Ethereum (ETH): The Smart Contract Titan's Roadmap to 2025

Chapter 8

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2. Future Growth Factors

Ethereum’s future as an investment will be determined by its ability to continue evolving technologically, attracting users and capital, and navigating competitive and regulatory landscapes. From a fundamentals perspective, several major developments are on the horizon or already underway that could significantly influence Ethereum’s ROI potential. Here we examine four key areas: Layer-2 scaling solutions, institutional adoption (including ETFs and regulation), the expansion of staking, and challenges/risks such as centralization and competition. Understanding these factors is crucial for investors to gauge Ethereum’s trajectory in the coming years.

Layer-2 Scaling: Boosting Throughput and Cutting Fees

One of Ethereum’s longstanding pain points has been its limited throughput on the base layer (around 15 transactions per second) and often high gas fees during periods of heavy usage. In bull markets or popular dApp launches, Ethereum transaction fees have spiked to tens or even hundreds of dollars, pricing out many users. This not only hindered user experience but also drove some activity to alternative blockchains. The Ethereum community’s answer has been Layer-2 scaling solutions – networks built atop Ethereum that handle transactions off-chain (or in side-chains/rollups) and periodically settle results back to the main chain. In the coming years, L2 scaling is expected to dramatically increase Ethereum’s effective capacity and reduce costs, which can in turn drive greater adoption (and value creation) on the network.

Rollups and L2s: The two leading approaches for Ethereum Layer-2 are Optimistic Rollups and Zero-Knowledge (ZK) Rollups. Projects like Optimism and Arbitrum are Optimistic Rollups that bundle large batches of transactions, execute them off-chain, and submit a compressed proof to Ethereum. They “optimistically” assume transactions are valid, with a challenge period where fraud proofs can catch any errors. This approach has been live and successful – Arbitrum and Optimism went from experimental tech to handling millions of transactions. On the ZK side, zkSync, StarkNet, Polygon’s zkEVM, and others use advanced zero-knowledge proofs to validate batches of transactions in a single succinct proof posted to Ethereum. ZK rollups can achieve very high throughput with strong security (validity proofs mean no challenge period needed), though they are more complex to implement. The net effect of both types of L2s is massive scaling: instead of 15 TPS, Ethereum could handle hundreds or thousands of TPS via rollups, all while inheriting the security of the L1 chain.

Importantly, we are already seeing Layer-2 adoption explode. As of 2024, **some L2 networks are processing more transactions daily than Ethereum’s base layer itself. For example, Coinbase’s newly launched Base L2 recorded over 109 million transactions in a 30-day span, vs ~33 million on Ethereum L1 in the same period (Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption | Coinspeaker). Similarly, Arbitrum and Optimism each regularly handle a significant portion of total Ethereum ecosystem transactions, often at a fraction of a cent in fees for users. This migration of activity to L2s has tangible benefits: users enjoy faster and cheaper transactions, while Ethereum L1 is less congested.

Effect on Fees: As layer-2 usage grows, average gas prices on Ethereum L1 have plummeted. In mid-2024, Ethereum’s median gas fee hit multi-year lows – around 1–2 gwei (literally pennies) for a simple transfer (Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption | Coinspeaker). This is a 98%+ drop in fees from peaks seen just a year prior (Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption | Coinspeaker). An upgrade in 2024 nicknamed “Dencun” (which included EIP-4844: Proto-danksharding) introduced “blob” data objects that significantly reduce the cost for L2s to post data to L1, lowering rollup fees by as much as 90–98% (Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption | Coinspeaker). In essence, Ethereum’s roadmap is laser-focused on making L2s efficient: the base layer will become a secure data availability and settlement layer, while the majority of transactions occur in cheaper, faster L2 environments. Ethereum co-founder Vitalik Buterin often describes this as “modular” blockchain design – L1 for security and decentralization, L2 for execution and speed.

For investors, the implications are significant:

• Better User Experience => More Adoption: By slashing fees and wait times, L2s make Ethereum far more accessible to the next wave of users. Whether it’s small retail trades, gaming transactions, or micro-payments, activities that were previously infeasible on L1 Ethereum (due to high fees) can thrive on L2. This could lead to an influx of users and developers, expanding Ethereum’s overall ecosystem and increasing demand for ETH (which is still needed to pay fees on L2s indirectly and often used as collateral or settlement).
• Competitiveness with “ETH Killers”: Many rival layer-1 chains (Solana, Avalanche, Binance Chain, etc.) attracted users by offering faster/cheaper transactions. With L2s, Ethereum is effectively outmaneuvering those competitors by scaling while retaining decentralization. If Ethereum can achieve, say, 1,000+ TPS across rollups with negligible fees, it narrows the performance gap significantly. Users might prefer Ethereum’s security and network effects once cost is not an issue. This could preserve Ethereum’s dominant market share in DeFi/NFTs (currently ~57% of total DeFi TVL (Ethereum Still Holds the Lion’s Share of Defi TVL as Tron and Solana Rise)) against would-be challengers.
• Economic Effects on ETH: One nuance – as L2s take on more transactions, the L1 may see fewer direct transactions, which can reduce the short-term gas fees burned on L1. Indeed, with gas so low in 2024, Ethereum’s network turned modestly inflationary for a time (as base fees weren’t high enough to burn more ETH than staking issuance). Some observers like Gnosis’s Martin Köppelmann even commented that Ethereum “needs more L1 activity” or perhaps a raised gas limit to increase fee burn at such low usage levels (Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption | Coinspeaker). However, this is likely a temporary scenario in a bear market lull. In the bigger picture, L2s increase the total capacity for Ethereum-based activity, which ultimately can drive more aggregate fees (and burns) as adoption rises. Even if each transaction pays a tiny fee, millions more transactions will add up. Moreover, L2s still post call data to L1, generating L1 fees. So a thriving L2 ecosystem should, in theory, translate to more value accrual for ETH (via fee burns) in the long run, especially as activity picks up in the next bull cycle.

In summary, Layer-2 scaling is a major bullish factor for Ethereum’s future. It directly addresses the network’s main limitation and enhances its value proposition. Investors should monitor the growth of L2s like Arbitrum, Optimism, Base, zkSync, and others – metrics such as total value locked on L2, daily active users, and transaction counts can signal how much additional economic throughput Ethereum is capturing. Thus far, the trajectory is very positive: L2 adoption has been “massive” and accelerating (Ethereum Gas Fee Drops to 5-year Low amid Massive L2 Adoption | Coinspeaker). If Ethereum manages to absorb web-scale applications via L2 without sacrificing security, it solidifies ETH’s position as the primary settlement asset of a new, scalable decentralized economy.

Institutional Adoption: ETFs, Mainstream Capital, and Regulation

Perhaps the most meaningful trend for Ethereum’s ROI in the coming years is the wave of institutional adoption hitting the crypto space. For years, large investors (pensions, endowments, asset managers) either sat on the sidelines or dipped in cautiously via Bitcoin. Ethereum was often considered “too new” or too risky. That is rapidly changing. Institutional sentiment toward Ethereum has warmed considerably, and the infrastructure to support institutional investment – from regulated ETFs to custodial solutions – is falling into place. This institutional embrace could bring tens of billions in new capital into ETH, potentially boosting demand and liquidity (albeit likely tempering volatility over time).

Ethereum ETFs and Investment Vehicles: A watershed moment is the introduction of Ethereum exchange-traded funds (ETFs). In October 2023, several Ether futures ETFs launched in the U.S., allowing investors to gain ETH price exposure via CME futures in an ETF wrapper. More importantly, multiple firms (including ARK Invest, VanEck, Grayscale, and BlackRock) filed for spot Ethereum ETFs, which as of early 2025 are under SEC review. The expectation is that following an eventual approval of a spot Bitcoin ETF (widely anticipated in 2024), a spot ETH ETF could be approved, perhaps in late 2024 or 2025. This has enormous implications:

• Accessibility: An ETF means any brokerage account or 401(k) could potentially allocate to ETH without dealing with crypto exchanges or wallets. This dramatically widens the pool of investors who can buy Ether. Many institutions have mandates or preferences for SEC-regulated products – an ETF fits the bill, whereas direct token custody often does not.
• Inflows: We’ve already seen strong numbers from early products. By Q1 2025, ETH investment funds/ETFs had amassed over $3.1 billion in inflows (Full List of Ethereum ETF Institutional Holders from 13F Filings), despite a relatively quiet market. And that’s before a spot ETF even exists in the U.S. For context, Bitcoin ETFs (in Canada, Europe, etc.) and trusts hold a substantial amount of BTC, and analysts expect U.S. spot ETFs to unlock a new wave of demand for both BTC and ETH (Institutional Investors: Spot ETFs Will Spur Crypto Demand). A recent survey of institutional investors (by Institutional Investor and Coinbase) found the majority expect spot crypto ETFs to “drive strong institutional demand” for Bitcoin and Ether (Institutional Investors: Spot ETFs Will Spur Crypto Demand). In other words, professional money managers are explicitly waiting for these vehicles to allocate more to crypto.
• Market Impact: The approval of a U.S. spot Ethereum ETF would likely be a significant bullish catalyst. It signals regulatory acceptance at a high level. When the first Bitcoin futures ETF launched in 2021, BTC hit new highs that week (though it later reversed). For Ether, an ETF launch could similarly coincide with a sentiment boost and inflows. Institutional investors, who have been sitting on the sidelines due to regulatory concerns, are expected to enter the market, bringing substantial capital (SEC’s Ethereum ETF approval: Are we seeing the cautious acceptance of a new asset class? | AlixPartners). The presence of large, long-term-focused institutions can also stabilize the market somewhat, as they are less prone to panic selling than retail traders.
• Global Perspective: It’s worth noting that outside the U.S., Ethereum ETFs/ETPs already exist (Canada approved ETH ETFs in 2021, Europe has ETNs, etc.). These have seen uptake from investors in those regions. The U.S. is simply the biggest capital market, so its approval is a key milestone. Additionally, countries like Dubai, Brazil, and others are crafting crypto-friendly regimes that could see more institutional products for ETH.

Beyond ETFs, institutional on-ramps have improved in general. Major custodians (Coinbase Custody, Fidelity Digital Assets, BitGo, etc.) offer insured storage for ETH. CME futures and options for ETH provide hedging tools. Banks like BNY Mellon and Nasdaq have dipped into crypto custody services. All of this reduces the frictions and perceived risks for an institution to invest in Ethereum.

Changing Investor Attitudes: Surveys and studies reflect a sharp shift in institutional attitudes toward crypto, including Ethereum. The Institutional Investor survey noted that 59% of institutional decision-makers plan to increase their crypto allocations in the next 3 years (up from just 32% a year prior) (Institutional Investors: Spot ETFs Will Spur Crypto Demand). Furthermore, in 2023’s survey, these investors ranked digital assets 3rd among 15 asset classes for expected attractive risk-adjusted returns (only behind private equity and U.S. stocks) (Institutional Investors: Spot ETFs Will Spur Crypto Demand). Just a year earlier, hardly anyone ranked crypto that high. This indicates that after the shakeout of 2022, institutions see current prices as an opportunity and consider the asset class more “institutional-grade” than before (Institutional Investors: Spot ETFs Will Spur Crypto Demand) (Institutional Investors: Spot ETFs Will Spur Crypto Demand). Factors contributing to this include:

• The maturation of the Ethereum network (successful upgrades like the Merge prove it can evolve responsibly).
• Better regulatory clarity in some jurisdictions.
• Pressure to diversify and seek higher returns in a world where traditional assets may have lower forward-looking returns.
• Client demand – family offices and even some pension beneficiaries have shown interest in crypto, pushing investment managers to get informed.

Regulatory Landscape: Of course, institutional adoption is tightly linked to the regulatory environment. Globally, we see a mix of progress and challenges:

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• United States: The U.S. SEC and CFTC have sent mixed signals on Ethereum. The CFTC has generally viewed ETH as a commodity (it’s listed on CME, and the CFTC chair in 2018 and 2023 both implied ETH is a commodity like BTC). The SEC, under Chair Gary Gensler, has been more noncommittal – Gensler has hinted that aside from Bitcoin, most crypto assets could be securities, but the SEC has not formally claimed Ether is a security in enforcement actions. However, the SEC has scrutinized Ethereum’s new staking feature, implying that staking services might constitute unregistered securities offerings (SEC’s Ethereum ETF approval: Are we seeing the cautious acceptance of a new asset class? | AlixPartners). In fact, the recent Ethereum futures ETFs had to explicitly exclude any staking of the underlying ETH because the SEC was uncomfortable with offering yield at this stage (SEC’s Ethereum ETF approval: Are we seeing the cautious acceptance of a new asset class? | AlixPartners). Going forward, a big question is whether the SEC (or courts) definitively categorize Ether. A worst-case scenario (ETH deemed a security in the U.S.) could restrict exchange listings and crimp institutional buying until resolved. But many observers find this unlikely given Ethereum’s level of decentralization and the fact that even prominent regulators treat it as a commodity. Meanwhile, U.S. regulators are actively evaluating ETF approvals – a positive sign – and have allowed public trading of ETH-linked instruments. Bottom line in the U.S.: regulatory ambiguity remains, but momentum is toward integration of crypto into the existing framework cautiously. Clarity (e.g. through new legislation or court rulings) would remove a cloud and possibly open floodgates of institutional investment.
• Europe and Others: The EU’s MiCA (Markets in Crypto Assets) regulation, passed in 2023, provides a comprehensive framework for crypto. It does not consider ETH a security per se, instead treating major tokens as assets that can be offered with certain disclosures. Europe already has multiple Ether ETPs (exchange-traded products) on regulated exchanges. Switzerland and Germany, for instance, have Ethereum ETPs that institutions can buy. Canada’s early approval of ETH ETFs gave North American investors a case study (those funds gathered decent assets). Countries like Singapore, UAE, and Hong Kong are positioning themselves as crypto hubs, attracting institutional investors to participate under clear guidelines. All told, globally there is a trend toward accommodating crypto within regulatory structures – which ultimately legitimizes Ethereum as an asset class.

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