Author | @Web3Mario (https://x.com/web3_mario)
Abstract: Last Sunday, I carefully read an interview between Bankless and Multicoin called "Why is ETH Down so bad?". I found it to be very insightful and brilliant, and I highly recommend that everyone go and read it. In the interview, Ryan fully demonstrated the difference between Web3 pragmatism and fundamentalism, although I have already discussed this in detail in my previous articles. In addition, the views expressed also triggered a lot of my own reflections. Indeed, in the recent period, Ethereum has begun to suffer a certain degree of FUD, the direct reason for which I think is that the passage of the ETH ETF did not lead to a similar market performance as the BTC ETF, which has led some people to rethink the vision and development direction of Ethereum. I also have some thoughts on these issues, and I hope to share them with you. Overall, I recognize Ethereum's vision as a social experiment, hoping to build a decentralized, de-authoritative, and even de-trusted "cyber-immigrant nation", as well as its L2 expansion direction based on Rollup. The real problems facing Ethereum are two-fold: firstly, the competition between reStaking and L2 expansion solutions has diluted the resources for ecosystem development and reduced ETH's value capture capability; secondly, the key opinion leaders in the Ethereum ecosystem are becoming aristocratic, lacking enthusiasm for ecosystem building due to their feather-cherishing.
Evaluating the success or failure of Ethereum solely from a market capitalization perspective is one-sided
First, I would like to discuss the difference in vision between Ethereum and Solana from a value perspective, and refute why evaluating Ethereum solely from a market capitalization perspective is one-sided. I don't know how many of you are aware of the background of the birth of Ethereum and Solana. Here is a brief review. In fact, Ethereum did not have the current fundamentalism when it was first born. In 2013, Vitalik, one of the core contributors to the Bitcoin ecosystem, released the Ethereum whitepaper, marking the birth of Ethereum. At that time, the main narrative in the industry was "Blockchain 2.0", and I wonder how many of you still remember this concept. Specifically, it refers to building a programmable execution environment based on the decentralized nature of the blockchain, expanding the potential application scenarios. In addition to Vitalik, the Ethereum core team at the time had five other core members:
· Mihai Alisie: He co-founded "Bitcoin Magazine" with Vitalik.
· Anthony Di Iorio: An early Bitcoin investor and advocate, he assisted in the early promotion and financing of Ethereum.
· Charles Hoskinson: One of the early core developers, he later founded Cardano.
· Gavin Wood: The author of the Ethereum Yellow Paper (technical whitepaper), he designed the Ethereum programming language Solidity and later founded Polkadot.
· Joseph Lubin: He provided important financial support for Ethereum and later founded the well-known Ethereum ecosystem company ConsenSys.
Ethereum's core vision is to create a decentralized global computing platform that can run smart contracts and decentralized applications (DApps) of any complexity. This platform aims to provide developers with a universal, borderless programming environment that is not controlled by a single entity or government. However, in the subsequent development, the core team had differences in values regarding how to build Ethereum:
· Differences in governance model: The team had different opinions on the governance model of Ethereum. Vitalik Buterin was more inclined towards a decentralized governance structure, while members like Charles Hoskinson (who later founded Cardano) advocated for a more commercialized and centralized governance model. They wanted Ethereum to introduce more corporate management experience and business models, rather than relying solely on the self-governance of the open-source community.
· Differences in technical direction: The team members also had differences in the technical development direction. For example, Gavin Wood, in the process of developing Ethereum, proposed his own ideas on the technical architecture and programming language, and wrote the Ethereum Yellow Paper (technical whitepaper). But over time, Gavin had different views on the technical development direction of Ethereum, and eventually he chose to leave Ethereum and founded Polkadot, a blockchain project that focuses more on interoperability and on-chain governance.
· Differences in commercialization path: The team members also had differences in how to commercialize Ethereum. Some members believed that Ethereum should focus more on enterprise-level applications and partnerships, while others insisted that Ethereum should maintain an open, borderless, and decentralized developer platform.
After a political struggle, the cryptocurrency fundamentalist faction represented by Vitalik emerged victorious, while the more pragmatic faction that emphasized utilizing blockchain technology to integrate with traditional industries and promote commercialization left Ethereum and established their own products. The differences at the time were actually the same as the differences in values between Ethereum and Solana reflected in this interview, just with different protagonists.
Since then, Vitalik has become the de facto leader of the Ethereum industry. The so-called fundamentalism refers to the vision of creating a decentralized "cyber-immigrant society" through a decentralized online execution environment as a distributed "cyber-parliament", where users can meet all their online life needs through the various DApps built on the Ethereum ecosystem, thereby breaking free from the dependence on authoritative organizations, including oligopolistic tech companies and even sovereign states.
Within this vision, we can see that Vitalik's subsequent efforts have mainly focused on two aspects:
· In terms of applications: Thinking about and encouraging more non-financial use cases, so that this decentralized system can accumulate user data in more dimensions, thereby promoting the creation of more high-stickiness products, in order to increase the penetration of Ethereum into the daily online life of the general public. In this regard, we can easily find some well-known topics, such as DAO aimed at distributed collaboration, NFTs with cultural value, SBTs that aim to accumulate more diverse non-financial user data, and so-called prediction markets that serve as cognitive tools in the real world.
· In terms of technology: Under the premise of ensuring decentralization and de-trust, use cryptographic means to improve the execution efficiency of the network as much as possible. This is the expansion direction from Sharding to Rollup-L2 that Vitalik advocates for on the technical side. By offloading the "re-computation" execution process to L2 or even L3, L1 only needs to handle important consensus tasks, thereby reducing user usage costs and improving execution efficiency.
For projects like Solana that are more focused on leveraging the practicality of blockchain to expand traditional financial businesses, the things they need to think about are simpler and more focused, that is, as a profit-oriented listed company, how to improve their price-to-earnings ratio. Whether to adhere to values like de-trust depends on the potential profitability behind the narrative. So Solana will not have too much burden or resistance in promoting the integration with CeFi products, and will hold a more open and inclusive attitude. With the influx of Wall Street capital, the influence of traditional finance on the crypto world has increased dramatically, and Solana is one of the core beneficiaries of this trend, or it can be said that Solana is the preacher behind it. As a profit-making company, it is naturally necessary to have a customer-oriented mindset, which is also the reason why Solana pays more attention to user experience.
After clarifying these contexts, let's think about an interesting question: Are Ethereum and Solana competitors? In some ways, the answer is yes, specifically in providing borderless, 24/7 cryptocurrency-based financial services. In this regard, Ethereum's security and system robustness are better than Solana, at least it won't have frequent downtime, but user experience is indeed a problem in the current stage. The numerous L2 sidechains make many new users feel confused, and they also face considerable capital risk and psychological pressure when using capital bridges.
However, Ethereum has a unique cultural attribute as a "cyborg immigrant society". For such a non-profit, public-welfare, humanistic public good, it seems somewhat one-sided to evaluate its value solely from the perspective of market capitalization. This process can be understood as a subculture community enriching its governance function through certain technological means, thereby forming a sovereign state that exists on the Internet. The core of the entire construction process lies in firmly establishing a universal value system, which is to ensure the anti-censorship characteristics brought by decentralization. This is an idea, a belief. This is also why Ryan said that the Ethereum community has a "human advantage", because as the cultural product with the highest added value in human history, it can fully mobilize people's positivity, not just doing things from a utilitarian perspective, in order to achieve this kind of cold start success, which is consistent with the process of any political revolution. Imagine if you only evaluated the value of the United States at the time of its independence based on its output, it would be absurd. The establishment of a country obviously takes much longer than a company, and the difficulties encountered are much greater, but the benefits after its realization cannot be measured by a company.
L2 and L1 are not in a competitive relationship but in a master-slave relationship, and will not dilute Ethereum's value capture capability, because the legitimacy of L2 comes from L1
The second point I want to refute is that Ryan's core criticism of Ethereum is that he believes L2 is a form of outsourcing strategy, which will dilute Ethereum L1's value capture capability, and at the same time, when L2 develops to a certain extent, it will form a competitive relationship with L1, leading to a breakdown of cooperation.
On this point, on the contrary, I believe that Ethereum's current development path based on Roll-Up L2 is the right choice. L2, as a low-cost and high-efficiency technical solution, can not only effectively expand the potential application scenarios of the Ethereum ecosystem, but also reduce the data redundancy in the network without sacrificing the degree of decentralization, which is also a relatively environmentally friendly technical solution. It can also help Ethereum actively explore some boundary scenarios under the environment of reducing single-point risks, such as cooperation with CeFi or innovation for anonymous projects, which also plays a role in risk isolation.
First, regarding the description of L2 as an outsourcing strategy, I don't think it is very appropriate. In traditional business training, we have already easily understood the pros and cons of outsourcing. By separating some low-profit businesses from the main business and letting third-party companies take over through outsourcing, the company can focus more on high-value-added businesses and reduce enterprise management costs. However, the disadvantage is the loss of the ability to iterate related technologies, and the outsourcing cost will be raised in an uncontrolled way. The relative development history of the semiconductor industry in the United States, Japan, and Taiwan can well illustrate this point.
However, L2 cannot be understood so simply. In fact, I think it is more reasonable to compare L2 to the "colonial system" of Ethereum L1. The biggest difference between the two is the content of the contractual relationship and the binding force of the contract, that is, the different sources of legitimacy behind them. First, we know that L2 does not undertake the consensus task of transactions, but relies on L1 to endow it with finality through "optimistic schemes" or "ZK schemes". L2 is more like the executor or agent of L1 in certain niche areas. This is a subordinate relationship similar to the colonial system.
You can understand it as the British Indian system established by the British Empire in the Indian subcontinent, where the colonial administration and local tribal support were used as agents to handle the taxation and management of the colonial region. We know that there are two ways for the suzerain country to obtain profits from the colonies: first, through exclusive trade laws to control the international trade of the colonies and influence their economic structure, such as promoting the tobacco and other raw material industries in the North American colonies, and exclusively allowing trade between the colonies and the suzerain country. In this way, they can obtain profits through the difference in added value brought by industrial capabilities. The second is relatively simple, which is to establish a tax system in the colonies and directly collect taxes, and then transfer part of them to the suzerain country, which usually relies on the strong suzerain country's garrison to maintain the stability of rule.
L2 is playing the role of a value capture agent for Ethereum in various fields, and Ethereum's means of benefiting from this system are also twofold: first, L2 needs to confirm the finality on L1 in order to obtain security, and this process requires ETH as the payment target, which creates a use case for ETH. This is similar to a kind of "finality" tax that L1 collects from L2, or can also be understood as a remuneration for L1 to provide security guarantees for L2. Secondly, due to the master-slave relationship, ETH is more easily used by users in L2 as a value storage target, thereby obtaining an effect similar to seigniorage. Just imagine in the lending protocols in L2, you will find that the collateral with the highest value is definitely ETH.
The reason why this master-slave relationship is not easy to be broken, that is, the reason why L2 will not form a competitive relationship with L1 and lead to a breakdown of cooperation, is that the legitimacy of L2 comes from the finality provided by L1, just like the legitimacy of the colonial system comes from the military support of the suzerain country. Separating from this cooperative relationship will cause L2 to lose its legitimacy and lead to the collapse of the overall business logic, because the reason why most of your users use you is that you have the legitimacy provided by L1.
The two problems Ethereum is currently facing are: the vampire attack of reStaking on the L2 development path and the aristocratization of key opinion leaders in the Ethereum ecosystem
After discussing the above two points, I hope to talk about the real problems Ethereum is currently facing. I think there are two core ones:
· The vampire attack of reStaking on the L2 development path;
· The aristocratization of key opinion leaders in the Ethereum ecosystem;
In my previous article, I have introduced the vision and development direction of EigenLayer in more detail, and I have a very high evaluation of EigenLayer. But when I look at this project from the perspective of the Ethereum ecosystem, I find that this is simply a "vampire attack", occupying a large amount of resources that should have been guided to L2 construction, diluting them into the reStaking track. At the same time, reStaking fundamentally causes ETH to lose its value capture capability.
How to understand this? I just mentioned how Ethereum can benefit from L2, and you will find that the same logic cannot be reused in the reStaking track. As another scaling solution, reStaking is essentially in competition with L2 in principle, but reStaking simply reuses Ethereum's consensus capability without being able to establish a sufficient incentive model to stimulate reStaking builders to actively explore more use cases. The core reason is that the cost for L2 operators to use L1 consensus is a fixed cost and is not affected by the activity level of L2. Since ETH needs to be used as the payment target for finality, L2 operators need to actively build and explore in order to maintain a balance between income and expenditure and pursue higher profits. However, for reStaking, reusing L1 consensus is costless, because they only need to pay a simple bribe to the L1 Stakers, which can even be a future expectation, just think about the Point drama, which I have analyzed in detail in my previous article. In addition, reStaking's ability to monetize consensus capabilities, that is, you can flexibly choose to purchase consensus services based on current needs, allows potential buyers to use Ethereum's consensus services in a targeted manner, which is good for buyers, but for Ethereum, it also loses the kind of compulsory nature for L2.
As reStaking and its derivative tracks attract a large amount of capital and resources, the development of L2 has stagnated. This has caused the resources in the ecosystem to be wasted on repetitive wheel reinventing or square wheel building, without anyone thinking about how to create richer applications and capture more revenue, but only immersed in the capital games brought by storytelling. This is really a mistake. Of course, from the perspective of EigenLayer, the mentality will undergo a 180-degree turnaround, and I still admire the team's clever capture of the commons value!
In addition, there is another issue that worries me more, which is the aristocratization of the key opinion leaders in the Ethereum ecosystem. You can find a phenomenon that there is a lack of active opinion leaders like Solana, AVAX, and even the once-thriving Luna ecosystem in the Ethereum ecosystem. Even though they may appear to be FOMO creators, it is undoubtedly a good thing for community cohesion and the confidence of startup teams. I do not endorse Ryan's historical view, but I do acknowledge that the driving force behind historical progress is inseparable from the efforts of individual geniuses. However, in the Ethereum ecosystem, apart from Vitalik, it is difficult to think of other opinion leaders, which is naturally related to the split of the founding team. But it is also related to the lack of fluidity in the ecological class, with the vast majority of ecological growth benefits being monopolized by early participants. Imagine, after completing a fundraising of over 31,000 BTC, worth more than $2 billion at the current market value, even if you do nothing, you are still fine, let alone the success on Ethereum, which has already created wealth far exceeding this figure. So for those early participants who should have become opinion leaders, they begin to transform into a conservative strategy, and maintaining the status quo is more attractive than expansion. To avoid risks, they begin to cherish their feathers and tend to adopt a conservative strategy in promoting ecological construction, which is understandable. The simplest thing is, as long as you can ensure the position of AAVE, and then lend your large amount of ETH to leveraged borrowers, you can earn a considerable stable income, so why do you still need to incentivize other new products.
As for why the current situation has come about, I believe it is closely related to Vitalik's style. For Vitalik, I think he is more adept at being a religious leader, and he will have very constructive designs on some metaphysical issues of values. But as a manager, he does not seem to be enthusiastic about it. This is also why the development efficiency of Ethereum is so slow. It's an interesting joke that when the Ethereum community just started designing the Sharding technology solution, domestic public chains had already been divided. This is naturally related to Vitalik's management style, and you may say that this is a problem that must be faced due to the pursuit of decentralization and non-profitability. But I think for this ecosystem, Vitalik has the obligation to actively solve this problem.
But in any case, I am full of confidence in the development of Ethereum, because I recognize the public welfare and revolutionary vision behind this group of people. It is Ethereum and the group of people behind it that led me to enter this industry, establish my own industry cognition, and even have the values I have now. Even though we are now facing some resistance, as a senior youth, I feel that pursuing some ideals beyond just money is not so bad!
