quarterly Staking Report” unveils a seemingly contradictory trend: while on-chain activity has increased and transaction costs have fallen, the revenues for Ethereum, Solana, and Avalanche have experienced a significant decline.

Bitwise clarifies that this revenue dip isn’t a sign of weakening demand. Instead, it’s a direct consequence of major public blockchains continuously refining their protocol designs in recent years. By increasing block space and dramatically lowering transaction fees, these networks have become more affordable and user-friendly.

As Bitwise stated, “The decline in revenue primarily stems from changes in protocol design. Major public chains are consistently enhancing block capacity and reducing usage costs. While some networks might be experiencing slower demand, this isn’t the overarching trend for the market as a whole.”

Institutional Staking Takes Center Stage

Another pivotal finding from the report highlights the rapid ascent of institutional investors as a core force within the Ethereum staking market. Bitwise indicates that the majority of new ETH entering Ethereum’s validator pool this year originated from spot ETFs, corporate asset reserves, and other substantial institutional holders.

Researchers also pointed out that staking rewards for both Ethereum and Solana largely derive from new token issuance. This implies that holders who opt not to stake face the risk of their holdings being diluted. Furthermore, as more capital flows into staking pools, the rewards are increasingly distributed among a larger base, naturally leading to a decrease in overall yield rates.

Ethereum Staking Reaches All-Time Highs

By the end of the second quarter this year, Ethereum’s staked amount reached an unprecedented 40.2 million ETH, accounting for one-third of its total supply – a new historical record. Kam Benbrik emphasized, “When we track on-chain fund flows, it becomes unequivocally clear that these funds are indeed flowing from institutional investors.”

A prime example of this institutional embrace of staking is Bitmine, one of the world’s largest Ethereum reserve companies. Of its approximately 5.8 million ETH holdings, a staggering 4.9 million ETH are now actively staked, perfectly encapsulating the growing trend.

According to Bitwise’s Q2 report, Ethereum’s annualized staking yield was 2.84%, while Solana’s stood at 6.25%. However, investors should note a critical detail: a substantial 93% of Ethereum’s staking rewards and over 90% of Solana’s rewards are derived from “new token issuance,” rather than from user-paid transaction fees.

Kam Benbrik explained that Bitwise’s clients engage in staking not only to earn yield but also to actively support the underlying network’s operations:

“Simultaneously, we’ve observed many investors who desire to earn staking yields without sacrificing the liquidity of their funds, enabling them to engage in other on-chain activities. For such demands, ‘liquid staking’ emerges as the optimal solution.”

He further elaborated that through liquid staking protocols, investors can not only earn the underlying staking rewards but also utilize their receipt tokens within the DeFi market for lending, providing liquidity, or as collateral for borrowing. This significantly enhances capital efficiency and unlocks new opportunities for their assets.