The continuous decline in the ETH/BTC exchange rate has sparked heated discussions within the community. Despite facing challenges, the author believes that the long-term trend of ETH is stable, and the core lies in decentralization.
This weekend, social media has been buzzing with new debates about ETH. There are two main reasons for this. Firstly, the interview between Vitalik and ETHPanda has sparked extensive discussions within the Chinese community. Secondly, the continuous decline in the ETH/BTC exchange rate compared to SOL has also caused widespread dissatisfaction.
Regarding this issue, the author has some opinions to share. Overall, I believe that the long-term trend of ETH is not a problem because there are no direct competitors in the market. In the narrative of Ethereum, the key lies in “decentralized execution environment” rather than “execution environment.” This fundamental foundation has not changed. The core reasons for the current bottleneck in ETH development are twofold. Firstly, the Restaking track has caused a vampire attack on the mainstream technical development path of Layer2, diverting a large amount of resources from the ETH ecosystem. Restaking’s core mechanism does not create incremental demand for ETH, directly leading to a lack of development resources and user attention for the application side, resulting in stagnation in promotion and user education. Secondly, key opinion leaders in the Ethereum ecosystem are becoming aristocratic, forming an interest class, which hinders class mobility and lacks sufficient incentives for developer ecology, making innovation appear weak.
Regarding this discussion, I have addressed it in a previous article and would like to reiterate it today. We know that Ethereum’s official development path has always been to create a fully decentralized execution environment through Sharding. In simple terms, it is a fully decentralized cloud that is not controlled by any party. Applications can obtain computing and storage resources on this cloud through bidding, and all resources are regulated by supply and demand in the market. Considering the complexity of the technology, the selection of Sharding has undergone some changes. The community ultimately decided to adopt the Rollup-Layer2 solution as the mainstream direction. In this solution, all applications can choose to build on separate Layer2s, while the Ethereum mainnet sinks to become the infrastructure for all application chains. In addition to providing data finality for application chains, it can also serve as an information relay. This master-slave architecture is a good solution in terms of efficiency and cost, reducing the cost of application execution and ensuring “security” based on decentralization. At the same time, Ethereum has designed a relatively self-contained business model and a good economic model for ETH. On the one hand, the main chain’s Proof of Work (PoW) consensus mechanism has been switched to an asset voting Proof of Stake (PoS) mechanism. As an exchange, each participant can receive a share of the main chain’s transaction fee income. On the other hand, each application chain needs to confirm data finality through transactions on the main chain, and transactions need to use ETH as gas. As long as the various Layer2s as application chains remain active, it indirectly promotes the activity of the Ethereum main chain. This allows ETH to capture value from the entire Ethereum ecosystem.
However, the real problem started with the Restaking track, represented by EigenLayer, which became popular at the end of last year. The native idea of this track is not complicated. Those who have participated in DeFi may know that a considerable portion of projects are based on innovative use of idle assets, known as “yield farming.” Restaking is bolder, directly reusing ETH participating in PoS staking and providing execution functionality to the outside world, known as AVS. Although I highly recognize this direction in terms of entrepreneurial creativity, it is actually the most direct cause of Ethereum’s current dilemma. At that time, the technical selection for Layer2 was basically completed and mature technical solutions had been developed. It was the time to focus on application development, such as faster iteration of related applications and sufficient marketing budgets. However, the emergence of the Restaking track actually caused a vampire attack on Layer2, directly causing ETH to lose its value capture ability. Because Restaking provides applications with a “second consensus solution” that does not require the cost of using ETH on the main chain, the most intuitive understanding is based on the currently implemented AVS, DA layer. DA refers to data availability, which means making data tamper-proof through a technical solution, which is equivalent to data finality. As mentioned before, it is clear that application chains achieve data finality for their data by calling contracts on the main chain, which creates demand for ETH. However, Restaking provides a new choice, purchasing consensus through AVS without the need to pay the cost of main chain ETH. This process does not even require ETH and can be paid with any asset. This has changed the DA market from a monopoly market dominated by Ethereum to an oligopoly market shared by ReStaking and Ethereum, which naturally makes Ethereum lose its pricing power and directly affects its profit. What’s worse is that it has occupied the scarce resources during the bear market. These resources should have been diverted to various application sides for promotion and market education. Instead, they were attracted to the “reinvention of the wheel” of infrastructure. Today, Ethereum is in a dilemma precisely because of the lack of active applications, resulting in a decline in the value capture system.
For those who have worked on projects, they may understand the importance of project operation rhythm. Launching appropriate products in the right market will lead to long-term development. Any wrong decision can lead to stagnation. Therefore, it is not without regret. Of course, the essence of this problem is understandable. It is also a problem of democratic systems, namely the efficiency problem caused by the lack of unified power. In an organization that pursues a decentralized and decentralized structure, all parties can develop and compete for resources according to their own will. This is more conducive to value capture in a bull market because of the great potential for innovation. But in the bear market’s stock battle, the lack of a unified resource schedule leads to deviations in the road map, resulting in stagnation in development, which is also understandable. On the other hand, Solana, with its corporate structure, naturally gains popularity due to the efficiency advantages brought by centralization. Its efficiency in capturing hotspots and taking targeted measures is higher. This is also why Memecoin summer appeared on Solana.
In the Ethereum ecosystem, there is a phenomenon of lacking influential opinion leaders like in Solana, AVAX, or even the previous Luna ecosystem. Although these leaders are sometimes seen as the driving force behind FOMO, it is undeniable that they play an important role in community cohesion and the confidence of entrepreneurial teams. However, in the Ethereum ecosystem, apart from Vitalik, it is difficult to think of other influential leaders. This phenomenon is partly due to the division of the initial founding team but also related to the solidification of internal hierarchy within the ecosystem. Many of the rewards for ecosystem growth have been monopolized by early participants. Just imagine, if you have participated in a fundraising that raised 31,000 BTC (worth over 2 billion US dollars at the current market value), even if you do nothing, you are already very wealthy, not to mention that the wealth in the Ethereum ecosystem has already surpassed this number. Therefore, many early participants have started to adopt conservative strategies. Compared to expanding the ecosystem, maintaining the status quo becomes more attractive. To mitigate risks, they become more cautious, which also explains why they tend to take a conservative approach in promoting ecosystem development.
A simple example is that early participants only need to ensure the position of existing projects such as AAVE and lend a large amount of ETH they hold to leverage seekers to earn stable income. So why do they need to vigorously promote the development of new projects? However, in the end, I believe that there is no problem with the long-term trend of ETH because there are no direct competitors in the market. In the narrative of Ethereum, the key lies in “decentralized execution environment” rather than “execution environment.” This fundamental foundation has not changed. Therefore, as long as resource integration can be completed and application development can be promoted, the future of Ethereum is still bright.
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