Layer 2 Solutions Outperform Ethereum: Why Is ETH Still a Strong Investment?

Ethereum [ETH] remains the foundational layer supporting Web3, despite much of its previous activity shifting to other platforms. Recent data indicates that Layer 2 networks have taken on the majority of the ecosystem's transactions, while Ethereum still facilitates the underlying framework. This shift keeps the notion of Ethereum as "digital oil" alive, albeit with the majority of activity now happening off-chain. At the same time, Ethereum’s performance metrics show a slowing trend.

Key Takeaways

Ethereum remains the foundational layer for Web3.
Layer 2 solutions are processing the majority of ecosystem transactions.
Ethereum’s utility continues to be debated amid rising off-chain activity.
Despite a slowing Layer 1, ETH shows undervaluation and strong market interest.

Layer 2 Networks Dominate Transaction Volume

Ethereum Graph

According to a pie chart from Dune Analytics, Layer 2 solutions like Polygon, Arbitrum, and Optimism have captured most of the transaction volume, relegating smaller rollups such as Linea, Scroll, and zkSync to a minor role. This trend is consistent, with daily transaction data revealing that Polygon and Arbitrum regularly process between 2-4 million transactions daily, and Optimism adds additional activity. Combined, these Layer 2 solutions are handling significantly more traffic than Ethereum's main network, indicating a clear user preference for cheaper and faster options.

Implications for Ethereum's "Digital Oil" Concept

While the "digital oil" metaphor remains relevant—especially with EIP-1559's fee-burning mechanism and the long-standing belief that Ethereum’s utility underpins its value—ETH's supply is experiencing inflation again despite increased Layer 2 usage.

Supply Dynamics

Some critics suggest that this is due to revenue moving off-chain, as sequencer fees and Maximum Extractable Value (MEV) are being captured by rollups instead of returning to Ethereum’s ecosystem. In response, supporters argue that Ethereum is transitioning into essential infrastructure, diminishing its identity as just a commodity and positioning it more as the foundational digital landscape upon which everything else is built.

A Slower Layer 1 Doesn’t Indicate a Weak ETH

Data from DeFiLlama reports a reduction in Total Value Locked (TVL) to approximately $66 billion, continuing a downward trend through late 2025. This shift in activity to Layer 2 solutions has not deterred derivatives traders from valuing ETH as a significant asset.

Valuation Trends

Earlier reports from AMBCrypto highlighted comments from CryptoQuant CEO Ki Young Ju, indicating that Ethereum is likely undervalued, with 10 out of 12 valuation models suggesting that ETH is trading significantly below its fair value. At that time, the Composite Fair Value placed ETH close to $4.8k, reflecting a potential undervaluation of about 59% despite broader market weaknesses.

Open Interest Trends

Additionally, the aggregated Open Interest remains robust at over $15 billion, with consistently positive Funding Rates. This indicates that the market still views ETH as a fundamental piece of infrastructure rather than a declining asset that traders are abandoning.

Conclusion

Even as transactional activity on the Ethereum base layer diminishes, those who believe in its long-term potential have not wavered. The evolving landscape raises intriguing questions about the future of Ethereum as it adapts to new challenges and opportunities within the cryptocurrency ecosystem.