Can Ethereum be great again?

Author: The DeFi Investor

Compiled by: TechFlow

ETH has performed quite sluggishly in this market cycle.

Back in 2022, when BTC is at the lowest point in a bear market, many people predict ETH is expected to easily break through $10,000 in this cycle.

However, many people are now starting to wonder whether ETH can still hit new all-time highs this year.

Given the current market sentiment downturn, this suspicion is understandable, because even ETC outperforms ETH.

Of course, I am still a loyal supporter of the Ethereum ecosystem, but in my opinion, the poor performance of ETH reflects that the Ethereum ecosystem needs to undergo some profound changes.

Next, I will try to answer a key question:

Why does ETH perform poorly in this cycle?

Although the reasons are difficult to be completely certain, I think the following are the main factors.

Too many ETH Beta Tokens

Almost all Ethereum L2 projects have issued their own tokens, which has led many Ethereum backers to invest their funds in these L2 tokens, rather than ETH itself.

This significantly reduces the amount of capital flowing into ETH.

For example, if you are optimistic about Solana (without L2 projects), you just need to buy SOL; but if you are optimistic about ETH, you may face dozens of ETH-related token choices, such as the tokens for L2 projects.

Liquidity dispersion

Currently, there are more than 100 L2 projects in the Ethereum ecosystem.

It is not difficult for skilled DeFi users to cross-chain from one L2 to another, but for the average investor, the process can be very complicated and headache-inducing.

Although Ethereum L2 has fast transaction speed and low cost, if the user experience across L2 cannot be improved, this expansion capability will be difficult to promote the large-scale popularization of Ethereum.

Other L1 technologies catch up

In the last market cycle, Ethereum was undoubtedly the leading L1 blockchain among various indicators.

Although Ethereum still has the strongest DeFi ecosystem, other L1s such as Solana have surpassed Ethereum several times in terms of indicators such as revenue and decentralized exchange (DEX) trading volume.

This is partly due to their technological advancements. While Ethereum has made some important progress in recent years, some L1 competitors have developed faster technology and are now able to provide a better user experience (UX).

How to get ETH back to its peak?

Here are some directions worth trying:

• Ethereum’s L2 project is encouraged to incorporate ETH into the ecosystem , reducing token supply through the mechanism of burning some transaction fees, thereby enhancing the scarcity and value of ETH.

• Strengthen the core position of ETH in the Ethereum economy ( Vitalik once suggested that more support for decentralized applications (dApps) that use ETH as a major collateral asset)

• Allocation of more resources to solve the problem of L2 fragmentation and unifying liquidity should become the top priority of Ethereum's development.

• Accelerate the technological upgrade of Ethereum ( Although Ethereum reduces the supply of more than $100 million in tokens through destruction mechanisms every year, its technological upgrades are significantly behind other L1 blockchains.)

• Establish a sustainable income model for the Ethereum Foundation. By obtaining stable income from transaction fees or staking proceeds, the Ethereum Foundation can reduce its reliance on selling ETH, thereby avoiding negative impacts on market prices.

• Promote the expansion of Ethereum L1. Although Ethereum’s long-term goal is to expand through L2, L1’s performance improvement still has great potential. By optimizing the expansion capabilities of L1, the overall user experience and competitiveness of Ethereum can be further improved.

These measures may be an important step in driving Ethereum to new heights.

However, the Ethereum Foundation and its community have appeared to have fallen into complacency to some extent in the past few years, an attitude that could undermine the competitiveness of the project in the long run.

Ethereum is still the leading L1 blockchain at the moment, but other L1 projects with fighting spirit and innovative teams may gain the upper hand in this competition without a more aggressive strategy.

It is time for the Ethereum community to re-invigorate the “winner mentality” and ensure its leadership in the blockchain field.

The good news is that we can see some positive changes, especially efforts from Ethereum eco-projects that are trying to improve market confidence in ETH:

• MegaETH : A high-performance Ethereum L2 is being developed with the goal of supporting more than 100,000 transaction processing capabilities per second (TPS) to compete with the highly scalable L1 blockchain.

• Eclipse : is committed to creating the first Ethereum L2 supported by Solana Virtual Machine, aiming to combine Solana's high-speed performance with high security of Ethereum.

• Pectra Upgrade : Ethereum’s upcoming major upgrade Pectra, by introducing native account abstraction, significantly improves user experience (UX), making blockchain interactions more concise and efficient.

• Eric Trump promotion : Eric Trump has recently been publicly supported as an ETH platform, which makes people wonder whether the United States may establish a national Ethereum reserve?

The above three technological progress will undoubtedly further increase the adoption rate of Ethereum L2. But the more important question is:

Can these progress really drive ETH price increase? This remains to be seen.

In my opinion, the following two points are the keys to driving ETH to rise again:

1. Solve liquidity fragmentation problem (need to optimize user experience across L2).

2. Token economics for improving ETH (Vitalik recently proposed in his blog that the supply of ETH can be reduced by encouraging L2 projects to burn some transaction fees, thereby increasing its value).

Personally, I don't hold a lot of ETH at the moment because I prefer to invest in fast-growing DeFi project tokens.

However, the price increase in ETH is good news for all codon holders.

Judging from historical data, the rise in ETH is often an important trigger point for the Altseason.

The future development of the ETH ecosystem will not only affect Ethereum itself, but will also have a profound impact on the entire crypto market.