Ethereum TVL approaches 3-year high — Will ETH price follow?

Ether (ETH) price has declined by 21% since Jan. 31, struggling to sustain levels above $2,800 over the past week. Investor sentiment has weakened amid this underperformance, exacerbated by a 12% decline in the total cryptocurrency market capitalization over the same period.

Bulls continue to place their hopes on Ethereum’s dominance in total value locked (TVL), especially after the metric climbed to its highest level since 2022. However, increased deposits do not necessarily indicate higher network activity or greater transaction fee generation. 

TVL measures the value of assets deposited in smart contracts across various applications, including liquid staking, lending protocols, decentralized exchanges, yield farming platforms, crosschain bridges, tokenized assets, and privacy mixers. Ethereum’s TVL reached 21.8 million ETH on Feb. 11, marking its highest level since October 2022. According to DefiLlama data, this represents an 11% increase compared to the previous month.

Meanwhile, smart contract deposits on the BNB Chain declined by 3% over 30 days, settling at 5.6 billion BNB (BNB). Ethereum continues to hold a dominant position, capturing 52.8% of the total DeFi market’s TVL, while Solana, the second-largest player, maintains an 8.2% share. Leading Ethereum-based applications include the liquid staking providers Lido and EigenLayer, along with the lending platform Aave, according to DefiLlama data.

Among Ethereum’s top-performing decentralized applications (DApps) over the past 30 days were yield farming protocols Royco Protocol and CIAN Protocol, followed by cross-chain liquidity platforms StakeStone and Stargate Finance. Such data reinforces the notion that Ethereum’s growth is not solely reliant on well-established DApps.

Ethereum fees dropped 72% despite rising deposits

Despite the increase in deposits, network fees have failed to keep pace. Ethereum accrued $8.1 million in transaction fees for the week ending Feb. 10, representing a sharp 72% decline compared to two weeks prior. The primary factor behind this downturn was a 37% monthly drop in transaction volume, according to DappRadar data. 

For context, BNB Chain saw a 60% increase in transaction volume over the past month, while Solana’s remained stable. Even within Ethereum’s layer-2 ecosystem, activity trended downward. Arbitrum recorded a 44% drop in transactions over 30 days, while Base experienced a 10% decline, and Polygon registered a 4% reduction, according to DappRadar data.

There is little evidence suggesting that ETH will outperform in the near term based purely on TVL growth, given that overall network activity has declined. Fees remain a key factor in balancing ETH supply growth and issuance, and Ethereum currently lacks a clear path to increasing fees without negatively impacting rollup-based scaling solutions. This trend has contributed to inflationary pressure on ETH.

Related: Ethereum Foundation deploys $120M to DeFi apps; community celebrates

For Ether holders, the primary catalyst for a move above $3,000 remains the potential approval of staking integration within spot Ethereum exchange-traded funds (ETFs), which are currently under review by the US Securities and Exchange Commission (SEC). Some analysts argue that demand for these ETFs has been limited due to the absence of staking yield, which could deter institutional inflows.

Ethereum remains the dominant player in total value locked, with a substantial lead over competing networks. However, unless network fees recover meaningfully, ETH holders may see little direct benefit from Ethereum’s TVL growth, which reduces the likelihood of Ether outperforming the broader crypto market in the short term.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.