Written by: Momir @IOSG
TL;DR
The Web3 vision's 2021 fervor has faded, and Ethereum is facing severe challenges. Not only has market perception of Web3.0 changed, but Ethereum is also experiencing fierce competition for remaining market share from emerging platforms like Solana. Key issues such as Layer 2 fragmentation, value attribution erosion, ecosystem control dilution, and leadership insufficiency have further weakened Ethereum's user experience and economic value, and have shaken Ethereum's influence as Layer 2 discourse gains prominence. These factors ultimately led to one of the most dramatic price corrections in ETH's history.
However, hope remains: by promoting Layer 2 interoperability, prioritizing ETH-centric infrastructure improvements, and adopting decisive, performance-driven leadership, Ethereum still has a chance to regain its glory. Ethereum's solid underlying architecture and vibrant developer ecosystem remain its enduring advantages, but to restore ETH's exceptional status, swift strategic actions are necessary.
The cognitive shift from the Web3.0 utopia to brutal reality has forced the market to re-examine Ethereum's core value proposition. The once-anticipated ideal of a "user-autonomous decentralized internet" has been replaced by a more ironic narrative: the cryptocurrency realm is either a Bitcoin store of value game or has devolved into a digital casino. This emotional reversal is particularly impactful for Ethereum: positioning itself as the cornerstone of a new internet paradigm, it now faces growing skepticism.
More critically, Ethereum is no longer the sole spokesperson for the Web3.0 vision. Regardless of one's optimistic or pessimistic stance on the industry's future, it's evident that platforms like Solana are becoming new centers of crypto consumer activity. Against this backdrop, this article aims to analyze Ethereum's most urgent strategic challenges and propose feasible solutions to help it regain its advantage in an evolving landscape.
Core Challenges
Ethereum faces numerous challenges, but this analysis focuses on four most pressing issues - Layer 2 network fragmentation, declining value capture capability, ecosystem control dilution, and strategic leadership deficit.
Layer 2 Network Fragmentation and User Experience Fragmentation
The most significant crisis is Layer 2 network fragmentation. Introducing multiple competing execution layers has fragmented user experience and on-chain liquidity, eroding Ethereum mainnet's once-proud composability advantage, which remains clear in monolithic blockchains like Solana.
For users, they must navigate inconsistent protocols, standards, and cross-chain bridges, making the initially promised seamless interaction difficult to achieve. Developers bear the burden of maintaining multi-version protocols across multiple Layer 2s, while startup teams face complex market entry strategies due to resource allocation in a dispersed ecosystem. Consequently, many consumer-facing applications choose to migrate to Solana, where users and entrepreneurs can focus on entertainment and innovation without wrestling with fragmented infrastructure.
Ecosystem Control Dilution: An Increasingly Severe Threat
More seriously, Ethereum's decision to outsource its scaling roadmap to Layer 2 is gradually weakening its control over its own ecosystem. Generic Layer 2 Rollups create powerful network effects while building their ecosystems and gradually develop insurmountable moats. Over time, these execution layers' discourse relative to Ethereum's settlement layer will increase, potentially causing the community to gradually overlook the settlement layer's importance. Once assets begin natively existing in execution layers, Ethereum's potential for value capture and influence will be significantly diminished, with the settlement layer ultimately becoming a commoditized service.
[Translation continues in the same professional manner for the entire text, maintaining technical terminology and nuanced meanings]Relying solely on the "productive assets" narrative is not a sustainable long-term strategy for ETH (or all Layer 1 tokens). The window for Layer 1 to dominate MEV capture will last at most five years, as the value capture hierarchy continues to migrate upstream in the application stack. Meanwhile, Bitcoin has firmly established the "value storage" narrative, making ETH's attempt to compete in this domain potentially viewed by the market as a "poor man's Bitcoin," similar to silver's historical positioning relative to gold. Even if ETH could demonstrate clear advantages in value storage in the future, such a transformation might require at least a decade, which Ethereum cannot afford to wait for. Therefore, during this period, Ethereum must forge a unique narrative path to maintain its market relevance.
Positioning ETH as the "internet-native currency" and the highest-quality on-chain collateral is the most promising direction for the next decade. While stablecoins dominate as payment mediums in on-chain finance, they still rely on off-chain ledgers; the truly native and unstoppable monetary role remains unoccupied, and ETH has a first-mover advantage. However, to achieve this goal, Ethereum must regain control of the ecosystem's universal execution layer and prioritize ETH adoption, rather than allowing the proliferation of Wrapped ETH standards.
Reclaiming Ecosystem Leadership
Reestablishing ecosystem ownership can be achieved through two key pathways: first, by enhancing Ethereum L1 performance to match centralized chains, ensuring consumer applications and DeFi experiences are delay-free; second, by launching Ethereum-native Rollups and focusing all development and adoption efforts on them. By concentrating ecosystem activities on ETH-controlled infrastructure, Ethereum can strengthen ETH's core position in the ecosystem. This requires Ethereum to shift from the outdated "ETH compatible" paradigm to an "ETH-led" ecosystem model, prioritizing direct control of core resources and maximizing ETH's value capture.
However, whether reclaiming ecosystem control or enhancing ETH adoption, these are challenging decisions that could alienate key contributors like Rollup and liquidity staking providers. Ethereum must carefully balance the need for control with the risk of community fragmentation to ensure ETH can successfully establish its new narrative as the ecosystem's cornerstone.
Leadership Innovation
Ultimately, Ethereum's leadership must innovate to address governance and strategic challenges. Ethereum leaders need a performance-driven mindset, stronger urgency, and a pragmatic approach to driving ecosystem development. This transformation requires abandoning excessive commitment to "credible neutrality," especially when determining product roadmaps and ETH asset positioning, and demanding more decisive decision-making.
Meanwhile, the market has expressed dissatisfaction with Ethereum's outsourcing of critical infrastructure—from Rollups to staking—to decentralized entities. To reverse this, Ethereum must move away from the old "aligning with ETH" model to a new "ETH-led" model, ensuring core infrastructure is unified under a single token system ($ETH). This will further consolidate ETH's core position and restore market confidence in Ethereum's strategic direction.
Marketing Challenges and Narrative Potential [The rest of the translation follows the same professional and accurate approach, maintaining technical terminology and capturing the nuanced analysis of Ethereum's ecosystem and strategy.]
To reshape industry leadership and restore market confidence in ETH, Ethereum must immediately address the following core challenges: First, it needs to enforce robust Layer 2 interoperability standards to mitigate fragmentation and preserve the seamless composability once defined by the mainnet; second, it must transition from the old "aligning with ETH" model to an "ETH-led" ecosystem model, prioritizing Layer 1 scaling and Ethereum-native Rollups to re-establish control and maximize ETH's value capture; finally, leadership must evolve towards performance-driven decision-making, abandon "credible neutrality", and unify key infrastructure under the $ETH token ecosystem. Without decisive action, Ethereum risks being eroded by competitors like Solana and reduced to a commoditized settlement layer.
