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Ethereum’s shift toward a modular architecture influences short-term price action, shifting gains to Layer 2 tokens. However, this strategy positions Ethereum for long-term dominance.
Ethereum has encountered a significant resistance level at $3,386, prompting a temporary correction. This pivotal region, marked by substantial supply, has led to a 6.59% price decline in the past 24 hours, bringing ETH to $3,161. Despite this short-term setback, Ethereum has seen a 21.22% increase over the past week.
Meanwhile, Ethereum’s performance in recent years has lagged behind competitors like Bitcoin and Solana. According to a Hack VC report, Ethereum’s 121% year-to-date growth pales in comparison to Bitcoin’s 290% and Solana’s 1,452%.
The report attributes this underperformance to Ethereum’s decision to embrace modular architecture, which may have dampened its short-term price momentum.
1/ ETH is underperforming BTC and SOL big time this cycle. The reason? Many think that it’s Ethereum’s choice to go modular. Was this a strategic misstep? We pulled a bunch of data and have some answers. 👇 pic.twitter.com/eAgqpLX5a2
— Alexander Pack (@alpackaP) November 12, 2024
Modular Approach Sparks Debate
Hack VC highlights that Ethereum’s move toward a modular architecture, incorporating Layer 2 solutions and shared security protocols, has introduced trade-offs. Among these are lower fees and reduced token burns, which have affected ETH’s price dynamics.
As a result, market gains have shifted toward tokens within Ethereum’s modular ecosystem, particularly those associated with Layer 2 networks, leaving ETH holders at a disadvantage in the short term.
However, despite these challenges, Ethereum’s modular ecosystem retains a strong market presence, with a combined market capitalization that rivals Solana’s.
Long-Term Prospects of Ethereum’s Modular Strategy
Despite the short-term price challenges, the long-term benefits of Ethereum’s modular strategy are evident. Hack VC data indicates Ethereum has maintained a 75% market share over nine years, bolstered by Layer 2 solutions.
This modular strategy positions Ethereum for future technological advancements, helping to secure its dominance in the blockchain space for years to come.
Deflationary Dynamics
Meanwhile, Ethereum’s supply dynamics have shifted positively, according to Onchain Foundation’s latest analysis. The network has re-entered deflationary territory, with more ETH being burned than issued.
As market momentum grows, this trend is expected to accelerate, creating a self-sustaining cycle of higher demand and reduced supply.
The report emphasizes that rising gas fees are contributing to the increased burn rate of ETH, further tightening supply. This deflationary mechanism, combined with Ethereum’s modular approach, supports a positive long-term outlook for the network despite the short-term market fluctuations.