L2 Network Growth and Declining Exchange Supply Create Conditions for Future Rally

Despite the successful Pectra upgrade and a capital inflow of $3.8 billion, user activity on Ethereum’s main network remains sluggish. According to analytics firm Glassnode, the upgrade has not yet attracted either new or returning users to the blockchain’s L1 level. However, existing users are showing increased loyalty, and activity in L2 solutions has grown by almost 50%. Against this backdrop, Ethereum’s market positioning remains bullish in the medium term, despite risks of short-term profit-taking. Experts attribute this contradictory picture to changes in the network usage model and the shift of main activity to L2 solutions.

Contradictory Network Activity Signals

According to Glassnode, Ethereum network activity has not demonstrated significant recovery following the successful Pectra upgrade. Statistics show a decline in new addresses by 1.8% and resurrected addresses (those returning after a period of inactivity) by 8.4% compared to average figures since the beginning of the year.

Interestingly, there is a decrease in the user churn rate by 8.5%, indicating that existing users are staying in the network for longer periods.

“This pattern of activity points to the maturity of Ethereum’s user base,” comments Alex Kruger, crypto analyst and economist. “We’re seeing a consolidation phase where new users aren’t arriving en masse, but existing ones are demonstrating increased loyalty to the network.”

At the same time, L2 activity across networks like Base, Arbitrum One, and OP Mainnet has grown by almost 50% in May, increasing from 8.7 million to 13 million active addresses. This indicates a significant shift in user activity from the blockchain’s base layer to second-layer scaling solutions.

“We’re observing a classic example of how Ethereum’s base layer is increasingly becoming a ‘settlement layer’ and security provider, while main user activity is moving to L2 solutions with lower fees and higher throughput,” explains Tim Beiko, Ethereum core developer coordinator. “This aligns with Ethereum’s long-term roadmap aimed at scaling through an ecosystem of L2 solutions.”

Significant Capital Inflow and Market Indicators

Despite sluggish activity at the L1 level, the capital inflow to Ethereum after the upgrade amounted to an impressive $3.8 billion, as reflected in the growth of the Realized Cap metric (total capital stored in the asset).

According to Glassnode, Realized Cap broke its downtrend from the first quarter, indicating renewed investor interest in the altcoin in the second quarter of 2025. If this trend continues, the ETH price could be primed for an additional uptrend.

This bullish outlook is also supported by an impending “supply shock” on exchanges. Santiment data shows that ETH supply on exchanges has dropped to a 10-year low below 5%.

“Ethereum has under 4.9% of its supply on exchanges for the first time in its 10+ year history,” notes Santiment.

There are 15.3 million fewer ETH on exchanges, underscoring a strong accumulation trend. This means reduced selling pressure and a potential supply crunch—perfect conditions for an explosive run-up if demand accelerates.

“The reduction in ETH supply on exchanges combined with growing institutional investor interest creates the conditions for significant price movement in the coming months,” notes Maria Stankevich, financial analyst. “Historically, when less than 5% of ETH supply is on exchanges, this has been followed by periods of substantial price growth.”

Market Positioning and Outlook

However, in the short term, there is increased profit-taking from the second-quarter recovery, which could lead to a brief cooling in the rally.

Nevertheless, market positioning has remained bullish since late April and in the medium term. According to options data, 25 Delta Skew is negative for the 1-week (-3.5%) and 1-month period (-4%), suggesting higher demand for calls (bullish bets) than puts (bearish bets).

Simply put, the market is pricing in a higher likelihood of an upward rally for ETH. At the time of publication, ETH was trading at $2.5K, approximately 60% from the current cycle high of $4K.

“The options market signals positive expectations from traders regarding Ethereum’s future price movement,” explains John Theodosiou, founder of CryptoAlerts. “Negative values of 25 Delta Skew indicate that traders are willing to pay a premium for the opportunity to benefit from a potential price increase.”

Impact of the Pectra Upgrade on the Ethereum Ecosystem

The Pectra upgrade, implemented in April 2025, was aimed at improving the scalability and security of the Ethereum network. While it has not attracted a significant number of new users to the L1 level, it has created the technological foundation for further development of L2 solutions, which is reflected in the 50% growth in activity on these platforms.

“Pectra is a strategic upgrade aimed not so much at immediately increasing the user base, but at creating a more efficient infrastructure for the L2 ecosystem,” notes Vitalik Buterin, co-founder of Ethereum. “The growth in L2 activity confirms that the ‘roll-up-centric’ strategy is working, and the main user activity will occur precisely at this level.”

In fact, stagnation of activity on L1 may not be a sign of problems, but an indicator of Ethereum’s successful transformation into a multi-layered ecosystem, where the base layer serves to provide security and final settlement of transactions, while daily user interactions occur predominantly in L2.

Perspectives for Investors and the Ecosystem

The combination of significant capital inflow with a decrease in exchange supply creates a potentially explosive situation for the ETH price in the medium term. However, investors should consider the possibility of a short-term correction due to profit-taking.

“Ethereum is in an interesting position where market metrics point to potential growth, but activity on the main network remains sluggish,” concludes Ryan Selkis, founder of Messari. “This may create uncertainty in the short term, but the long-term trajectory looks positive, especially considering the successful evolution of the L2 ecosystem.”

For developers and entrepreneurs in the Ethereum ecosystem, the current situation confirms the importance of focusing on L2 solutions, where most user activity and innovation are concentrated. At the same time, institutional investors seem to recognize the long-term value of ETH as an asset, as evidenced by the significant capital inflow despite temporary stagnation in activity metrics.

At the time of publication, Ethereum is trading at $2.5K, which is about 60% of the current cycle’s maximum. Given current market indicators and declining exchange supply, many analysts consider a return to historical highs possible in the next 6-12 months, especially if the L2 ecosystem continues to demonstrate sustainable growth and adoption.