Three reasons why Ethereum is in trouble

Author: Lane Rettig, former Ethereum core developer and former Ethereum Foundation employee; Translation: Jinse Finance xiaozou

Ethereum will celebrate its tenth anniversary in a few weeks. However, the project and community are still internally divided and have different development directions, struggling in the face of increasingly fierce competition. Last week I wrote about the three main reasons why Ethereum is in trouble, and why market sentiment has fallen to the lowest point I have ever seen. The reasons described last week were mainly cultural. This article continues with three more pragmatic reasons: talent crisis, user experience fragmentation, and governance issues.

1. Talent crisis

As mentioned in the previous article, I served in various roles at the Ethereum Foundation from 2017 to 2019. I have been involved in many dysfunctional organizations in my career, and in this industry dominated by talented but autistic builders, early projects seem to be inevitable. Even by these low standards, the Ethereum Foundation is the most chaotic organization I have ever been involved in (more on that below), and this chaos leads to serious problems in attracting and retaining talent.

Talent usually prefers a meritocracy where they know that hard work and performance will be rewarded and promoted. What I saw at the Ethereum Foundation was exactly the opposite: there was a serious phenomenon of talent exclusion. Unfortunately, this also reflects the current state of the entire Ethereum ecosystem. Ethereum's success is not due to good talent attraction or retention mechanisms, but to surviving in a very deformed talent pipeline. It is really not doing well.

My personal experience at the Foundation is a typical case and a microcosm of the talent problem of the Ethereum ecosystem. From my observation, most of the people in power at the Foundation should not be in power. They are not hired or promoted for their talents. Instead, they are friends of Vitalik, various special relationships trusted by Vitalik, and even some are sanctimonious. Although most members of the Foundation are kind and hardworking, some people are of questionable character, even quite corrupt and power-hungry.

This selection mechanism has two problems: first, it cannot select strong leaders, and second, it will undermine the morale of other members. It clearly sends the signal that success in the Foundation or Ethereum ecosystem does not depend on hard work or ability, but on the right time and place, by currying favor with decision makers such as Vitalik and imitating their values ​​and behaviors. I see those who are "blessed" by Vitalik enjoying the privilege of wealth but almost no responsibility, while those who are not in a good situation (including those who work hard) will never be able to get ahead.

I don't want to talk too much about my personal experience, but the Foundation in my eyes is extremely chaotic: the leadership is unclear about the number of subordinates, PhD-level contributors are only paid $25 per hour, employees' salaries are often delayed, and factional struggles and power calculations are rampant. I have made many enemies because of speaking out what I see and hear.

I know many top talents who have left the Foundation/Ethereum ecosystem for similar reasons; I have also seen talented people who tried to join but were rejected. Some people encounter institutional problems similar to the Foundation; some people cannot find a well-run Ethereum project and end up looking for a better job; some people switch to other places because of unfair compensation; and some people are discouraged by the chaotic and slow progress.

There are too many typical cases to list. I think the best examples are Ethereum "derivative" projects such as NEAR and Monad. Why do these projects exist? Why do those talented founders choose to start their own business instead of building Ethereum? Why don't investors invest in Ethereum but in competing products?

It is worth referring to the way the Web2 economy works: builders who want to develop a better search engine have two choices - join Google (if they are outstanding, they will be rewarded generously) or start a company (may be acquired by Google). In either case, the builders are rewarded and the innovation is eventually integrated into the Google ecosystem.

Ethereum has neither ability: organizations such as foundations cannot provide generous treatment including equity parity to underlying contributors; mergers and acquisitions are almost non-existent. In short, the economic model is broken: Ethereum cannot compensate founders who take risks and innovate at the bottom. The salary of foundation R&D personnel is much lower than starting their own business or joining a competitor. In response to criticism, the Foundation always argues that its brand is enough to make up for the lack of risk-reward.

Even if community support attracts builders like NEAR/Monad (who implement and improve the Ethereum roadmap years ahead), there is no mechanism for implementation: no funding pool and no enforcement body. Therefore, the most ambitious builders are forced to become competitors - even if they don't want to be.

It is difficult to overstate the damage this has done to Ethereum. NEAR implemented the original Eth2.0 roadmap such as sharding when Ethereum failed, and could have been released as Eth2.0. Now Monad is repeating the scene - it is two generations ahead of Ethereum and could have been released as Eth3.0. Although NEAR/Monad is not as decentralized as the Ethereum mainnet, it is far more decentralized than the existing Rollup, supports higher throughput, and is a better scaling solution (more on this later). It is both interesting and sad to imagine that Ethereum can keep up with these projects instead of falling behind - this reveals a lot about its economics and governance problems.

To be clear: there are still a lot of talented people working on Ethereum, and I am not denying this. Ethereum still has an advantage in talent pool, but it needs to focus on the rate of change rather than the status quo. Its talent advantage is shrinking, and I don't think it will last. Inertia alone is no longer enough. The aura of "Ethereum development" does exist (or existed), but it is gradually fading for the reasons described in this article.

In the current state of the ecosystem, talent is still a zero-sum game - Ethereum's loss is the gain of competitors. I have seen a large outflow of talent: many talented people have moved elsewhere, and those who remain are frustrated and considering leaving. Ethereum must completely restructure its talent pipeline if it wants to remain competitive. Why would talented people join Ethereum now? Why would they stay when they can get better pay elsewhere?

Of the issues described in this article, the talent crisis is my biggest concern for Ethereum's future. Any successful founder understands that talent is the lifeblood of the project. Once a blockchain ecosystem starts to lose talent, it is difficult to reverse it. Ethereum is still the industry leader, but as we have seen many times - even successful blockchain ecosystems can suddenly decline. Ethereum should do everything it can to avoid this fate.

With a more mature governance system and talent incentive system—the basic skills that successful startups do to stay competitive—Ethereum could have solved this problem long ago.

2. Fragmented user experience

In the previous article, I briefly mentioned Ethereum's usability issues, especially in the context of its obsession with research and pursuit of ideological purity while ignoring practicality. Although Ethereum has always had (and still has) many usability flaws—key management, final confirmation time, cold start problems—in my opinion, the most serious problem is the fragmented experience caused by the complex Rollup ecosystem.

Recalling the travel experience 20 years ago: it was almost impossible to move after arriving in a foreign country. Mobile phones could not be used (not a solution to installing a local eSIM today), because there was no global roaming standard, you needed to have different mobile phones in different regions. Credit cards were invalid and there was no contactless payment, so you had to take traveler's checks to the local bank to exchange for local currency before you could spend. Of course, there was no translation software or map application, and everything had to be done in a primitive and inefficient way.

This is exactly how trading on Ethereum (if you consider the entire Rollup ecosystem as a whole) works right now. You need to manage dozens of accounts spread across multiple wallets, each with unique design flaws and none of them easy to use. Each Rollup and L2 chain has its own gas token, which makes it hard to sort things out. Even using ETH as gas, it’s hard to move ETH from one address to another. Even for an expert, remembering “which wallet has which account for which app on which chain” is maddening and error-prone.

To make matters worse, cross-chain bridges are a disaster: unreliable, insecure, expensive, and time-consuming (do they sound like traveler’s checks?). In practice, most people are forced to use centralized exchanges like Coinbase or Binance as the de facto cross-chain bridges. This sounds bad and centralized—but don’t forget that not only are the cross-chain bridges centralized, but the Rollups themselves are also centrally controlled by small “security committees” (essentially groups of friends) who can shut down chains or censor transactions at any time, just like exchanges. This goes against the core idea of ​​cryptocurrency.

It’s getting worse. The lack of a seamless way to transfer data/assets between chains has led to extremely fragmented liquidity. The stupidest thing to do when designing a usable, scalable system is to deploy identical applications on each shard that don't communicate with each other - which is exactly what's happening on Ethereum: projects like Aave and Uniswap are deployed on dozens of chains, and liquidity, users, and data are fragmented. This experience is simply not attractive to new users.

This situation could have been avoided. We always take these user experience issues for granted and always dismiss those who complain as "idiots who don't understand how blockchain works" - this arrogance is wrong because the responsibility lies with us. These problems are neither inevitable nor terminal, but design decisions we actively choose. We could have chosen not to go this way, and there is still room for maneuver.

Ethereum has its own reasons for choosing this path: scaling the base layer in a lazy way. As early as 2017, it was clear that the Ethereum base layer would never be able to meet transaction needs. The original plan was to shard the base layer into dozens/hundreds of identical shards, so that account transactions could be asynchronously performed across shards. NEAR's well-developed sharding design has proven the feasibility of this solution - most of the complexity can be hidden from users and even developers, and users do not need to know which shard their accounts are on. Sharding is by no means a new concept, and all mature scalable systems (including web servers and databases) have adopted similar solutions for many years.

But Ethereum chose the lazy solution: it only implemented the first two phases of the Eth2.0 roadmap and gave up sharding, instead letting others scale by deploying heterogeneous L2 chains (Rollups). This is the "Ethereum Way": choose the most open and decentralized solution (that is, the one that requires the least centralized coordination or vision planning), and leave the rest to the market.

A few years later, the market gave the answer: dozens of competing chains and standards emerged, and new projects were born almost every day. It's not just users, applications and liquidity that are being divided, but also community attention. A large number of well-known L2 projects compete for attention instead of building a unified vision, and the lack of global interoperability standards has led to the UX disasters mentioned above. The Ethereum Foundation and roadmap makers should have set ground rules and standards, but they failed to do so.

Ethereum advocates often criticize high-throughput chains such as Solana, saying that only modularization (rather than blindly increasing the throughput of a single node) can achieve expansion. They are right, but the current solutions are by no means the right answer.

The Ethereum community is just beginning to realize the seriousness of the problem, but most people are still avoiding reality. When I point out the chaos, the most common response I hear is: "Don't worry, some interoperability project is about to come out and solve the problem completely." I have heard this promise for many years, but I have not seen any credible project that can substantially improve UX (rather than introducing more complex centralization risks). I have seen too many failed attempts and know that the problem is rooted in the lower level. Unless the current wrong expansion model is abandoned and a more reasonable design is turned, Ethereum will lose its competitiveness.

The best interoperability solution at present is NEAR's Intents system, which allows multi-chain assets to be controlled through a single account. When it matures, it may be able to alleviate the fragmentation problem by automatically adjusting liquidity. However, Intents is designed to achieve interoperability between heterogeneous ecosystems such as Bitcoin-Ethereum-Solana-NEAR, and cannot fix the internal problems of the EVM ecosystem alone.

The only reasonable way out is to return to the idea of ​​sharding. This idea is gaining momentum with proposals such as "native base rollups" (which are essentially similar to sharding). I'm not sure the Ethereum ecosystem can coordinate a real solution (it would require strong leadership and deep change), but it's definitely worth a try.

3. Governance

I've mentioned some dysfunctional operations at the Ethereum Foundation (EF), at least that's what I witnessed a few years ago. While I don't know the current situation at the Foundation, I keep hearing similar stories of chaos from friends and acquaintances.

The above problems are actually symptoms of deeper problems. When an organization cannot retain talent, does not fairly compensate contributors, and promotes the wrong people to positions of power, it is a symptom of systemic problems. For the Ethereum Foundation, one of the core problems is the governance structure. As Vitalik recently admitted, he still controls the Foundation in essence - although the Foundation has three board members, Vitalik has three votes, which constitutes a de facto dictatorial control. If this situation has changed, there has been no public announcement.

The fundamental problem with the foundation is the lack of accountability. Vitalik is not accountable to the board, and because of its non-profit nature, there are no shareholders who can intervene to correct mistakes (even if things are so bad). Unlike traditional non-profit organizations, the foundation and its board are not even accountable to donors. Vitalik is certainly an outstanding technical leader, but the problem is not personal ability - any organization without transparency and accountability is doomed to fail.

In this lack of supervision, power often flows to the hands of ambitious people, which is exactly what I saw firsthand at the Ethereum Foundation. This situation is a disaster for any organization, and it is doubly ironic for the Ethereum Foundation, which is at the core of the crypto ecosystem that "builds fair and transparent human systems." This hypocrisy is the main reason why I left Ethereum - it keeps me up at night.

The Ethereum Foundation had a strong leader in its early days, Ming Chan, but her tough style made many enemies. Eventually, Vitalik and other decision-makers ended their cooperation because they could not control her. During my tenure, I witnessed many independent and outspoken leaders being fired for such reasons.

The successor executive director, Aya, is the polar opposite of Ming: a stability-seeker for the past seven years, but not a changemaker. In the face of fierce criticism, the foundation has only recently hastily implemented a dual executive director system, appointing Tomasz Stańczak and Hsiao-wei Wang as co-leaders. Although the two have good character and sincere reform intentions, I doubt whether this structure can bring about substantial changes: Hsiao-wei is a researcher rather than a bureaucratic leader (which is the main reason why the foundation is in its current state); Tomasz may be able to promote reforms if he is fully authorized, but my intuition tells me that he will have difficulty getting permission to implement difficult changes. The Ethereum Foundation is likely to continue to limp forward and become a negative benchmark for the Ethereum ecosystem for a long time.

This should be avoided. The Ethereum Foundation was originally planned to be dissolved after the ecosystem matured - several participants in the foundation's establishment confirmed to me that it was supposed to be just a short-term booster. The foundation was indeed critical in the early days, but now it is more of an obstacle than a catalyst. Dissolving the foundation will create space for more teams to take responsibility.

You may wonder: why not bypass the foundation to advance things? There are dozens of well-funded organizations independently promoting Ethereum development and community building. But the problem is that despite the obvious flaws of the foundation, its huge resources and authority still make it difficult to challenge the roadmap; at the same time, most of these organizations are for-profit companies, and their independent vision is the root cause of the ecological fragmentation. Public goods projects like Ethereum at least need credible neutral coordinating entities such as the Linux Foundation and W3C to set standards - these organizations are not perfect, but at least they have accountability mechanisms.

If the Ethereum ecosystem wants to regain its strength, it must start exploring collaborative paths that bypass the Ethereum Foundation. Ethereum's development achievements in recent years are the result of grassroots efforts, not the leadership of the foundation. The emergence of emerging organizations such as Etherealize marks the beginning of such attempts, but it may be too late. The complexity of the problem is that the Ethereum community has not been able to have an honest discussion about the foundation issue, and this silence itself is a sign of a deeper crisis. Unless something changes, Ethereum will continue to struggle.

(Note: The opinions in this article are only the author's personal opinions)