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, with the core being decentralization.
This weekend, social media was lively as a new round of debates on ETH began. There are two main reasons for this. Firstly, Vitalik’s interview with ETHPanda has sparked widespread 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 is “decentralized execution environment” rather than “execution environment.” This fundamental foundation has not changed. The current bottleneck in ETH development can be attributed to two main reasons. Firstly, the Restaking track has caused vampire attacks on Layer2, the mainstream technical development path, diverting a significant amount of resources from the ETH ecosystem. Restaking 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 within the Ethereum ecosystem are becoming aristocratic, forming an interest class, which hinders social mobility and weakens developer motivation, resulting in a lack of innovation.
The discussion on this point has been addressed in one of my previous articles, and I 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. Simply put, it is a completely 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, Sharding has undergone some changes in technical selection. The community ultimately settled on the Rollup-Layer2 solution as the mainstream direction.
In this solution, all applications can choose to build on separate Layer2s, while the Ethereum mainnet becomes the underlying infrastructure for all application chains. Besides providing data finality for application chains, it also serves 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 the degree of decentralization.
At the same time, Ethereum has designed a relatively coherent business model and a good economic model for ETH. On the one hand, it has switched the main chain’s POW consensus mechanism to a stake-based POS mechanism, allowing participants to receive a dividend of transaction fee income from the main chain. On the other hand, each application chain needs to confirm data finality through transactions on the main chain, and transactions require ETH as gas. As long as the Layer2s as application chains remain active, it indirectly promotes the activity of the Ethereum mainnet. This enables ETH to capture value from the entire Ethereum ecosystem.
However, the real problem arose from the ReStaking track, represented by EigenLayer, which gained popularity at the end of last year. The native idea of this track is not complicated. Those who have participated in DeFi may know that there are quite a few projects centered around idle assets, known as “nesting dolls.” However, Restaking is more daring, choosing to directly reuse ETH participating in PoS Staking and providing execution capabilities externally, known as AVS. Although I highly appreciate this direction in terms of entrepreneurship and innovation, it is actually the most direct cause of Ethereum’s current dilemma.
At that time, the technical selection for Layer2 was basically completed and more mature technical solutions had emerged. It was the time to focus on application development, such as faster iteration of related applications and sufficient market promotion budget. However, the emergence of the ReStaking track actually led to a vampire attack on Layer2, causing ETH to lose its value capture capability. Because Restaking provides an alternative “second consensus solution” for applications without the need to pay the cost of ETH on the main chain. The most intuitive example is the currently implemented AVS, DA layer, where DA refers to data availability, which means making data tamper-proof through a technical solution, equivalent to data finality.
In the previous discussion, we made it clear that application chains achieve data finality for their own data by calling contracts on the main chain, which creates demand for ETH. However, Restaking offers a new choice, purchasing consensus through AVS without the need for ETH. This process allows you to pay the consensus purchase fee with any asset. This transforms the entire DA market from an Ethereum monopoly market to an oligopolistic competition market shared by ReStaking and Ethereum. This naturally deprives Ethereum of its pricing power and directly affects its profit.
Moreover, it occupied the scarce resources in the bear market at that time. These resources should have been diverted to various application sides for promotion and market education. Instead, they were attracted to the engineering of “reinventing the wheel” for infrastructure. Today, Ethereum’s predicament is precisely because there are not enough active applications to capture value, leading to a decline in the value capture system.
Those who have worked on projects 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 lamentable.
Of course, the root cause of this problem is understandable. It is also a problem of democratic governance, namely the efficiency problem caused by the lack of unified power. In an organization that pursues decentralized decentralization, all voices can develop and compete for resources according to their own will. This is more favorable for value capture in a bull market because there is great innovation potential. However, in the bear market’s inventory battle, the lack of unified resource scheduling leads to deviations in the roadmap, which is understandable for causing development stagnation. On the other hand, Solana, with its corporate structure, naturally attracts attention due to the efficiency advantages brought by centralization. Its efficiency in capturing hotspots and taking targeted measures is also higher, which is why Memecoin summer appeared on Solana.
In the Ethereum ecosystem, there is a phenomenon of a lack of influential opinion leaders like Solana, AVAX, or even the former Luna ecosystem. Although these leaders are sometimes seen as the force behind FOMO, it is undeniable that they play an important role in community cohesion and entrepreneurial team confidence. However, apart from Vitalik, it is difficult to think of other influential leaders in the Ethereum ecosystem. This phenomenon is partly due to the initial team’s split but also related to the solidification of internal hierarchy within the ecosystem. Many of the ecosystem’s growth benefits have been monopolized by early participants.
Imagine if you had participated in a fundraising of 31,000 BTC (currently worth over 200 million USD), even if you did nothing, you would already be very wealthy, not to mention that the wealth within the Ethereum ecosystem has long surpassed this number. Therefore, many early participants have turned to conservative strategies, finding it more attractive to maintain the status quo rather than expanding. To mitigate risks, they have become more cautious, explaining why they tend to adopt conservative strategies when promoting ecosystem development.
A simple example is that early participants only need to ensure the position of existing projects like AAVE and lend their large amount of ETH to borrowers to earn stable income. Then why do they need to push for the development of new projects?
But in the end, 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 is “decentralized execution environment” rather than “execution environment.” This fundamental foundation has not changed. As long as resource integration can be completed and application construction can be promoted, the future of Ethereum is still bright.