There is no “new” story for Ethereum

As the ETH/BTC exchange rate fell below 0.05 again, Ethereum was once again ridiculed.

The opaque Ethereum Foundation expenditure became the fuse, and the fire quickly spread to the direction of various Ethereum FUDs. For a time, ETH's original sins were that it was not as active as the new public chain, ideological concentration, and insufficient innovative applications. Even Vitalik's personal life was criticized, and users' disappointment with price performance escalated into a systematic debate of verbal criticism.

But looking back at Ethereum over the past year, in addition to the infinite nesting dolls of pledge, the good story of L2 has begun to falter. With limited narratives, low coin prices, and new lows in Gas, it has remained almost unmoved even in the storms of ETH this year. The reality of following the decline but not the rise has continued to accumulate user dissatisfaction. Can Ethereum only stand firm in the name of orthodoxy in the end?

It's time for Ethereum to find its own new story.

01 The Ethereum Foundation is "firing"

On August 23, the address of the Ethereum Foundation changed, and 35,000 ETH (94.07 million US dollars) was transferred to Kraken. For the foundation, large expenditures are quite frequent. According to the data, the Ethereum Foundation has sold 239,000 ETH since January 1, 2021. But a transfer that was taken for granted suddenly fermented into a whirlpool of public opinion in the market.

The market began to speculate on the reasons why the Ethereum Foundation made such a huge sale, and discussed whether it would have a negative impact on the price of ETH. The Ethereum Foundation also responded quite quickly. Executive Director Aya Miyaguchi responded on the X platform: "This is part of the Ethereum Foundation's fund management activities. The Ethereum Foundation has an annual budget of about $100 million, which is mainly composed of grants and salaries. Some recipients can only accept legal tender. For a long time this year, the Ethereum Foundation was told not to conduct any fund activities because the supervision is complicated and plans cannot be shared in advance. However, this ETH transfer transaction does not mean sales, and there may be planned and gradual sales in the future. ""

It would be better if there was no response. Once a response was made, it was strongly criticized. The Ethereum Foundation, which owns more than 270,000 Ethereum, has not disclosed detailed expenditure data in the past two years. The latest report available is still in 21 years. The $100 million described by the executive director is obviously a huge expenditure. Where did all this money go? Ignas | DeFi also added fuel to the fire on X, saying that the Ethereum Foundation allocated up to $30 million in the fourth quarter of 2023, but compared with the third quarter of 2023, the allocation was only $8.9 million. This year's amount is more than three times that of last year. Although the foundation supports innovative projects, it lacks a comprehensive and transparent total expenditure report.

Although many industry insiders such as Sundial Mirage co-founder SIGNAL and former Chain News Editor-in-Chief Liu Feng expressed their understanding of the $100 million budget, saying that considering the huge size of the foundation, the $100 million operating budget is still within controllable range. SIGNAL compared Netflix, saying that Netflixe, with a market value of $295 billion, only offered $80 million in salary to two executives, while Ethereum's market value of $332 billion is slightly higher than Netflixe. In contrast, $100 million is already very prudent.But the market still failed to cover up the fire, and the doubts about the "opaque" expenditure were difficult to stop, and gradually rose from opacity to the failure of the foundation to discover the value of ETH.

As the community controversy intensified, the foundation finally responded. ETHGlobal member Hudson Jameson said that Ethereum is currently compiling the latest expenditure report, which will unify the expenditures of 2022 and 2023 and will be released before the Devcon SEA conference in November.

Hudson used a chart to describe the approximate expenditure purposes. The largest expenditure in 2022 was L1 research and development, accounting for 30.4%, including funding for external project teams and Jinhui's internal expenditures, of which internal expenditures accounted for 38% and external expenditures accounted for 62%. Community development is also a big part, accounting for 21.8%.

In 23 years, the largest expenditure turned into grants for new institutions. The "new institutions" type includes Nomic Foundation, 0xPARC, L2BEAT and other projects, accounting for 36.5%. Interestingly, the founder Vitalik Buterin responded in the comment area that his annual salary was 182,000 Singapore dollars, which also triggered heated discussions. Many supporters believed that Vitalik Buterin, who made great contributions with such a low salary, was a real builder.

Public opinion seems to be about to turn. The doubts about the Ethereum Foundation are only the most superficial fuse. The core reason is still the original sin of ETH - the disappointing price performance in recent years.

02 Ethereum without a new story

Since last year, Ethereum has no new story.

Looking back at the development of blockchain, in addition to Bitcoin, which is the value stabilizer, Ethereum is the one that has been widely promoted in terms of application.This world computer has undoubtedly played its role. From the Defi that shocked the market in 20 years, to the NFT and chain game hype in 21 years, to the MEME craze, almost every breakthrough in the industry is inseparable from the key infrastructure Ethereum.The data also proves this point. As of August 29, according to DefiLlama data, Ethereum's TVL reached 4.7 billion US dollars, accounting for 56.37% of all public chains, becoming a well-deserved public chain leader. ETH has naturally risen along the way, from a few hundred dollars to around $2,500 today, and has firmly established its second position besides BTC.

Back to now, is there any narrative for Ethereum? Since Ethereum switched back from POW to POS, technology upgrades have been the main narrative, and Layer2 is a concentrated hype ecosystem. After that, the internal narrative effect weakened, and ETF became the new external narrative. But from the actual situation, no matter what kind of narrative, it has not really driven the key indicator-ETH's price. In sharp contrast, BTC continues to strengthen as a value currency. Judging from the exchange rate between the two, the degree of ETH's weakening relative to BTC is visible to the naked eye. It is currently only 0.042, while a year ago, this ratio was still 0.07.

Even if we don't compare it with BTC, in terms of price trends, ETH's growth has begun to frequently weaken that of other currencies such as SOL and BNB. The weakening of the coin price can reflect the reduction in activity from the side, while the decline in Gas actually reflects the weakening of the ecosystem. According to Etherscan data, the current average Gas of Ethereum is 0.758Gwei, which has reached the historical bottom. Of course, the introduction of "Blob" in the Cancun upgrade has played a role, but such a low Gas, the most intuitive presentation is the lack of popular applications on Ethereum. The Block's data also shows that Ethereum's monthly transaction volume has been at its lowest level in months.

This is indeed the case. DeFi Summer is difficult to reproduce for the time being, NFT and chain games have fallen to the bottom, and even the MEME narrative has been besieged by Solana. With the rise of Ton, Base and other ecosystems, the market is inevitably pessimistic, and Solana has surpassed Ethereum. In addition, the number of token holders ranks third, the number of monthly active users ranks seventh, and the number of transactions ranks 11th. The data does not seem to match Ethereum's title of leader.

Against this background, the discussion on the feasibility of the Ethereum system has gradually fermented, and the switch to POS has become a new point of controversy. Regardless of the in-depth discussion on security, the complexity of the protocol, the complexity of the development direction, the complexity of MEV and Flashbot, and the complexity of governance brought about by the expansion demand have formed a dense cloud of indivisible clouds covering the top of the Ethereum building, further increasing the vulnerability of Ethereum.

X Industry professionals' discussion on Ethereum, source @NPC_Leo

Take the technical path Rollup, which now accounts for 87% of all daily transactions, as an example. Under this expansion plan, the Gas fee has been successfully reduced significantly, but the inflation avoided through the mechanism has reappeared. Some analysts believe that Rollup-centered can promote L2 to absorb Ethereum space, bringing traffic and fees in the long run, but in actual use, L2 may develop a unique ecosystem and split into an independent chain, reducing L2's contribution to Ethereum fees.

It is undeniable that most of the current Ethereum L2s do tend to choose commercial narrative-level pledge leverage nesting dolls, and introduce shared components into layer3 application chains. Even if this path is not chosen, the L2 narrative is gradually becoming less loud, the dividends of technology upgrades are decreasing, the on-chain data are not as expected, and ZKS and Blast also perform poorly after the tokens are released.

Against this background, the market's dissatisfaction and disappointment with Ethereum gradually accumulated, and finally broke out against the foundation. Zhu Su, founder of Three Arrows Capital, admitted that the problem with the Ethereum Foundation is not that they sell tokens before the value is discovered. They are born dumpers. The biggest problem is that they cannot provide a coherent roadmap and effective leadership for the ecosystem at present.

Web3 venture capitalist @LordWilliamUK was even more radical, listing the six sins of the Ethereum Foundation, saying that the foundation was nationalized and was hunted by funds, that it was paper research instead of actual innovation, that its expenditures were opaque, that it ignored application scenarios to maintain orthodoxy, that high-quality potential projects were lost, and that it was slow to iterate.

Some people even went so far as to criticize Vitalik Buterin personally, hoping that he would pay more attention to the price of the currency and the construction of the ecosystem rather than his love life. Vitalik Buterin was also quite interesting, and directly responded by showing the code he had written in the past two months.

03 Without price, what is the difference with salted fish

However, in response to various problems of Ethereum, this idealistic founder seems to be quite optimistic. He has called for "the team is working, and the price of the currency is left to fate" more than once, or he has issued a controversial statement that the biggest dilemma of Ethereum is "excessive financial attributes". Just recently, he was besieged by everyone for expressing his dislike and criticism of DeFi. In this regard, some industry insiders joked that "if there is no DeFi, the price of Ethereum may still remain at $400."

Is Ethereum really dead? There are many different opinions on this issue. It cannot be denied that Ethereum is an extremely powerful community, and assets related to ETH are still an important base for the entire market. ETH is the only currency recognized by institutions and successfully included in ETFs besides BTC. Even in the mainstream world, Ethereum is highly regarded. In the waves of new public chains that are "Ethereum killers", Ethereum's solid development foundation is proved by its unshakable standing. Its builders have always adhered to the belief of long-term cultivation, focusing on technical practicality and conveying values.

However, with continuous evolution, Ethereum has entered the mature and stable mid-term of scale development from the high-spirited early geekism, and the growth rate has gradually slowed down. When Ethereum was developing rapidly, any problem could be solved with focused technology, but when the development began to slow down, problems surfaced, and from time to time, tiny spikes would extend out to tease the sensitive hearts of users.

Especially in the current market with limited liquidity, it has become more important to find new stories and new applications, even Ethereum is no exception. My friend Ono mentioned before, "No need to change. Even without the fancy so-called layer2, BTC can obtain the liquidity spillover of the US dollar, but all currencies other than BTC must grow. Only growth can obtain new liquidity. Once growth stops, it will slowly fall behind... fall behind..." This is true. The poor performance of ETH ETF since its launch and the slightly negative view of institutions on Ethereum can also indirectly confirm this point.

Back in September 2018, Vitalik was asked about his views on the plunge in ETH prices at the industry summit. At that time, he mentioned that the price was not so important, and said helplessly, "Don't ask about the price anymore." Later, he ended the questioning with "If ETH has no future, other digital currencies are the same."

This answer, I believe that four years later, he may still answer in this way, but is it really the case? The legitimacy of Ethereum implies a promise that needs to be fulfilled: the project team hopes to obtain Ethereum's technology and traffic and get a piece of the pie; users hope that ETH can always go up and meet their expectations for growth; and all of this requires that Ethereum must always be on the road. If there is no actual benefit, the two may not necessarily fall apart.

Recently, Matrixport's trader "Miner Zhaobei" wrote in the official account that the strategy fund "Liuyuan" he runs with stable unilateral risk control has wiped out the entire bull market's gains in just one week due to ETH's one-way free fall. "To this day, the net value is gone, but the position is still there." Although most of the comments are joking about eating melons and saying "It's all V's fault, not the teacher", it can also be seen that users have a narrow view of Ethereum.

Perhaps V God is wrong, price is very important. After all, in the currency circle where money can make you a god, without price, what's the difference between being a salted fish?