Can ETH make a comeback? How to make ETH great again?

Author: The DeFi Investor Source: thedefinvestor Translation: Shan Ouba, Golden Finance

This market cycle has been quite tough for ETH.

At the bottom of the 2022 bear market, many had predicted that ETH would easily break through $10,000 in this bull run. But now, the market is full of doubts about whether ETH can even set new highs this year.

Given the current market sentiment, this skepticism is reasonable.

As Ignas mentioned in a recent post, even ETC (Ethereum Classic) has outperformed ETH recently.

Don't get me wrong, I have always been a loyal supporter of the Ethereum ecosystem. But in my opinion, ETH's weak performance shows that it needs major changes.

So why did ETH perform poorly in this cycle?

Why did ETH perform poorly in this cycle?

No one can give a definite answer, but I think there are mainly the following reasons:

1. There are too many ETH Beta tokens and funds are diverted

In the past, most ETH supporters would hold ETH directly, but now, almost all Ethereum L2s have issued their own tokens, and many investors have begun to buy L2 tokens instead of ETH. This has led to a substantial reduction in the flow of funds into ETH.

For example, if you are bullish on Solana, you only need to buy SOL because it does not have L2. But if you are bullish on ETH, you have dozens of L2 tokens to choose from.

2. Dispersed liquidity

There are more than 100 Ethereum L2 projects, but interoperability and liquidity between L2s are still a big problem.

For veteran DeFi users, bridging funds across different L2s is not a big problem, but for ordinary investors, the process is extremely complicated and even a nightmare. Currently, L2 transactions are fast and low-cost, but if the cross-L2 user experience (UX) is not significantly improved, L2 expansion cannot truly promote the mainstream adoption of Ethereum.

3. Other L1 blockchains are catching up

In the last cycle, Ethereum was undoubtedly the absolute king of all L1 public chains.

Although Ethereum still has the strongest DeFi ecosystem, L1s such as Solana have now surpassed Ethereum in indicators such as revenue and DEX trading volume.

This is because Solana and other L1s have made faster technical progress, and although Ethereum has made some progress in the past few years, some competitors are faster and the user experience is far better than Ethereum.

How to make ETH great again?

Here are several possible solutions:

• Encourage L2 to support ETH by destroying part of the transaction fees (Vitalik once suggested supporting more dApps that use ETH as the main collateral)

• Strengthen ETH's core position in the Ethereum economy (ETH should become the cornerstone asset of the L2 ecosystem, not an L2 token)

• Invest more resources to solve the problem of L2 liquidity dispersion and unify the L2 funding pool (this is the top priority)

• Accelerate Ethereum upgrade iterations (Ethereum destroys more than $100 million of ETH, but the upgrade speed is still lagging behind other L1s)

• Let the Ethereum Foundation establish a sustainable revenue model (such as obtaining funds from transaction fees and staking income to avoid selling ETH)

• At the same time, expand Ethereum L1 (although the main expansion direction of Ethereum is L2, L1 can still further improve performance through optimization)

If these changes can be promoted, ETH may usher in a strong rebound.

In the past few years, the Ethereum Foundation and the community seem to be a little complacent, which may weaken Ethereum's competitiveness in the long run.

While ETH remains the leader in the L1 space, other L1s are catching up at a faster pace, and if Ethereum does not adjust its strategy, it may lose the L1 war.

However, we have seen some positive developments, especially from projects within the ecosystem, which are working to improve market sentiment towards ETH:

MegaETH - Building a high-performance Ethereum L2 with the goal of supporting 100,000+ TPS to compete with highly scalable L1s.

Eclipse - The first Ethereum L2 based on the Solana Virtual Machine (SVM), combining the speed of Solana with the security of Ethereum.

Pectra Upgrade - Ethereum's next major upgrade, will introduce Native Account Abstraction, greatly improving the user experience.

Eric Trump publicly supports ETH - This raises the question: Will the United States establish a "National Ethereum Reserve"?

The first three technical upgrades will undoubtedly promote the adoption of Ethereum L2, but the real question is:

Can they drive up the price of ETH?

Can the price of ETH recover? The key depends on two points

1. Solve the problem of L2 liquidity dispersion (cross-L2 experience must be significantly improved)

2. Optimize the ETH token economic model (such as letting L2 contribute part of the transaction fee to destroy ETH to reduce the supply)

At present, I am not heavily invested in ETH because I prefer to bet on faster growing DeFi tokens (such as FLUID).

But historically, ETH's rise often triggers a round of "altcoin season", which is good for all investors holding altcoins.