Author: Lao Bai Source: X, @Wuhuoqiu
Since the fermentation of @jason_chen998's "Angry at his Unwillingness to Fight" ETH article, there has been a lot of discussion online about the competition between ETH and Solana. Without intending to repeat or elaborate, I hope to provide some new perspectives (non-FUD) from the perspective of innovation and financing in the primary market, after all, most of these projects are not yet public and are still in the midst of intensive preparations.
In the past two years of ABCDE, I have talked to over 1,000 projects, although this does not fully represent the current state of the primary market, the sample size is still considerable. The feeling in 2023 is that ETH and Solana are developing separately in the primary market, and even due to the expected Eigenlayer and the entire reStaking+LRT ecosystem, ETH's momentum has been even stronger for a time.
By 2024, the market has undergone a major shift - the entire market no longer favors redundant infrastructure projects, and the "ghost chain" phenomenon has led to widespread aversion. Vitalik also changed his tone in the "The Next Decade of Ethereum" in August, saying "I believe we already have or will soon have the tools to build the best applications in every domain where it makes sense to use Ethereum".
In my view, the change in Vitalik's attitude in the second half of 2024, the nearly $100 million seed round financing of a certain AI Infra project, and the opening of Matr1x with a download volume of 2.5 million and a FDV of just over $100 million, these three independent but temporally close events mark a turning point - the peak of infrastructure and the trough of applications. In the next few years, Infra will gradually decline, while applications will slowly rise, and this process will not happen overnight.
The major innovations in Crypto in the past: ICO in 2017, DeFi Summer in 2020, Play2Earn and Non-Fungible Tokens in 2021-2022, have all occurred on ETH, and all on ETH L1. This has also driven the ETH price to soar. However, the market sentiment is now different - people are very confident in Solana breaking its previous high, but are full of worries about ETH returning to $4,000. In the secondary market, Solana's Pump Fun is in full swing, while ETH, although leading in TVL, still has the same old applications as 2020-2021, and users are gradually shifting to L2, with L1 gas fees also remaining low.
The primary market is also facing similar problems. Over the past 6 months, I have clearly felt that application-based projects have increased, with a variety of prediction/gambling markets, AI applications, DePIN, micro-innovations in DeFi, PayFi, 3A games and so on emerging one after another. Although it is not yet clear where the breakthrough point of the next major innovation will be, the project ecosystem distribution can be roughly divided as follows:
Prediction/Gambling Market - Ton/Solana/Monad
AI - Solana/Base/Monad
DePIN - Solana/MegaETH/Monad
DeFi - Arbitrum/Berachain/MegaETH/Monad
PayFi - Ton/Solana/Monad/MegaETH
Game - Sui/Ronin/Immutable X
RWA - ETH/Solana
From the current situation, regardless of where the next major innovation point is, the biggest opportunity seems to be Solana, followed by Monad and MegaETH. Except for a few RWA projects, it is almost impossible to see new projects running completely on ETH L1. In L2, Arbitrum and Base have the best performance at the application layer (OP has basically taken the path of launching Infra), even if there are blockbuster applications, the value that ETH L1 can capture under the current architecture is extremely limited.
I personally believe that the most promising new track is AI and PayFi. In the field of AI, Solana and Base are far ahead. Base previously completed the first AI-to-AI payment in history, and recently launched a full-chain AI agent that can create an AI Agent with a crypto wallet and Twitter account in 3 minutes. Solana has also launched the AI Meme new track. In-depth research on Goat and ACT will reveal that they are not just simple meme projects, but have the potential to create new tracks and new paradigms.
PayFi is the competition between the two "veterans" of Ton+Solana and the two "newcomers" of Monad+MegaETH. Payment is one of the most suitable use cases for Crypto, and is also the original intention of Satoshi Nakamoto's invention of Bitcoin, it just remains to be seen which timeline and chain can ultimately realize this vision. (In addition, some PayFi projects based on the Lightning Network have also emerged, and I look forward to the performance of the Lightning Network this round.)
Having said so much, it is not to continue FUDing ETH. I personally do not believe that Solana can really Flip ETH based on this round of momentum, as ETH has sufficient community and technical accumulation to remain firmly in second place. The only thing I am worried about is whether ETH is willing to be content with the status quo, willing to let innovation and value capture all happen on L2, while its own L1 is content to be a data availability and settlement layer (while also facing competition from projects like Celestia). This has also led to a calm ETH price. This does make me wonder - ETH L1's ability to capture value from L2 is relatively weak at this stage, and gas and TPS are also difficult to support large-scale applications. The old DeFi and the potential new RWA track alone seem unable to support ETH reaching the $10,000 peak.
If in the next few years, BTC reaches $150,000-$200,000, Solana $500-$1,000, while ETH still hovers around $3,000-$4,000, the confidence and position that ETH has accumulated over the past decade may gradually be eroded.
How to break through? This is probably not the responsibility of VCs, I look forward to the developers and entrepreneurs of ETH to provide the answer.
