Why is the voice of singing down Ethereum incessant?

Author: Haotian

Why is there always a chorus of bearish voices in the market about Ethereum? Simply put, the Ethereum ecosystem is facing a difficult situation, with internal problems such as the layer2 expansion plan that has not been able to lift its head, and external threats such as Solana, which is determined to kill Ethereum but never dies. Ethereum, under the pressure of innovation deficiency and competition, is facing its toughest moment. Next, let me share my thoughts:

1. The size of the ETH ecosystem has been formed after the upgrade of EIP-4844 in the Rollups, and the short-term Favourable Information on the technical level of Ethereum has been settled. The longer-term Sharding chain is no longer expected under the impact of Rollup, while the dropNode cost, simplified protocol, and underlying ZK-SNARKs upgrade are just icing on the cake. The entire blockchain industry is waiting for Ethereum to deliver a satisfactory layer2 answer, but so far, layer2 has not met the ‘rise’ expectations of Ethereum.

2. To be honest, Rollups stand out from various expansion solutions such as Plasma, Validium, and even parachains because Rollups adopt a hierarchical processing paradigm of primary and secondary chains for execution, state, settlement, and other interactions. Under normal logic, after layer2 establishes a secure Consensus with Mainnet, the next step should be to strengthen and amplify the performance processing advantages on the execution layer, and provide increased users and ecology to the Ethereum Mainnet.

However, the fact is that most layer2s have chosen to engage in commercial narrative-level stacking, adopting a Stack strategy to pull allies together, involve shared components in layer3 AppChain, and even Rollup as a Service, DA as a Service, and even AVS as a Service. These strategies, which at first glance can infinitely amplify the commercial and narrative imagination space of layer2, can only add to the market’s expected leverage in the longer term, and cannot immediately expand the application ecosystem or empower the token price, etc.

For a long time, some people have been mocking the Gas fee of 1 Gwei on the Ethereum network, using it to ridicule the failure of Ethereum’s layer2 strategic direction. However, looking at it from a different perspective, isn’t this a phase of success for Ethereum in solving congestion and high Gas fees through layer2? It’s just that the unfortunate part is that layer2 not only did not bring the expected huge ecosystem and volume to Ethereum, but also diverted a portion of the traffic.

In fact, layer2 has been successful in solving the performance shortcomings of ETH, and the competition between the OP-Rollup and ZK-Rollup camps has reached a white-hot stage. However, the choice of camp to focus on infrastructure rather than pure application innovation has exposed an embarrassing situation in the ETH developer community: excessive reliance on VC financing to drive token issuance rather than true value creation.

Despite the influx of talent in the web3 industry and the increasing flow of funds from VC, resulting in intensified competition, over-competition has become a direct result. While a higher entrepreneurial threshold can be a sign of market maturity, in the early stages of Crypto, excessive over-competition has become the culprit in stifling innovation for projects with high FDV. Imagine a project with a huge FDV, where all efforts are made just to quickly Go to Market, how could there be time to incubate value innovation. And the most effective for VC is to stack B-end business narratives, while C-end applications and other urgent but unsexy directions have always been lukewarm. Thus, the market is perceived to be unbalanced in the infra > application aspect.

4. Although the sexy narrative of Ethereum’s killer has been debunked in the last Bull Market, high-performance public chains such as Solana, SUI, Aptos, and SEI in this round directly hit the ‘low performance’ soft underbelly of Ethereum’s EVM. Although they no longer shout to kill Ethereum, it cannot be denied that their high concurrency and special Move language security mechanisms can indeed challenge Ethereum on the performance level, especially as they may become the fertile ground for the new generation web3 application ecosystem, such as DePIN, large-scale games, intent transactions, AI Agent, and so on.

This is what I think is the biggest opportunity for the new generation of high-performance public chains, no longer relying on stacked infrastructure expectations, but directly rising up with applications to declare war on Ethereum.

Or perhaps there is no need to declare war at all. Using modular thinking to place Ether on the ‘settlement layer’ narrative, and using new modular execution layers, DA layers, Unified liquidity layers, etc., to restructure the discourse power system established by Ether in the past, isn’t this also a kind of successful competition and cooperation? It is the same for other chains, and why not for Ether as well. However, this is a trend that I have seen on other high-performance chains or modular, on-chain chain abstractions. Yet, it seems that Ether still maintains a ‘passive beaten’ posture, even in the face of forward-looking Favourable Information such as ETF, it has not been able to let go of its attitude.

5. Many people are still looking forward to another Decentralized Finance Summer, but reflecting on the underperformance of ETH layer2, I reluctantly accept the fact that Decentralized Finance Summer may never come again. @VitalikButerin himself is well aware that the biggest dilemma of ETH may be its excessive financial attributes. Decentralized Finance, as a perfect carrier of financial attributes, naturally caters to people’s speculative preferences with its past successful experiences and infinite trap attributes combined with Decentralized Finance. At this moment, the ETH ecosystem needs to consider not reshaping Decentralized Finance Summer, but rather breaking free from the pure Decentralized Finance cultural haze.

The previous Bull Market saw the emergence of Non-fungible Tokens, and although OpenSea has not been fully integrated into the Decentralized Finance framework, it does not affect Non-fungible Tokens leading the previous ETH bull run. This time, PolyMarket’s Decentralized Prediction Market is being valued. Although it is not a new gameplay, it remains to be seen if it can create new opportunities. Fortunately, it is not purely Decentralized Finance, but has expanded and restructured Decentralized Finance. How to integrate ETH into the web2 world and make it a reality is what everyone should truly expect in the new Summer.

That’s all.

Note: As a long-term holder of Ethereum, I sincerely hope that Ethereum can overcome its difficulties. However, it should be emphasized that the Ethereum ecosystem has the largest gathering of geeks and is the most sensitive territory for innovation. As long as the market breaks out of the current predicament, I believe Ethereum will still be the best hope to turn the tide.