Ethereum at a Crossroads: A Game of Price Performance and Ecological Development

Written by Jiawei @IOSG

preface

▲ Source: Jon Charbonneau

dba co-founder Jon Charbonneau published an article titled “Etherum’s North Star” late last year, pointing out that Ethereum lacks a clear “North Star” goal. Jon also pointed out in an earlier tweet that even Ethereum could not agree on its core product.

Since the beginning of this cycle, there has been a lot of discussion in the community about the poor performance of the ETH price. Overall, the ETH price is not only a reflection of market sentiment, but also a key factor in Ethereum’s ability to unify the vision of the community, balance decentralization and performance, and solidify its position as a leading smart contract platform.

Inspired by the above article, this article will discuss some of the issues that I believe are emerging with Ethereum.

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 reach new highs, becoming the main factor criticized by the community for Ethereum.

EF’s tech geeks are disgusted by the community’s dissatisfaction with the ETH price, seeing them as a bunch of short-term speculators. Admittedly, protocol design shouldn’t be price-driven, but too much evasion of price discussions is also a bad performance. This section discusses the importance of the ETH price.

#ETH price is directly related to EF’s runway

According to EF’s 2024 report, as of October 2024, EF’s total assets are about $970.2 million, including $788.7 million in cryptocurrency assets (99.45% ETH); $181.5 million in non-crypto assets.

If the burn rate of $130 million per year is maintained and the price of ETH is 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 number. Previously, the community also criticized EF for redundant personnel (about 200 people), with only 35% of them technicians. Aave founder Stani Kulechov is proposing to cut the burn rate to $30 million and cut the workforce to 80.

#协议安全性

The ETH price directly affects the cost of an attack under PoS consensus. Of course, the actual attack also needs to consider geographically dispersed validators and slashing mechanisms, but price is still a key factor.

After Ethereum adopts the PoS mechanism, the ETH price directly affects the staker’s earnings. When the price of ETH falls, the actual income will also shrink, which may lead to the withdrawal of staking nodes and the decline of network security. Lido’s current TVL is around $20 billion, down nearly 50% from its peak of $40 billion in December. Last year, the SOL/ETH trading pair reached a maximum increase of more than 3 times, and the SOL staking yield is still about 2 times that of ETH, which may drive many stakers to switch from Ethereum to Solana in the next cycle.

#生态参与者的信心

Needless to say, the price is the result of the votes of the participants in the ecosystem (developers, users, investors, etc.) 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 posted that as Vitalik fades out, EF is gradually disconnected from the community, and opacity has intensified. In the face of the expansion of rivals such as Solana and EF’s “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 that deserves EF’s attention and attention.

Decentralization is Spectrum, and so is competition

Different people, in different positions, have different understandings of decentralization. The memecoin trader on Solana doesn’t need a blockchain that can withstand state-level attacks, and the memecoin chip distribution, dev run, and rat bin address can be seen on-chain, which is enough for them.

▲ Source: DBA

Similarly, competition and non-competition are relative. The author believes that the competition faced by Ethereum is mainly based on the following two points.

as a store of value asset

The author mentioned in the previous Ethereum staking report that ETH is used as a reserve asset for the DAO vaults of various protocols, the collateral for CeFi and DeFi, as well as NFT transactions, MEV denomination, and token trading pairs, respectively, as a unit of account and a medium of exchange, and the value persists in time and space, and should be used as a store of value asset.

But that’s only within the Ethereum ecosystem. Broadly speaking, from the perspective of the ecosystem, ETH’s store of value attribute is still significantly weaker than Bitcoin’s.

For example, from a positioning point of view, since the birth of Bitcoin, people have begun to build its narrative around “digital gold” and “inflation-resistant scarce assets”, and the core function of Bitcoin is clearly defined as a store of value, which is easier to understand by the mainstream market and the public.

As a smart contract platform, Ethereum’s sources of value include gas, staking income, ecological applications built on the chain, and so on. This complexity has led to the dilution of its store of value attributes, and the public prefers to see it as a “technology token” or “utility token” rather than a pure store of value.

From the perspective of supply, the total amount of bitcoin is fixed at 21 million, and the inflation rate is gradually reduced to zero through the halving mechanism. ETH’s supply may have a lower actual inflation rate than Bitcoin after the implementation of EIP-1559 and PoS. However, due to the recent downturn in online 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 cognition. In addition, institutional investors (e.g., MicroStrategy, Tesla) publicly hold Bitcoin as a reserve asset, which also strengthens its legitimacy as a store of value.

Therefore, it is difficult for ETH to compete with Bitcoin for its store of value properties at the moment. Ethereum’s more core positioning is a smart contract platform.

As a smart contract platform

Ethereum, as a smart contract platform, is facing stiff competition from Layer1s such as Solana, Sui, and others. From the data perspective, although Ethereum has an absolute advantage in stablecoin issuance and TVL, key data such as daily trading volume, average daily active addresses, and transactions have shown a decline.

▲ Source: Artemis

Looking at the flow of funds over the past year, protocols such as Base, Solana, and Sui have captured large inflows, while Ethereum has seen outflows of nearly $8 billion. While this is in line with the expectations of the Rollup-centric roadmap, the sluggish activity in L1 will somewhat affect the market’s 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.

Due to the different technical development paths of Ethereum and Solana, developers often need to choose between two platforms. Therefore, at the level of “smart contract platform”, the two must be in a competitive relationship.

▲ Source: Solana

The solanaroadmap.com webpage is as simple as four words and is abbreviated as IBRL. But the current Solana isn’t just about high performance. In addition to the technical IBRL, Solana’s culture and attention capture also have differentiated points of competition.

▲ Source: mert

The author once asked “why not launch memecoin on Ethereum L2” at X, because L2 also has the characteristics of low cost and high throughput. The answer was “culture”. Looking at the user portrait in a nutshell, it is generally believed that users on Ethereum seem to be more “old money” in DeFi mining, while Solana represents the rapid flow and redistribution of fresh blood and capital.

New things tend to capture attention better than old things. Many of the founders I’ve talked to in this cycle have chosen to build consumer applications on Solana, and most of them mention the word “attention” for technical reasons, which is when more users are looking at Solana.

In this cycle when there are so many projects on the market and attention is extremely scarce, the founders will try their best to increase the exposure of the project and let the market discover its own products. Solana also has more hot money and a smoother user experience, because every additional step will be friction and hindrance when you want someone else to use your product.

Authorities fandom - the Ethereum Foundation’s choice

Is inaction suitable for Ethereum in a highly competitive environment?

The community is divided over Aya’s move to the chair of the Ethereum Foundation: critics point out that Aya’s slow development of Ethereum, lack of developer support, and weak token prices during Aya’s 7 years in office are directly related to his governance; Its “philosophy of subtraction” and decentralized governance have been criticized as “laissez-faire”, resulting in EF’s failure to actively coordinate ecological resources, in stark contrast to the efficient operation of the Solana Foundation.

These evaluations are difficult to sort out in a short period of time and are beyond the scope of this article, but they reflect the dissatisfaction of the community to some extent and serve as an outlet for the emotional backlog.

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 Foundation’s role is that of a “gardener” rather than a “controller”, supporting the ecosystem by cultivating client diversity, R&D coordination, and community activities. advocate adaptive growth, decentralized leadership, and oppose corporate expansion; Believes that Ethereum needs to maintain its original vision as a “world computer”.

The author believes that in the growth cycle of things, it is beneficial to talk about values and ideals; But if the system is in a declining phase and can’t generate increments, then this “rhetoric” will pale and unconvincing.

The premise of becoming a “world computer”, practicing and developing values is that there are people who build ecologically, and are willing to follow and promote these values. Ecological prosperity is a necessary condition.

Han Feizi pointed out in “Five Worms” that the essence of Confucianism’s “messing with the law with literature” lies in empty talk about benevolence and righteousness and ignoring practical contradictions. When resources are limited, empty talk of benevolence and righteousness will lead to detachment from actual needs, and it is necessary to rely on practical means such as “law, magic, and potential”. When Confucius traveled around the world, only Wei Guo (the more economically developed) briefly embraced his idealism; In the war-torn states of Song, Chen, and Cai, Confucius’s idealism was neglected because of its lack of material foundation.

When the community questioned that EF continued to sell ETH and did not use financial management methods such as staking to maintain the runway, EF sold a small amount of ETH on the same day. With community discontent spreading, this move looks bad. Vitalik said that if the foundation stakes ETH, it may be forced to make an “official choice” in the controversial hard fork event, which violates Ethereum’s decentralization principles. This overly illusory justification also seems untenable and fails to respond to the community’s core concerns.

Based on the above discussion, whether it is the weakness of the data side positioned from the “smart contract platform” or the downturn in the price of ETH as a “store of value” currency, Ethereum seems to be a little weak. At this time, choosing to insist on doing nothing is not necessarily a wise move.

“Ethereum is an ecosystem, not a company”

Vitalik’s Chinese AMA on February 27 emphasized that Ethereum is not a company, but an ecosystem.

I think Ethereum is a decentralized ecosystem, not a company, and if Ethereum becomes a company, we will lose most of Ethereum’s meaning of existence. Being a company is the role of the company. ——Vitalik Buterin

The author agrees with the view that Ethereum should not be a company, because corporatization means that it is profitable to a certain extent, which conflicts with Ethereum’s positioning. However, as a result of the unincorporated operational orientation, it is difficult to establish metrics to measure the efficiency of the system, and the goals of the system are divergent rather than optimized for a certain point or direction.

Embarrassingly, although EF does not consider Ethereum to be a company, the public’s pricing and valuation of Ethereum still tends to be carried out in a corporate manner, referring to metrics such as the number of active addresses, transaction volume, protocol revenue, etc., which is difficult to achieve the “totem” simplification of Bitcoin.

Judging from a series of fundamental data such as protocol revenue, Ethereum no longer has a strong momentum. For example, ETH has ended its nearly two-year deflationary cycle and returned to inflation with an annual inflation rate of 0.72% due to a significant reduction in ETH burns due to sluggish L1 activity.

▲ Source: Dankrad

In terms of technical development, Aya writes 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 good from the starting point, but it is inevitably too idealistic. In practice, the coordination-based approach runs into many problems, such as inefficiency and high friction. Everyone has their own opinion, and without a global decision, it will eventually be difficult to implement.

Of course, this article does not clarify who is right and who is wrong, nor is it a critique of EF’s approach, but rather an attempt to state the author’s views and logic, and point out the stakes. To sum up, the author believes that EF needs to avoid hypocrisy, seek truth from facts, identify problems, listen to the opinions of the community, and take action.

epilogue

Crypto has different threads in different cycles. In this cycle dominated by the mainstream narrative of Bitcoin ETFs 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 development with a focus on scaling, addressing cross-L2 interoperability issues, and making Ethereum technically usable. Attract long-term developers and more.

Educate. ethereum.org’s multilingual support has been done well. Ethereum is unlikely to do some political lobbying, but education on a global scale is quite necessary.

EF needs to be reformed to achieve transparency in governance and community oversight, balancing idealism with market demand.

As an Ethereum enthusiast for many years, I’m sorry for the status quo, but I’m also glad to see challengers like Solana storm Ethereum’s standing – the story of a latecomer challenging the established “winner” in Crypto is just as exciting.

Hope we can make Ethereum great again.

Milady.