Author: 1912212.eth, Foresight News

Recently, Vitalik has once again been pushed to the center of the community's criticism. This is not the first time Ethereum has faced such a crisis, from 2018 to the present, Ethereum has been plagued by doubts and storms for four or five times. The immediate trigger for this incident was that Trump chose to issue his own meme coin TRUMP on the Solana chain, and the exaggerated rise of this meme coin once made many people who seized the opportunity become famous overnight and retire after success.

The exaggerated wealth effect has caused many disappointed investors to sigh with regret, and Solana and meme coins have once again become the focus of public opinion. FOMO sentiment even temporarily caused SOL supply to be unable to meet demand, leading Binance to temporarily suspend withdrawals. While TRUMP was making rapid progress, the SOL price soared to a record high of $295. The market was in turmoil, with both Bitcoin and SOL surging, but Ethereum, which is ranked second in market capitalization, "never rises", so what happened to ETH? Why has it fallen into such a state of being reviled by everyone?

New and old money no longer favor Ethereum

At one time, Ethereum's grand vision of a global computing layer attracted countless tech newcomers, financial giants, and industry leaders, but now it seems to have lost its former glory. Bitcoin's position as the digital gold is firmly established, with spot ETFs being approved, MicroStrategy making frantic purchases, and increasing acceptance by government agencies. Even though its market capitalization has become larger and larger, its rise from the bottom of $15,000 has already achieved a return of more than 6 times. BTC is still the favorite of family wealth and old money.

In contrast, Ethereum, although competing with Bitcoin in a different position, has remained around $3,000 since March last year. During the much-anticipated Altcoin season, its performance has been truly disappointing.

As of January 16, the total net inflow of Ethereum spot ETFs reached $2.66 billion, but this net inflow seems to have little support and upward effect on the coin price. Coin prices are a manifestation of the consensus in the financial market, and the long-term fluctuations have eroded a lot of faith sentiment, and market confidence has been exhausted.

In contrast, Solana, with its low Gas fees and the meme wealth creation wave, has attracted many new users to join the on-chain meme. According to the latest data on the Circle website, the USDC issued on the Ethereum mainnet has reached $31.53 billion, while the newcomer public chain Solana has soared to $7.72 billion.

L2 fragmentation of liquidity, doubts and criticism continue

As early as the last cycle, the debate around the competition between L2 and L1 had already begun, and in this cycle, as the "four kings" of L2 have successively appeared on stage, the debate over whether L2 or L1 is superior has never stopped. However, at present, the voices inclined towards L1 have been widely recognized by the market.

As L2 chains focused on scaling, the security and timeliness of cross-chain capital bridging are facing considerable problems, and the user experience is also greatly compromised. Although the technology of each chain is unique, they all lead to the same destination, and users do not have a very obvious perception of their differences.

Even some projects have been repeatedly shuttling and migrating between different L2 chains, further fragmenting liquidity and user experience. In addition, each L2 has launched its own token system, and has not truly fed back to Ethereum, which has also weakened the attractiveness of ETH. Take Base as an example, last year most of the network fees became Coinbase's profits, and very little of the funds went to the Ethereum mainnet, most of which were retained by Coinbase. If calculated on an annualized basis, Coinbase's earnings from Base are close to $100 million.

Synthetix and Infinex founder Kain said that if he were to run the EF (Ethereum Foundation), he would definitely put pressure on L2 to require them to use the sequencer revenue to burn ETH.

After the launch of various L2s, their token performance has been average, and although their total TVL has exceeded $54 billion, there has been no particularly significant growth since March last year.

Now L2 technology is also starting to encounter bottlenecks again. As L2 chains continue to grow, multiple L2s are competing for limited Blob storage, leading to soaring fees and increased user costs. Even with the Pectra upgrade to increase the number of Blobs to 6, the problem can only be temporarily alleviated and cannot be fundamentally solved. Solutions include short-term Pectra upgrades, medium-term PeerDAS implementation, and long-term DA expansion.

Regarding this, Cruve founder Michael Egorov said that the roadmap should be abandoned with L2 as the center, and instead focus on expanding L1. Furthermore, he directly stated that L2 is not a moat, but a bandage.

The Ethereum mainnet TPS can now reach about 90 transactions per second at most, but this is far from enough. As a financial settlement layer, Ethereum now urgently needs to scale to meet the massive high-frequency data processing requirements. However, the challenge is huge, as Ethereum first needs to ensure security and decentralization, and then make complex technical adjustments and improvements to the protocol layer, such as sharding and Proof of Stake, etc. In addition, the issue of community consensus is also worth noting, and the mainnet upgrade and scaling solutions also need to be widely supported and recognized by the community. If the transition from L2 to L1 is rushed, the position of various L2s will become quite awkward, and community fragmentation and conflicts are likely to occur.

In the short term, whether Ethereum's scaling will go the L2 or mainnet upgrade route is still undecided.

The dual turbochargers of DeFi and NFT have weakened

As is well known, in the previous bull market cycle, the crypto industry experienced an unprecedented crazy bull market driven by the dual engines of DeFi and NFT, coupled with macro-level quantitative easing. As the base currency of DeFi, Ethereum has had a very positive impact on its demand and popularity due to the explosive growth of DeFi, and the flywheel effect has continuously driven up its coin price.

It is worth mentioning that NFT has also made a significant contribution to Ethereum's glory in the previous bull market. During the NFT small picture craze, many platforms and brand NFTs were priced in ETH, so buying NFT required buying ETH first. The heat of NFT has had a considerable boost to Ethereum's expansion influence, and it has jointly painted a bold stroke for the crypto bull market and Ethereum's brilliance with DeFi.

It is precisely because of this that during the previous bull market cycle, ETH's return from the bottom exceeded 50 times.

Fast forward to this cycle, new DeFi protocols' lending and derivatives have not attracted much attention to attract capital frenzy, but instead have chosen to build their own chains, and value capture has not flowed to Ethereum either. Some DeFi protocol tokens, repeatedly reinventing the wheel, have also dragged down the already precarious market sentiment. Since 2023, the heyday of DeFi has only appeared in the high tide of Q4 last year, and has since been submerged in the waves of memes and AI. Data shows that the current total DeFi TVL is still not as high as the peak of $180 billion in the previous cycle.

explosion in the previous cycle was often due to the market making a lot of money from coin speculation, but now the market's capital flow is limited to three main lines: Bitcoin, on-chain memes, and AI coins. The former is no longer purchased by ordinary retail investors due to price factors, while the latter two are extremely demanding in terms of PvP skills and research capabilities. The easy money-making period is no longer. The market is no longer in a broad uptrend, and the difficulty of making money has increased. Some Altcoin holders did not see the Altcoin bull market, but instead faced a "paradigm shift" in their wallets. Those who ran fast made more money and gained less. Those who ran slow were severely trapped. The market has always had difficulty generating interest in DeFi and Non-Fungible Tokens, and the turbocharger of Ethereum has stalled, so the price of ETH is predictable. : The Ethereum wealth effect is no longer, and Solana is taking over. This week's market cycle is different from the past, with the AI and meme coin wave becoming the dominant wealth wave. In the past, ETH's early ICOs and the subsequent surge of DeFi protocols gave it a very strong wealth effect. Ten years ago, Vitalik gave a code-filled presentation in Silicon Valley, and the investors below were all excited, saying this was the future. Ethereum then raised $20 million through an ICO, setting a new record at the time, when the price of one ETH was around $0.3. Now, the current price of Ethereum is above $3,000. If one had participated in the public offering and held it until now, the return would be over 10,000 times. The ICO made the 2017 cycle full of returns of hundreds or even thousands of times. At that time, the fundraising method was mainly ETH. While some have faded into obscurity, in the 2021 cycle, the returns of many DeFi protocols such as AAVE, COMP, SNX, and UNI have allowed market investors to make a fortune. Do not underestimate the wealth effect. Project parties, exchanges, and new platforms are all working hard for the wealth effect. Although the market cannot make most people make money, it has at least allowed some people to make a lot of money, which is too important, because the wealth effect will be imitated and spread crazily, attracting countless latecomers. In this cycle, the ones with the greatest wealth effect are no longer the so-called VC coins, but the AI concept coins and MEME coins. Taking MEME as an example, apart from the old three DOGE/SHIB/PEPE, there was not much of a meme wave on the Ethereum mainnet. Even the L2 only had BRETT and DEGEN on the Base chain that were once glorious. AIXBT and VIRTUAL are also one of the few highlights of the Base. The meme and AI projects on Solana, on the other hand, are like bamboo shoots after the rain, bursting forth in competition. Just take the recent TRUMP as an example. Within 4 days of its issuance, Circle has cumulatively issued 2.5 billion USDC on the Solana chain. Some high-level players in the Chinese community have even created a brilliant record of making tens of millions of dollars in profit within 4 hours, making the Twitter community envious. In addition, the rise of past memes such as BONK/BOME/WIF/PENGU has also injected a lot of vitality into the Solana ecosystem. Many "meme super-cycle" theorists have also waved the flag and cheered, attracting more users to the Solana ecosystem. In terms of the AI wave, Solana also outperforms Ethereum, with hot coins such as AI16Z/FARTCOIN/GOAT leading the AI trend. Solana firmly occupies the market initiative in AI concept coins and meme coins. Dune data shows that its issuance startup platform Pump.fun has accumulated revenue of over $400 million so far. As the infrastructure for meme liquidity, Raydium's annualized revenue is $363 million, with annualized expenses exceeding $3 billion. Over the past 3 months, expenses have grown by more than 370% and revenue by more than 260%. The market cap to expense ratio is 1.1 times, and the market cap to revenue ratio is 9.6 times. Many meme and AI concept coins choose Solana rather than Ethereum and its L2, and a large part of the reason is the high gas fees and slow transactions on the mainnet, as well as the vicious cycle caused by the fragmentation of L2 liquidity. In the end, Solana, with its continuous flywheel effect, began to expand its wealth effect. According to Solscam data, its active wallet count has remained at a high level of 6 million, nearly 6 times the level of May 2024. Its daily new account count (calculated based on multiple tokens per account) has also remained at a historical high of 20 million. The crazy growth of Solana data may indicate that the spark has already become a raging fire. : The Ethereum Foundation sells coins, and the team is bloated. L2 is not favored by market investors, DeFi and Non-Fungible Tokens have both stalled, and the wealth effect has withered. Many contradictions have led to the fluctuating price of ETH, and the community has begun to direct their criticism at Vitalik. The once-revered Vitalik has been taken down from his pedestal, and there is no end to the accusations and curses. The Ethereum Foundation led by Vitalik has also become the target of criticism. As early as the previous cycle, the Ethereum Foundation was known for its escape top indicator, and in this cycle, the frequent coin selling actions of the EF have been discovered and reported by on-chain monitoring, causing an uproar in the community. When the coin price is rising, the community may choose to ignore such selling behavior, but once the ETH price stagnates, the selling behavior becomes a "sensitive selling pressure". Vitalik's explanation is to maintain employee salaries and community ecological donations, but the community does not buy it. The founder of Aave has also expressed his views at this time. After reading the Ethereum Foundation's annual budget report, Stani Kulechov said that the EFEF is facing expenditure and financial problems and should immediately reduce the burning speed from $130 million to $30 million, streamline the number of employees, and form a new leadership team. If the selling behavior is only one of the reasons for the retail investors' resentment, then another part of the dissatisfaction is focused on the EF's lack of direction and leadership. As an early investor in SOL, Kyle Samani, the co-founder of Multicoin Capital, wrote today that he was initially excited about Ethereum's entry into the crypto field. However, after the Devcon 3 in November 2017, he lost confidence in Ethereum. "I really can't understand why the Ethereum Foundation is so clueless. There is no one in the Ethereum Foundation with enough awareness to drive a specific scalability plan." In addition, Kyle also said, "In the past 7 years, I feel that the Ethereum Foundation has not changed much. It still lacks a sense of urgency, the leadership is out of touch with the needs of core users, and there is still no clear direction." Even the well-known KOL Eric Conner on Twitter recently announced his withdrawal from the Ethereum community, saying that the problem is that the current foundation does not report to stakeholders, is gradually sinking into the quagmire, and is resisting change. The foundation currently presents an "anti-victory and competitive mentality", which has led many community members to question whether they should stay.

Under the pressure of community doubts, Vitalik also had to come out and respond, saying that major changes are being made to its leadership structure, which have been ongoing for about 1 year. Some reform measures have been implemented and made public, while others are still ongoing. He also strongly supports engagement with funds, institutions and countries, and supports the willingness to discuss ETH from an asset perspective.

In response to the overwhelming abuse, Vitalik stated, "If you continue to put pressure, you are actually creating an environment that is extremely harmful to top talent. Recently, some of Ethereum's best developers have privately messaged me, expressing their dissatisfaction with the social media environment that people like you have created. You are making my job more difficult. At the same time, this also makes me less likely to act according to your wishes."

Summary

Ethereum is facing a serious mid-life crisis, and it remains to be seen what actions Vitalik will take to address the crisis. Fortunately, Ethereum co-founder and ConsenSys founder Joseph Lubin has spoken out: One of Vitalik's most admirable qualities is the way he makes decisions. When problems arise, he listens to all parties, gathers information, weighs the pros and cons, and makes decisions after he believes he has considered most of the necessary data. He has heard everyone's opinions, and things are progressing.

In addition, Joseph Lubin also said: "Based on what I've seen, many high-value plans will be unveiled soon, which will dazzle you. It's best to stay calm now and not lose your mind before the hype begins."

Whether this Ethereum juggernaut, after years of ups and downs, still has a chance to turn the tide, remains to be seen.