Key takeaways:

• Ethereum base layer activity has cooled, with fees and TVL falling, indicating slower demand despite the recent price recovery.

• Layer 2 networks are growing rapidly, helping to support Ethereum even as base layer usage wanes and investors remain cautious.

Ether (ETH) rose to a three-week high near $3,400 on Tuesday after tender U.S. labor market data boosted by expectations that U.S. monetary policy could become less restrictive sooner than previously thought.

Even with weekly gains of 11.2%, investors remain concerned that sluggish Ethereum network activity and confined demand for bullish leverage could limit near-term growth.

Nansen’s data shows that Ethereum’s 30-day network fees dropped by 62%, which is a much larger decline than the roughly 22% decline seen on Tron, Solana, and HyperEVM in the same window.

However, some activity stood out: transactions on Base increased by 108%, while Polygon saw an escalate of 81%, suggesting further momentum in Ethereum’s growing Layer 2 ecosystem.

The Ethereum Fusaka update on December 3 introduced changes aimed at improving the efficiency of rollups, which may have contributed to the lower network fees recorded during the month.

On Tuesday, the annualized funding rate for ETH perpetual futures remained close to 9%, reflecting a relatively even distribution of leveraged positions between buyers (long positions) and sellers (brief positions). Under normal market conditions, this ratio typically ranges from 6% to 12% to take into account the cost of capital; levels above this range usually signal stronger bullish positioning.

Traders took a more defensive stance after the U.S. Bureau of Labor Statistics reported 1.85 million layoffs in October, the highest number since 2023. Markets are currently pricing in Wednesday’s 0.25% interest rate cut by the U.S. Federal Reserve, while attention focuses on Fed Chairman Jerome Powell’s comments after the committee meeting.

Ethereum’s layer 2 growth offsets declines in base layer fees

Despite recent bullish momentum, Ether is still 32% below its all-time high of $4,597 in August. To assess whether demand for the Ethereum network is actually failing, it is worth looking at the impact on decentralized applications (DApps).

Volumes on Ethereum-based decentralized exchanges fell to $13.4 billion in seven days, down from $23.6 billion four weeks earlier. Similarly, revenues from decentralized applications reached a five-month low at $12.3 million in the same period. Overall, Ethereum base layer processing demand has been failing since peaking in tardy August.

Some of the leading Ethereum DApps have seen a pointed decline in total value locked (TVL), including Pendle, Athena, Morpho, and Spark. Total TVL on Ethereum’s base layer fell to $76 billion from $100 billion two months earlier. Still, Ethereum’s dominance remains intact with 68% market share, while runner-up Solana has just under 10%.

Ether bulls argue that the network’s powerful incentives for Layer 2 scalability offer a more sustainable model compared to the higher overhead and centralized coordination required by competing blockchains. Ethereum is poised to capture much of the future growth in decentralized finance (DeFi).

Related: US Treasuries Lead the Tokenization Wave as CoinShares Predicts 2026 Rise

According to the US Securities and Exchange Commission Paul Atkins he said in an interview with FOX Business that tokenization of the US market could happen in “a few years”, adding that blockchain offers “huge benefits” such as predictability and transparency. Atkins said the United States should “embrace this new technology and bring it to land where it can operate under U.S. regulations.”

While Ethereum base layer fees have seen a pointed decline as TVL declines, activity in the Layer 2 ecosystem continues to grow. Currently, neither onchain nor derivatives data indicate significant weakness in ETH price dynamics.

This article is for general information purposes and is not and should not be treated as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.