Original author: Jiawei @IOSG
Preface
Source: Jon Charbonneau
Jon Charbonneau, co-founder of dba, published an article titled “Etherum’s North Star” at the end of last year, pointing out that Ethereum lacks a clear “North Star” goal. Jon also pointed out in an earlier tweet that even Ethereum cannot reach a consensus on its core product.
Since this cycle, the community has been discussing the poor performance of ETH prices. In general, ETH prices are not only a reflection of market sentiment, but also a key factor in whether Ethereum can unify the community vision, balance decentralization and performance, and consolidate its leading position as a smart contract platform.
Inspired by the above article, this article will discuss some of the problems I think Ethereum has.
ETH price - It does mean something
In this cycle, we have seen the ETH/BTC exchange rate hit a multi-year low, and SOL/ETH continued to hit new highs, becoming the main factor for Ethereum to be criticized by the community.
EFs technical geeks are disgusted by the communitys dissatisfaction with the ETH price, and think that they are a group of short-term speculators. It is true that protocol design should not be price-oriented, but excessive avoidance of price discussions is also a bad performance. This section discusses the importance of ETH prices.
ETH price is directly related to EF runway
From EFs 2024 report, we can see that as of October 2024, EFs total assets were approximately US$970.2 million, including US$788.7 million in cryptocurrency assets (99.45% of which were ETH); and US$181.5 million in non-crypto assets.
If the burn rate is maintained at $130 million per year and the ETH price remains stable, the current treasury can last for about 7.5 years. A drop in ETH price will shorten the actual runway, and vice versa.
The burn rate of $130 million is an exaggerated figure. Previously, the community also criticized EF for having too many redundant staff (about 200 people), with only 35% of them being technical staff. Aave founder Stani Kulechov proposed cutting the burn rate to $30 million and laying off 80 people.
Protocol Security
ETH price directly affects the cost of attack under PoS consensus. Of course, actual attacks also need to consider geographically dispersed verification nodes and slashing mechanisms, but price is still a key factor.
After Ethereum adopted the PoS mechanism, the price of ETH directly affected the income of the stakers. When the price of ETH falls, the actual income will also shrink, which may lead to the withdrawal of staked nodes and the decline of network security. At present, Lidos TVL is about 20 billion US dollars, which is nearly 50% lower than the high of 40 billion US dollars in December last year. Last year, the SOL/ETH trading pair reached a maximum increase of more than 3 times, and the SOL staking income is still about 2 times that of ETH. This may drive many stakers to quit in the next cycle.
Ethereum turns to Solana.
Confidence of ecosystem participants
Needless to say, price is the result of ecosystem participants (developers, users, investors, etc.) voting with their feet. In this cycle, when mainstream public opinion is generally not optimistic about Ethereum, poor price performance may trigger a negative feedback loop.
Eric.eth, an early developer of the Ethereum ecosystem and co-author of EIP-1559, also wrote: As Vitalik fades out, EF gradually loses touch with the community and becomes more opaque. Faced with the expansion of rivals such as Solana and EFs anti-competition attitude, he received a lot of questions from early Ethereum developers about why they insist on staying in this ecosystem.
The price of ETH is a mirror and should be paid attention to and valued by EF.
Decentralization is a spectrum, and so is competition
Different people, from different perspectives, have different understandings of decentralization. The memecoin trader on Solana does not need a blockchain that can resist state-level attacks. It is enough for them to see the distribution of memecoin chips, dev runs, and insider trading addresses on the chain.
Source: dba
Similarly, competition and non-competition are also relative. I believe that Ethereum faces two main competitions.
As a store of value asset
In my previous Ethereum staking report, I mentioned that ETH is used as a reserve asset in the DAO treasury of each protocol, as collateral for CeFi and DeFi, as a unit of account and a medium of exchange for NFT transactions, MEV pricing, and token trading pairs, and its value persists in time and space, so it should be used as a value storage asset.
But this is only within the Ethereum ecosystem. In a broad sense, looking beyond the ecosystem, ETH’s value storage properties are still significantly weaker than Bitcoin’s.
For example, from the perspective of positioning, since the birth of Bitcoin, people have begun to build its narrative around digital gold and scarce asset that is resistant to inflation. The core function of Bitcoin is clearly defined as a store of value, which is easier to be understood by the mainstream market and the general public.
As a smart contract platform, Ethereum’s value comes from Gas, staking income, ecological applications built on the chain, etc. This complexity has led to the dilution of its value storage attribute, and the public is more inclined to regard it as a technical token or utility token rather than a pure value storage tool.
From the supply point of view, the total amount of Bitcoin is fixed at 21 million, and the inflation rate is gradually reduced to zero through the halving mechanism. The actual inflation rate of ETH supply may be lower than that of Bitcoin after the implementation of EIP-1559 and PoS. However, due to the recent sluggish network activity, it has gradually returned to inflation and is constantly changing with network fluctuations.
Compared with Bitcoin, Ethereum’s complex functions and mechanisms require a higher threshold for understanding. In addition, institutional investors (such as MicroStrategy and Tesla) openly hold Bitcoin as a reserve asset, which also strengthens its legitimacy as a store of value.
Therefore, at present, ETHs value storage attribute is difficult to compete with Bitcoin. Ethereums core positioning is a smart contract platform.
As a smart contract platform
Ethereum, as a smart contract platform, is facing fierce competition from Layer 1 platforms such as Solana and Sui. From the data point of view, although Ethereum has an absolute advantage in stablecoin issuance and TVL, key data such as daily transaction volume, average daily active addresses, and number of transactions all show a downward trend.
Source: Artemis
Judging from the flow of funds over the past year, protocols such as Base, Solana, and Sui have captured large inflows, while Ethereum has seen an outflow of nearly $8 billion. Transactions in the Ethereum ecosystem are mostly concentrated on Base and Arbitrum. Although this is in line with the expectations of the Rollup-centric roadmap, the sluggish activity of L1 will more or less affect the markets pricing of ETH.
Source: IOSG
The above feedback loop mechanism is basically formed between the platform, developers, applications and users. A good platform attracts high-quality developers, developers create good applications, applications attract users, and users promote the prosperity and growth of the platform.
Since Ethereum and Solana have different technical development paths, developers often need to choose one of the two platforms. Therefore, at the level of smart contract platform, the two are definitely in a competitive relationship.
The solanaroadmap.com webpage is concise with only four words, abbreviated as IBRL. But the current Solana is not limited to high performance. In addition to the technical IBRL, Solanas culture and attention capture also have differentiated competitive points.
I once asked on X, Why not launch memecoin on Ethereum L2?, because L2 also has the characteristics of low cost and high throughput. The answer I got was culture. Looking at the user portrait in general, it is generally believed that users on Ethereum seem to be more old money mining in DeFi, while Solana represents fresh blood and the rapid flow and redistribution of capital.
New things tend to capture attention better than old things. Many founders I talked to in this cycle chose to build consumer applications on Solana. In addition to technical reasons, the word they mostly mentioned was attention - more users in this cycle are focusing on Solana.
In this period when there are so many projects on the market and attention is extremely scarce, founders will try their best to increase the exposure of their projects and let the market discover their products. Solana also has more hot money and a smoother user experience, because when you want others to use your product, every additional step will be friction and obstacles.
The Ethereum Foundation’s Choice
Is the policy of laissez-faire suitable for Ethereum in a highly competitive environment?
The community is divided over Ayas transfer to the position of chairman of the Ethereum Foundation: critics point out that problems such as the slow progress of Ethereum development, insufficient developer support, and weak token prices during Ayas seven years in office are directly related to his management; his advocacy of subtractive philosophy and decentralized governance have been criticized as laissez-faire, resulting in EFs failure to actively coordinate ecological resources, in stark contrast to the efficient operation of the Solana Foundation.
These comments are difficult to sort out in a short period of time and are beyond the scope of this article, but they do reflect the community’s dissatisfaction to a certain extent and serve as an outlet for venting pent-up emotions.
EF’s role has never been to control or own all domains in Ethereum. Instead, our responsibility—our accountability—lies in upholding Ethereum’s values. Through both our actions and our non-actions, we are accountable for ensuring that Ethereum remains resilient, not just as a network, but as a broader ecosystem of people, ideas, and values—never reduced to a single organization’s product. ——Aya Miyaguchi
On the day of her inauguration, Aya published an article titled A new chapter in the infinite garden, stating that the foundations role is gardener rather than controller, supporting the ecosystem by fostering client diversity, RD coordination, community activities, etc.; advocating adaptive growth and decentralized leadership, opposing corporate expansion; and believing that Ethereum needs to maintain its original vision as a world computer.
The author believes that when things are in a growth cycle, it is beneficial to talk about values and ideals; but if the system is in a recession and cannot generate incremental growth, then such big talk will appear pale and powerless and will not be convincing.
The premise of becoming a world computer and the basis for practicing and developing values is that there are people building on the ecosystem and willing to follow and promote such values. The prosperity and growth of the ecosystem is a necessary condition.
Han Feizi pointed out in Five Vermin that the essence of Confucianisms using literature to disrupt law lies in empty talk about benevolence and righteousness, ignoring real contradictions. When resources are limited, empty talk about benevolence and righteousness will lead to being out of touch with actual needs, and must rely on practical means such as law, tactics, and power. When Confucius traveled around the countries, only Wei (with a more developed economy) briefly accepted his idealism; in Song, Chen, Cai and other countries where wars were frequent, Confucius idealism was ignored due to the lack of material foundation.
Some time ago, when the community questioned EFs continued selling of ETH and its failure to maintain runway through staking and other financial management methods, EF sold a small amount of ETH on the same day. With the spread of community dissatisfaction, this move seems to be a bad one. Vitalik said that if the foundation pledged ETH, it might be forced to make an official choice in a controversial hard fork event, which would violate the decentralized principle of Ethereum. This overly vague reason also seems untenable and cannot respond to the core concerns of the community.
Based on the above discussion, whether it is the weakness of various data from the perspective of smart contract platform or the sluggish price of ETH as a currency with store of value attributes, Ethereum seems to be somewhat powerless. At this time, choosing to insist on inaction is not necessarily a wise move.
“Ethereum is an ecosystem, not a company”
Vitalik emphasized in the Chinese AMA on February 27 that Ethereum is not a company, but an ecosystem.
I think Ethereum is a decentralized ecosystem, not a company. If Ethereum becomes a company, we will lose most of the meaning of Ethereum. Being a company is the role of a company. - Vitalik Buterin
I agree with the view that Ethereum should not be a company, because corporate operation means that it is profit-oriented to a certain extent, which conflicts with the positioning of Ethereum. However, the result of non-corporate operation orientation is that it is difficult to set up some indicators to measure the efficiency of the system, and the goal of the system is divergent, rather than optimizing for a certain point or direction.
Embarrassingly, although EF does not consider Ethereum to be a company, the public still tends to price and value Ethereum in a corporate manner, referring to indicators such as the number of active addresses, transaction volume, and protocol revenue, which is difficult to achieve the simplicity of Bitcoins totem.
Judging from a series of fundamental data such as protocol revenue, Ethereum no longer has strong momentum. For example, due to the sluggish L1 activity, ETH destruction has been greatly reduced. ETH has ended its nearly two-year deflation cycle and returned to inflation, with an annual inflation rate of 0.72%.
At the technical development level, Aya wrote in the article: Instead of controlling, we steward All Core Dev calls to create space for technical decisions to emerge through community wisdom. Coordination rather than dominance is a good starting point, but it is too idealistic. The coordination-based approach will encounter many problems in practice, such as inefficiency and high friction. Everyone has their own opinions, and there is no global decision-making, which will eventually lead to difficulties in implementation.
Of course, this article does not clarify who is right or wrong, nor does it criticize EFs approach, but rather attempts to state the authors views and logic, and point out the pros and cons. In summary, the author believes that EF needs to be realistic, seek truth from facts, identify problems, listen to the communitys opinions, and take action.
Conclusion
Crypto has different themes in different cycles. In this cycle dominated by the mainstream narrative of Bitcoin ETF and the Solana memecoin craze, Ethereum is clearly not favored by the market. Ethereum has great values and idealism, but these superstructures need to be supported by real use cases and communities.
Keeping this value unchanged, what can Ethereum do at this stage?
Accelerate the development progress, focus on capacity expansion, solve cross-L2 interoperability problems, make Ethereum sufficiently usable at the technical level, attract long-term developers, etc.
Education. ethereum.org has been doing a good job of supporting multiple languages. Ethereum is unlikely to do some political lobbying, but global education is quite necessary.
EF needs reform to achieve transparent governance and community supervision, and balance idealism with market needs.
As an Ethereum enthusiast for many years, I feel sorry for the current situation, but I am also happy to see challengers such as Solana impacting Ethereums position - after all, the story of latecomers challenging the established winners in Crypto is constantly repeating itself, which is equally exciting.
