VC Blames Layer-2s and Token Inflation for Ether’s Waning Investment Appeal

Ether (ETH), the second-largest cryptocurrency by market capitalization, is facing increasing criticism from some investors and analysts who question its long-term investment appeal.

Crypto venture capitalist Nic Carter of Castle Island Ventures pointed to two key issues undermining Ether’s value: the rise of layer-2 (L2) scaling networks and unchecked token issuance.

In a March 28 post on X, Carter argued that “greedy Eth L2s” are siphoning off value from Ethereum’s base layer while giving little back.

Carter Blames Ethereum’s Token Bloat for Decline

He also criticized the Ethereum community’s acceptance of excessive token creation, claiming that “ETH was buried in an avalanche of its own tokens. Died by its own hand.”

His comments followed a similarly stark assessment from Quinn Thompson, founder of Lekker Capital, who declared that Ethereum is “completely dead” as an investment.

Thompson cited declining transaction activity, reduced user growth, and falling network revenues as signs that ETH no longer offers a strong investment case, despite its utility as a blockchain platform.

The #1 cause of this is greedy eth L2s siphoning value from the L1 and the social consensus that excess token creation was A-OK. Eth was buried in an avalanche of its own tokens. Died by its own hand.

— nic carter (@nic__carter) March 28, 2025

Recent market data appears to support their concerns. Ether is currently trading around $1,894, down over 5% in the past week, according to CoinMarketCap.

Its ETH/BTC ratio has also fallen to 0.02260, marking its lowest level in nearly five years, based on TradingView data.

Back in September 2024, Carter warned that Ethereum’s fee revenue had plummeted by 99% over six months as L2s captured user activity and revenue without contributing to Ethereum’s base layer.

Some, like Cinneamhain Ventures partner Adam Cochran, have proposed solutions such as Based Rollups, which aim to realign incentives to support Ethereum’s core protocol.

Once viewed as a potential $10,000 asset by 2025, Ether’s prospects have dimmed.

Standard Chartered recently slashed its forecast, lowering the 2025 target to $4,000.

According to Geoffrey Kendrick, the bank’s global head of digital assets research, platforms like Base are now generating substantial profits from within the Ethereum ecosystem, contributing to the revised outlook.

Ethereum Burn Rate Hits All-Time Low

Ethereum network activity has hit a new low, with just 53.07 ETH (worth approximately $106,000) burned on March 23 , marking the lowest daily burn since the introduction of its fee-burning mechanism under EIP-1559.

The EIP-1559 upgrade, implemented in 2021, aimed to simplify transaction fees and reduce ETH supply by burning the base fee in each transaction.

During periods of high usage, the EIP-1559 mechanism can make Ethereum deflationary. However, current network conditions suggest otherwise.

Based on recent data from Ultrasound.money, Ethereum’s supply is now expected to grow by 0.76% annually.

The low burn rate aligns with falling on-chain activity.

Metrics such as active addresses, new address creation, transaction count, and daily trading volume have all seen significant drops in recent weeks.

These trends raise concerns about slowing user engagement on Ethereum, especially amid growing competition from Layer 2 networks and alternative blockchains offering lower fees and faster transactions.