Rethinking the development and challenges of ETH: What caused ETH to lose its vitality?

Author: @Web3Mario

Abstract: The social network was very lively this weekend, and a new round of debate on ETH started. I think there are two reasons. First, Vitalik’s interview with ETHPanda caused a stir in the Chinese community. On the other hand, compared to SOL, the continued decline of the exchange rate of ETH against BTC has also caused widespread dissatisfaction. Regarding this issue, the author also has some opinions that I hope to share with you. In general, I think there is no problem with the long-term trend of ETH, because there is actually no direct competitor in the market, because in the narrative of Ethereum, the more critical positioning of "decentralized execution environment" is "decentralization" "" rather than "execution environment", this fundamental has not changed. There are two core reasons for the current bottleneck of ETH development. One is that the Restaking track has caused a vampire attack on Layer 2 of the mainstream technology development path, diverting a large amount of money. ETH ecological resources. However, the core mechanism subject to Restaking will not create incremental demand for ETH, which directly results in the application side being unable to obtain sufficient development resources and user attention, and promotion and user education stagnating. The second is that the key opinion leaders of the Ethereum ecosystem are becoming aristocratic and forming an interest class. This has solidified class mobility. The developer ecosystem lacks sufficient incentives and innovation naturally appears weak.

Restaking’s vampire attack on Ethereum ecological resources results in the application side being unable to obtain sufficient development resources

There was actually some discussion on this point in one of my previous articles, and I hope to take this opportunity to discuss it again today.

We know that Ethereum’s official development path has always been to form a completely decentralized execution environment through Sharding. In layman’s terms, it is a completely distributed cloud that is not controlled by any party. Applications can obtain computing and storage resources through bidding on the cloud, and all resources are completely controlled by the supply and demand relationship in the market. Consider the complexity of the technology. The reason why you should choose Sharding is because you cannot tolerate 100% redundancy of all data, which will cause significant waste. Therefore, the data can only be processed separately according to different areas, and then the processing results are finally summarized by a relay.

Taking into account the complexity of technology iteration, Sharding’s technology selection has actually undergone some changes, and the community finally settled on the Rollup-Layer2 solution as the mainstream direction. In this solution, all applications can choose to be built in a separate Layer 2, and the Ethereum main network sinks to become the infrastructure for all application chains. In addition to bringing data finality to the application chain, it can also serve as an information center. Successive role. Such a master-slave architecture is a good solution in terms of efficiency and cost. It not only reduces the cost of application operation, but also provides a good guarantee of "security" based on the degree of decentralization.

At the same time, Ethereum has also designed a relatively self-consistent business model and designed a good economic model for ETH. On the one hand, the POW consensus mechanism of the main chain is switched to an asset voting POS mechanism. In exchange, each participant can obtain the right to share dividends on the main chain fee income. On the other hand, each application chain needs to confirm the finality of data through main chain transactions, and transactions require ETH as Gas. Therefore, as long as each Layer 2 of the application chain remains active, it will indirectly promote the activity of the Ethereum main chain. This also gives ETH the ability to capture value from the entire Ethereum ecosystem.

However, things really went wrong when the ETH ReStaking track, represented by EigenLayer, became popular at the end of last year. The native creativity of this track is actually not complicated. Friends who have participated in DeFi may know that a considerable number of projects are innovating around idle assets, which is the so-called "matryoshka doll". However, Restaking is bolder and chooses to directly reuse the ETH participating in PoS Staking and directly provide execution functions to the outside world, which is the so-called AVS. Although I very much agree with this direction in terms of entrepreneurial creativity. But in fact this is the most direct cause of Ethereum's current predicament. Because at that time, the technology selection of Layer 2 had basically been completed, and a relatively mature technical solution had been developed. It’s time to make efforts on the application side, such as more accelerated iteration of related applications, more sufficient marketing budget, etc.

However, the emergence of the ReStaking track is actually a vampire attack on Layer 2, which directly causes ETH to lose its value capture ability. Because ReStaking provides applications with a "second consensus solution" that does not require paying the cost of ETH on the main chain, the most intuitive understanding is to take the currently most implemented AVS and DA layer as an example. The so-called DA refers to data availability, that is, through A technical solution that makes data immutable can also be equated with data finality. In the previous description, we know that the application chain brings finality to its data by calling contracts on the main chain, which creates a demand for ETH. However, Restaking provides a new option, namely To purchase consensus through AVS, you don’t even need to pay ETH in this process. You can use any asset to pay for the consensus purchase fee. This changes the entire DA market from the previous monopoly market exclusively owned by Ethereum to an oligopoly competition market shared by ReStaking and Ethereum. This will naturally cause Ethereum to lose its market pricing power and directly affect its profits.

Not only that, but what’s even more terrible is that it squeezed out precious resources in the bear market at that time. These resources should have been diverted to each application side for promotion and market education. But it was attracted to the project of "reinventing the wheel" of infrastructure, and today's plight of Ethereum is officially due to the lack of enough active applications, which has led to the downturn of the entire value capture system. Friends who have done projects may understand that the rhythm of project operations is very important. Only by launching appropriate products in the appropriate market can the project usher in long-term development. Any wrong decision may bring development to a standstill. So it’s not a shame.

Of course, the nature of this problem is understandable. This is actually a problem in the democratic system, which is the efficiency problem caused by the lack of unity of power. In an organization that pursues distributed decentralization, naturally all parties can develop and compete for resources based on their own wishes. This is more conducive to value capture in a bull market because the potential for innovation is very large. However, in the stock battle of the bear market, there is a lack of unified resource scheduling, which leads to deviations in the route and stagnation in development. It is also very understandable. On the other hand, Solana, an organization operating with this kind of corporate structure, will naturally be popular due to the efficiency advantages brought by centralization. It is also more efficient to capture hot spots and launch relevant measures in a targeted manner. This is why Memecoin summer will appear in Solana. The reason above.

The key opinion leaders and vested interests in the Ethereum ecosystem are becoming aristocratic, forming an exclusive interest class. The developer ecosystem lacks sufficient incentives, and innovation naturally appears weak

In the Ethereum ecosystem, there is a phenomenon: the lack of active opinion leaders like Solana, AVAX, or even the former Luna ecosystem. While these leaders are sometimes cited as driving FOMO (fear of missing out), it is undeniable that they play an important role in the cohesion of the community and the confidence of the entrepreneurial team.

However, in the Ethereum ecosystem, apart from Vitalik, it is difficult to think of other influential leaders. This phenomenon is partly due to the split of the original founding team, but it is also related to the solidification of the internal strata of the ecology. Many of the benefits of ecological growth are monopolized by early participants. Just imagine, if you had participated in a fundraising worth 31,000 BTC (approximately more than 2 billion US dollars according to the current market value), you would have been very rich even if you did nothing, not to mention that the wealth in the Ethereum ecosystem has already exceeded this number.

As a result, many early players are turning to conservative strategies, with maintaining the status quo becoming more attractive than expanding. In order to avoid risks, they have become more cautious, which also explains why they tend to adopt conservative strategies when promoting ecological development. A simple example is that early participants only need to ensure the status of existing projects such as AAVE and lend a large amount of ETH they hold to leverage demanders to earn stable income, so why do they need to vigorously promote new projects? What about development?

But in the end, I think there is no problem with the long-term trend of ETH, because there is actually no direct competitor in the market, because in the narrative of Ethereum, the positioning of "decentralized execution environment" is more critical. "Decentralization" rather than "execution environment", this fundamental has not changed. Therefore, as long as the integration of resources can be completed and the construction of applications can be promoted, Ethereum's future will be bright.