Ethereum’s potential is not only in the approval of spot ETFs

Jessy, Golden Finance

The unanimous bearish sentiment towards Ethereum has changed after the Ethereum spot ETF was approved.

After the news that the Ethereum spot ETF was likely to be approved this month, Ethereum rose 20% in one day. After the spot ETF was approved, its price stood at $3,800 in a short time.

In this round of bull market, Ethereum's performance is not as good as Bitcoin, and the strong rise of some public chains including Solana has also posed a certain threat to Ethereum. From this point of view, it is reasonable for Ethereum to be bearish. But under these appearances, what has not been noticed is that Ethereum still occupies 60% of the TVL of the public chain market, and the second and third places only account for single digits. And Ethereum has not stopped technological innovation to improve those criticized problems.

Is Ethereum really "out of ideas"? Or just dormant?

Under cyclical market conditions, the exchange rate of Ethereum against Bitcoin has fallen continuously

In the past year, the exchange rate of Ethereum against Bitcoin has indeed been falling continuously. The fundamental reason behind this is the strength of Bitcoin. After all, it is not just Ethereum. When Bitcoin entered the adjustment cycle, most of the altcoins had very low increases, and some were even lower than the prices in the bear market.

Shenyu even said that there might be no altcoin season in this bull market.

The rule of the last two rounds of market conditions is that Bitcoin rises first, then Ethereum rises, and the rise of Ethereum brings about the explosion of altcoins. In the last bull market, most altcoins also had a tenfold increase. Only when there is sufficient capital in the market will it overflow and flow from mainstream coins to altcoins.

The logic behind the rise of Ethereum bringing about the explosion of altcoins is that, before this, most projects were built on Ethereum, and the surge in Ethereum prices will indeed bring prosperity to the entire chain ecosystem.

And this round of bull market is indeed different from the past. The cycle has been advanced. The previous bull markets were all opened after the Bitcoin halving, but this bull market was half a year earlier. The reason is very simple. This bull market is driven by the passage of spot ETFs, and then the Bitcoin halving is superimposed.

However, affected by the economic cycle, there is still less money in the market that flows and favors high-risk investments. From this perspective, the price of Ethereum has not grown much, and the reason is that there is still insufficient liquidity in the market and there is not much money.

And Ethereum's narrative this year is indeed not new enough, nor strong enough. Looking at the public chain track alone, in this round of bull market, Solana is undoubtedly the best performer, its price continues to rise, and the chain ecosystem is also relatively prosperous. The main reason is the support of Wall Street capital. TON, which also ranks in the top ten in market value, tells a story of traffic conversion backed by 900 million Web2 users, which has attracted a number of VCs to carry its sedan chair.

And Ethereum also has a very attractive narrative in the industry-Layer2. In the bear market, everyone has placed heavy bets on this track. However, the growth of a Layer2 token is not satisfactory, and it is criticized by everyone because of its high unlocked market value. And because of the emergence of numerous Layer2s, it has indeed distracted everyone's attention from Ethereum, and the funds originally intended to be invested in Ethereum have been sucked away by Layer2s.

From a technical perspective, Ethereum is indeed constantly innovating, but the most attractive concept of Layer2 cannot bring a large influx of funds to Ethereum.

Of course, in this bull market, Ethereum has another exciting narrative-the approval of the US Ethereum spot ETF. The rise in prices in the past few days is also because there is news that the Ethereum spot ETF is likely to be approved on May 23rd, US time.

On the surface, the biggest driving force for the rise of Ethereum is the approval of the spot ETF, but it cannot be ignored that the ecological development of Ethereum itself is the cornerstone of shaping value.

The public chain changes with time, but Ethereum is solid

Ethereum is still the public chain with the highest TVL.

According to DefiLIama data, Ethereum's TVL currently accounts for 59.93%, and TRON ranks second with only 8.61%. It ranks second because Tether issues USDT on it, while BSC ranks third with 5.31%. Solana, which has a great voice in this bull market, ranks fourth with 4.69%. It can be seen that Ethereum is still the only one, and it is difficult for other public chains to surpass it.

Why is Ethereum the only one?

Ethereum was established in 2013 and officially put into use in 2015. It can be said that Ethereum was born for smart contracts and is the first blockchain to achieve Turing completeness. It was established to be able to carry various applications. It is the emergence of Ethereum that has brought more possibilities to blockchain.

However, in the last bull market, the DeFi ecosystem on Ethereum prospered, the number of users surged, and the Ethereum network became crowded, resulting in longer block times, slow transaction speeds, and rising transaction fees.

For retail investors, Ethereum has become a public chain with low cost performance.

Against this background, a number of new public chains have emerged. They have made improvements to these problems of Ethereum, or directly want to replace Ethereum. Some public chains have launched the banner of "Ethereum killers" and started to divide the market share.

The "Ethereum killers" that emerged in the last round of bull market include Cardano (ADA), Avalanche (AVAX), BNB Chain (BNB), Solana (SOL), and Polkadot (DOT).

These "killers" have one thing in common, that is, they all claim to have high throughput and low transaction fees. Of course, each has its own advantages. BNB Chain is backed by Binance, has a large flow, and its token BNB has more empowerment. Avalanche has greatly optimized its transaction speed through its pioneering protocol consensus mechanism and three subnets with different responsibilities. Low latency and low fees make it a public chain that Gamefi loves. The biggest advantage of Polkadot is its multi-chain structure and active developers on the chain.

Public chains hope to comprehensively improve their technical level from the perspective of the underlying framework such as development language, code complexity, and operation mechanism, and make up for some of Ethereum's shortcomings. Although they all have their own strengths, they can't even talk about surpassing Ethereum. Their TVL is less than one-tenth of Ethereum.

Not to mention public chains like Aptos that were born in a bear market. Although they have a kind of VC support, their performance is unsatisfactory.

Although public chains emerge in an endless stream, the public chain that can truly shake Ethereum's position has not yet appeared. Even these public chains combined cannot shake Ethereum. There are two reasons. The first is that Ethereum has a long history and has accumulated a large number of users and projects. Second, those criticized expansion problems, congestion problems, high gas, and even problems like EOA address restrictions have already been solved.

For example, the expansion problem has evolved into a variety of solutions such as Rollup, Plasma and Validium. The restriction of EOA addresses has also been solved by relying on ERC4337 Account Abstraction upgrades, and even evolved into an account abstraction track. Even due to the potential limitation of the block capacity cap, heavy solutions such as Eigenlayer were launched, and the capabilities of DA were expanded, which can be optimized through modular combinations of third-party DA solutions such as Celestia and optional replacements for the VM execution layer.

Layer2 is now an important narrative of Ethereum and has become an independent track in the industry. It is designed as a key solution to the scalability problem of Ethereum. By building an additional network layer on top of the Ethereum main chain, it allows more transactions to be processed while maintaining the security and decentralization of the main chain.

In addition, the Ethereum mainnet also has a very clear development path. For example, in order to improve performance, Vitalik planned five development stages for Ethereum: Merge, Surge, Verge, Purge and Splurge.

As can be seen from the above, Ethereum has never stagnated. In most cases, it is actually driving the technological progress of the entire industry.

What changes does Ethereum need to make in the future?

Ethereum also faces challenges. Privacy, consensus, smart contract security and scalability are the challenges that Ethereum has been facing since its inception. Moreover, at different stages of development, the above challenges have very detailed and different problems.

For example, in terms of how to protect the security of user assets, Ethereum account abstraction, namely the ERC-4337 protocol, was proposed. The Ethereum community has been studying it for a long time and has determined an optimal solution to this problem. The protocol can implement the Ethereum standard of account abstraction on the protocol without changing any consensus layer.

However, Vitalik once said in his speech that while promoting a wider range of account abstraction, it is also necessary to consider how to deal with the MEV problem to ensure the fairness, security and healthy development of the system. It requires the joint efforts of the roles in the entire ecosystem. The overall goal is to make the on-chain experience consistent with the centralized service experience.

It can be seen that the innovation and promotion of a single technology actually involves very specific, multi-party coordination and meticulous work.

Similarly, Vitalik also pointed out that in terms of the expansion of Layer2, when L2 packages and submits valid proof of transactions to L1, how to ensure the security and decentralization of this proof system is also a very important issue. Among the technical components of L2, most transaction sorters are centralized, which may have potential risks. L2 has different technical selections and development directions. How to build wallets and addresses across L2, and how to give users a better experience. Transaction record-related data requires space for safekeeping and storage. How to solve the problem of data availability, similar very detailed technical issues, are also very practical problems that need to be solved step by step for the future development of the Ethereum ecosystem.

A more easy-to-understand problem is that after Ethereum switched to Pos, the industry has always criticized the current centralization of Ethereum's pledge, and there are even doubts that such Ethereum can be easily controlled by the government. How to solve this?

However, some of the problems currently facing Ethereum are actually some technical advances that the entire industry needs to achieve together.

For users and the industry, the above issues have been raised, widely discussed, and practiced, which is a key point that Ethereum is trustworthy. Because it can be seen that Ethereum has never avoided problems and has been actively solving them.

To sum up, Ethereum is indeed a very vital and innovative public chain in the industry, and it is difficult to be surpassed at present.