As the ETH/BTC exchange rate fell below 0.05 again, Ethereum was once again ridiculed.
The opaque Ethereum Foundation expenditures became the fuse, and the fire quickly spread to various Ethereum FUD directions. For a time, ETH's original sins were that it was not as active as new public chains, had a centralized ideology, and lacked innovative applications. Even Vitalik's personal life was criticized, and users' disappointment with price performance escalated into a systematic debate of verbal criticism.
But looking back at Ethereum over the past year, apart from the infinite nesting dolls of staking, the good story of L2 has also begun to falter. The limited narrative, low coin prices, and new lows in Gas have made ETH almost unmoved even in this year's turmoil. The reality of following the decline but not the rise has continued to accumulate user dissatisfaction. Can Ethereum only stand firm in the name of orthodoxy in the end?
It’s time for Ethereum to find its own new story.
01. Ethereum Foundation is under constant attack
On August 23, the Ethereum Foundation's address changed, transferring 35,000 ETH (94.07 million USD) to Kraken. For the Foundation, large expenditures are quite frequent. According to data, the Ethereum Foundation has sold 239,000 ETH since January 1, 2021. However, this common transfer suddenly fermented into a whirlpool of public opinion in the market.
The market began to speculate on the reasons why the Ethereum Foundation made such a huge sale, and discussed whether it would have a negative impact on the price of ETH. The Ethereum Foundation also responded quite quickly. Executive Director Aya Miyaguchi responded on the X platform: "This is part of the Ethereum Foundation's fund management activities. The Ethereum Foundation has an annual budget of about $100 million, which is mainly composed of grants and salaries. Some recipients can only accept legal currency. For a long time this year, the Ethereum Foundation was told not to conduct any fund activities because the supervision is complicated and plans cannot be shared in advance. However, this ETH transfer transaction does not mean a sale, and there may be a planned and gradual sale in the future."
It would have been fine if they didn't respond, but once they did, they were strongly criticized. The Ethereum Foundation, which owns more than 270,000 tokens, has not disclosed detailed expenditure data in the past two years, and the latest report available is from 2021. The $100 million described by the executive director is obviously a huge expenditure. Where did all this money go? Ignas | DeFi also added fuel to the fire on X, saying that the Ethereum Foundation allocated up to $30 million in the fourth quarter of 2023, but compared with the third quarter of 2023, the allocation was only $8.9 million. This year's amount is more than three times that of last year. Although the foundation supports innovative projects, it lacks a comprehensive and transparent total expenditure report.
Although many industry insiders, such as Sundial Mirage co-founder SIGNAL and former ChainNews editor-in-chief Liu Feng, have expressed their understanding of the $100 million budget, saying that considering the huge size of the foundation, the $100 million operating budget is still within controllable range. SIGNAL compared it to Netflix, saying that Netflixe, with a market value of $295 billion, paid only two executives $80 million in salaries, while Ethereum's market value of $332 billion is slightly higher than Netflixe. In comparison, $100 million is already very prudent. However, the market still failed to cover up the fire, and the doubts about the "opaque" expenditures were difficult to stop, and gradually rose from opacity to the failure of the foundation to discover the value of ETH.
As the community controversy intensified, the foundation finally responded. ETHGlobal member Hudson Jameson said that Ethereum is currently compiling the latest expenditure report, which will unify the statistics of expenditures in 2022 and 2023, and will be released before the Devcon SEA conference in November.
Hudson used a chart to describe the approximate use of expenditures. The largest expenditure in 22 years was L1 research and development, accounting for 30.4%, including funding for external project teams and Jinhui's internal expenditures, of which internal expenditures accounted for 38% and external expenditures accounted for 62%. Community development was also a large part, accounting for 21.8%.
In 2023, the largest expenditure turned into grants for new institutions, including Nomic Foundation, 0xPARC, L2BEAT and other projects, accounting for 36.5%. Interestingly, founder Vitalik responded in the comment section that his annual salary was 182,000 Singapore dollars, which also sparked heated discussions. Many supporters believed that Vitalik, who made great contributions with such a low salary, was a true builder.
Public opinion seems to be about to turn, and the doubts about the Ethereum Foundation are only the most superficial fuse. The core reason still lies in ETH’s original sin - the disappointing price performance in recent years.
02. Ethereum has no new story
There has been no new story for Ethereum since last year.
If we look back at the development of blockchain, in addition to Bitcoin, which is the value stabilizer, Ethereum is the one that has been widely promoted in terms of application. This world computer has undoubtedly played its role. From the Defi that shocked the market in 20 years, to the NFT and chain game hype in 21 years, to the MEME craze, almost every breakthrough in the industry is inseparable from the key infrastructure Ethereum. The data also proves this point. As of August 29, according to DefiLlama data, Ethereum's TVL reached 4.7 billion US dollars, accounting for 56.37% of all public chains, becoming a well-deserved public chain leader. ETH has naturally risen all the way, from a few hundred US dollars to around 2,500 US dollars today, and has firmly established its second position besides BTC.
Back to the present, what narrative does Ethereum still have? Since Ethereum switched from POW back to POS, technology upgrades have been the main narrative, and Layer2 is the ecosystem of concentrated hype. After that, the internal narrative effect weakened, and ETF became the new external narrative. But from the actual situation, no matter what kind of narrative, it has not really driven the key indicator - the price of ETH. In sharp contrast, BTC continues to strengthen as a value currency. Judging from the exchange rate between the two, the degree of ETH's weakening relative to BTC is visible to the naked eye. It is currently only 0.042, while a year ago, this ratio was still 0.07.
Even without comparing with BTC, in terms of price trends, ETH growth has frequently been weaker than other currencies such as SOL and BNB. The weakening of the coin price can reflect the decrease in activity from the side, while the decline in Gas actually reflects the weakening of the ecosystem. According to Etherscan data, the current average Gas of Ethereum is 0.758Gwei, which has reached the historical bottom. Of course, the introduction of "Blob" in the Cancun upgrade has played a role, but such a low Gas, the most intuitive presentation is the lack of popular applications on Ethereum. The Block's data also shows that Ethereum's monthly transaction volume has been at its lowest level in months.
The reality is indeed like this. DeFi Summer is difficult to reproduce for the time being, NFT and blockchain games have fallen to the bottom, and even the MEME narrative has been besieged by Solana. With the rise of Ton, Base and other ecosystems, the market is inevitably pessimistic, and Solana has been heard to surpass Ethereum. In addition, the number of token holders ranks third, the number of monthly active users ranks seventh, and the number of transactions ranks 11th. The data does not seem to match Ethereum's title of leader.
In this context, the discussion on the feasibility of the Ethereum system has gradually fermented, and the switch to POS has become a new point of controversy. Regardless of the in-depth discussion on security, the complexity of the protocol brought about by the expansion demand, the complexity of the development direction, the complexity of MEV and Flashbot, and the complexity of governance have formed a layer of inseparable dark clouds covering the top of the Ethereum building, further increasing the vulnerability of Ethereum.
Discussion of Ethereum by industry professionals on X, source: @NPC_Leo
Take Rollup, a technology path that now accounts for 87% of all daily transactions, for example. Under this expansion plan, Gas fees have been successfully reduced significantly, but the inflation that was avoided through the mechanism has reappeared. Some analysts believe that Rollup-centeredness can promote L2 to absorb Ethereum space, bringing traffic and fees in the long run, but in actual use, L2 may develop a unique ecosystem and split into independent chains, reducing L2's contribution to Ethereum fees.
It is undeniable that most of the current Ethereum L2s do tend to choose the commercial narrative level of pledge leverage nesting dolls, and the shared components are introduced into the layer3 application chain. Even if this path is not chosen, the L2 narrative is gradually losing its voice, the dividends of technology upgrades are decreasing, the on-chain data is not as expected, and ZKS and Blast have also performed poorly after the token release.
In this context, the market's dissatisfaction and disappointment with Ethereum gradually accumulated, and finally broke out against the Foundation. Zhu Su, founder of Three Arrows Capital, frankly stated that the problem with the Ethereum Foundation is not that they sell tokens before their value is discovered. They are born dumpers. The biggest problem is that they are currently unable to provide a coherent roadmap and effective leadership for the ecosystem.
Web3 venture capitalist @LordWilliamUK is even more radical, listing the six sins of the Ethereum Foundation, saying that the foundation is nationalized and is hunted by funds, paper research rather than actual innovation, spending is not transparent, application scenarios are ignored to maintain orthodoxy, high-quality potential projects are lost, and iteration is slow.
Some people even asked Vitalik to pay more attention to the price of the currency and the development of the ecosystem rather than his love life. Vitalik was also quite interesting and responded by directly showing the code he had written in the past two months.
03. Without price, what is the difference between it and salted fish?
However, this idealistic founder seems to be quite optimistic about the various problems of Ethereum. He has repeatedly called for "the team is working hard, and the price of the currency will be determined by fate", or he has caused controversy by saying that the biggest dilemma of Ethereum is its "excessive financial attributes". Just recently, he was besieged by many people for expressing his dislike and criticism of DeFi. In this regard, an industry insider joked that "if there was no DeFi, the price of Ethereum might still remain at $400."
Is Ethereum really dead? There are many different opinions on this question. It cannot be denied that Ethereum is an extremely powerful community, and ETH-related assets are still an important foundation of the entire market. ETH is also the only currency recognized by institutions and successfully included in ETFs besides BTC. Even in the mainstream world, Ethereum is highly regarded. In the waves of aggressive "Ethereum killer" new public chains, Ethereum's continued existence proves its solid development foundation, and its builders have always adhered to the belief of long-term cultivation, focusing on technical practicality and conveying values.
However, as it continues to evolve, Ethereum has moved from the high-spirited early geekism to the mature and stable mid-term scale development, and the growth rate has gradually slowed down. When Ethereum was developing rapidly, any problem could be solved with focused technology, but when the development began to slow down, problems surfaced, and from time to time, tiny spikes stretched out to tease the sensitive hearts of users.
Especially in the current market with limited liquidity, it is more important to find new stories and new applications, even for Ethereum. My friend Ono mentioned before, "BTC can obtain the liquidity spillover of the US dollar without any changes, even without the fancy so-called layer2, but all currencies other than BTC must grow. Only by growth can they obtain new liquidity. Once they stop growing, they will slowly fall behind... fall behind..." This is true. The poor performance of ETH ETF since its launch and the slightly negative views of institutions on Ethereum can also indirectly confirm this point.
Back in September 2018, Vitalik was pressed for his views on the plummeting price of ETH at an industry summit. At the time, he mentioned that the price was not that important, and said helplessly, "Don't ask about the price anymore." He then ended the questioning with "If ETH has no future, so do other cryptocurrencies."
I believe that he may still give this answer four years later, but is it really the case? Ethereum’s legitimacy implies a promise that needs to be fulfilled: the project team hopes to obtain Ethereum’s technology and traffic and get a piece of the pie; users hope that ETH can always go up and meet their expectations for growth; and all of this requires Ethereum to always be on the road. If there is no actual benefit, the two sides may fall apart.
Recently, Matrixport trader "Miner Zhaobei" wrote in a public account that the "Liuyuan" strategy fund he runs, which has stable unilateral risk control, has wiped out the gains of the entire bull market in just one week due to the one-way free fall of ETH. "To this day, the net value is gone, but the position is still there." Although most of the comments are joking and saying "It's all Xiao V's fault, not the teacher's", it also gives us a glimpse of users' narrow-minded views on Ethereum.
Maybe Vitalik is wrong. Price is very important. After all, in the crypto where money can make you a god, without price, what’s the difference between you and salted fish?
