Reflecting on Ethereum’s predicament: the most difficult moment under lack of innovation and competitive pressure?

Author: Haotian

Why are there always voices that the market is pessimistic about Ethereum? To put it simply: the Ethereum ecosystem is indeed facing an anxious situation of internal and external troubles. Internally, there are expansion plans such as layer2 that have never been able to stand up, and externally, there are killers such as Solana that have always been determined to destroy the Ethereum. Ethereum has ushered in a difficult moment under the pressure of lack of innovation and competition. Next, let me briefly talk about my views:

1) The large and small ecosystems of Ethereum Rollups have taken shape. After the Cancun upgrade EIP-4844, the short-term technical benefits of Ethereum have been settled. The longer-term shard chain is no longer expected under the impact of Rollup, and the upgrades such as reducing node costs, simplifying protocols, and ZK-SNARKs of the underlying are just icing on the cake. The entire blockchain industry is waiting for the second dragon Ethereum to hand in a satisfactory layer2 answer sheet, but as of now, layer2 has not carried the "growth" expectations of Ethereum.

2) To be honest, Rollups can stand out from a variety of expansion solutions such as Plasma, Validium and even parachains, all because Rollups adopts a primary and secondary chain combination interaction paradigm for layered processing such as execution and status, settlement, etc. Under normal logic, after layer2 establishes a security consensus for interaction with the main network, it should then strengthen and amplify the performance processing advantages on the execution layer to input incremental users and ecology to the Ethereum main network.

However, the fact is that most layer2s have chosen to stack leverage dolls at the commercial narrative level, follow the Stack strategy to pull alliances, and involve shared components in the layer3 application chain, as well as Rollup as a Service, DA as a Service, and even AVS as a Service, etc. These strategies that can infinitely expand the commercial and narrative imagination space of layer2 at first glance can only add market expectations in the long term, and cannot immediately produce results in expanding the application ecosystem and empowering the currency price.

(I wrote the top article on the homepage, "Where will BTC layer2 go in the second half of the competition for hundreds of chains?" The response is quite good. I will write an article in the near future to systematically expand my thinking on where Ethereum layer2 will go. Please stay tuned. You can pay attention to Xiaolingdang)

3) For a long time, there have always been people who laughed at Ethereum's gas fee of 1Gwei to ridicule the failure of Ethereum's layer2 strategic direction, but from another perspective, isn't this a phased success of Ethereum relying on layer2 to solve problems such as congestion and high gas fees? However, the bad thing is that layer2 not only did not bring the expected huge ecology and transaction volume of Ethereum, but even diverted some of the traffic away.

In fact, layer2 has been successful in solving Ethereum's insufficient performance, and the competition between OP-Rollup and ZK-Rollup has reached a fever pitch. However, the choice of camps to engage in infra rather than pure application innovation has exposed an embarrassing situation in the Ethereum developer community: Over-reliance on VC financing to drive coin issuance rather than real value innovation.

Although this is a direct result of the influx of more developer talents into the web3 industry and the influx of more VC funds, the competition has intensified. Although the higher threshold for entrepreneurship could have been a sign of the market's maturity, in the early stages of Crypto, excessive internal competition has become the initiator of the high FDV of the project to stifle innovation. Imagine a project with a huge FDV, all efforts are only to quickly go to the market, how can there be time to precipitate value innovation. And the most effective way to VC is to stack the business narrative of the B-side, while the urgent but unsexy direction of C-side applications has always been tepid. Therefore, the market has sensed the imbalance between infra and application.

4) Although the sexy narrative of Ethereum killers has been falsified in the last round of bull market, this round of high-performance public chains such as Solana, Sui, Aptos, and Sei have directly hit the "low performance" weakness of Ethereum EVM. Although they are no longer shouting to kill Ethereum, it is undeniable that their high concurrency and special Move language security mechanisms can indeed impact Ethereum, especially the fertile ground for the growth of the new generation of web3 application ecology, such as: DePIN, large-scale games, intent transactions, AI Agent, etc.

This is what I think is the biggest opportunity for the new generation of high-performance public chains. No longer stacking infra expectations, directly declaring war on Ethereum with the rise of applications.

Or there is no need to declare war at all. Using modular thinking to place Ethereum on the thin narrative of the "settlement layer", and using new modular execution layers, DA layers, and Unified liquidity layers to reconstruct the discourse power system that Ethereum has established in the past, isn't that also a kind of successful competition? It is true for other chains, and it is also true for Ethereum. However, this is the trend I have seen on other high-performance chains or modular, chain abstraction chains, but it seems that Ethereum is still just "passively beaten" and has not been able to put down its airs to deal with it even under the premise of advanced benefits such as ETFs.

5) Many people are still looking forward to another DeFi Summer, but reflecting on the fact that Ethereum layer2 did not meet expectations, I reluctantly accepted the fact that DeFi Summer may never come back.  @VitalikButerin  himself is also very clear that Ethereum's biggest dilemma may be its excessive financial attributes. DeFi, a perfect carrier of financial attributes, has past successful experiences and the infinite nesting doll attributes of DeFi combinations, which make it naturally fit people's speculative preferences. What the Ethereum ecosystem needs to consider at this moment is not to reshape DeFi Summer, but to get out of the haze of pure DeFi culture.

NFT, which emerged in the last bull market, and OpenSea, which went from prosperity to decline, have never been fully embedded in the DeFi framework, but this does not affect NFT leading Ethereum out of the last round of super bull market. This round of PolyMarket decentralized prediction market is valued. Although it is not a new way of playing, and it is not known whether it can set off new vitality, fortunately, it is not pure DeFi, or it has expanded and reconstructed DeFi. How to integrate Ethereum into the web2 world as much as possible and move from virtual to real is what everyone should really expect in the new summer.