Year-end special Space review: Ethereum and altcoin market outlook

Organized by: Yuliya, PANews

Recently, PANews conducted an online topic interview on Twitter Space with the theme of " Year-End Special Space: Ethereum and Alternate Market Outlook ". This interview invited Chainfeed founder Pan Zhixiong, Nothing Reaearch partner Todd, Gate Group chief commercial officer Kevin Lee, as well as independent research and NingNing to jointly look forward to the future potential of Ethereum and altcoin markets.

Guest introduction

Pan Zhixiong :

I am currently working on a technical Newsletter, and I have been paying attention to Ethereum and the entire ecosystem. Recently, I have been focusing on two directions: one is studying the progress of programmable cryptography and privacy protocols; the other is exploring some of the capabilities boundaries of OpenAI, while paying attention to topics related to AI agents.

Todd:

I am mainly doing two things now: one is to operate a research-driven fund Research; the other is to operate an Ethereum non-custodial mining pool called Ebunker, which currently accounts for more than 1% of the Ethereum computing power of the entire network. Our research on Ethereum has been continuing, and Ethereum has performed relatively well in the past two days.

Kevin Lee :

I have been working in a bank before. Currently I am preparing for the upcoming Consensus conference in Hong Kong and am also planning a large-scale concert. This will be an important industry event in Hong Kong.

NingNing :

I am now an independent researcher. I was a veteran before and also participated in the development and operation of exchanges and various vertical products. It's a pleasure to be part of today's discussion.

Ethereum controversy

PANews : Why is Ethereum still subject to so many doubts despite being so active?

Pan Zhixiong:

Doubts about Ethereum actually exist every year, which is normal and should exist. The main reason is that it didn't meet the growth expectations of Bitcoin or Solana. Solana (SOL) has really shined this year, rising from around $10 at the beginning of the year to nearly $200, while Ethereum’s gains have been relatively small. People often come to conclusions first and then look for reasons, such as the Ethereum Foundation is selling coins, the foundation is bloated, etc.

When it comes to the issue of foundations selling coins, we need to look at it more objectively. This is indeed an objective fact, but the interpretation can have two sides: from a negative perspective it may indicate a lack of confidence in the project, but from a positive perspective it is to pay engineers' salaries and invest in future research. Compared with other projects, Ethereum is more transparent, and everyone can see every movement of the foundation.

I think the current problem in the community is that many people rely too much on the opinions of KOLs and lack independent thinking . For example, if the foundation sells coins, if it were done by other public chains, it might be interpreted as "the project party is raising funds for ecological development", but when it comes to Ethereum, it becomes negative news. So I think it's important to have independent judgment and not blindly follow other people's opinions.

Todd:

Completely agree with Teacher Pan's point of view. Judging from our experience in operating mining pools and communicating with various currency holders, Ethereum needs a strong "monetization" scenario in every bull market cycle.

Looking back at history, we can see this pattern:

• The ICO trend was during the bull market of 2017. At that time, if you wanted to participate in any high-quality projects, you had to use ETH, which created huge demand;
• In the bull market of 2021, it will be DeFi mining (whether L1/L2), and ETH will become a necessity again;
• Current situation in 2024: Buying Meme coins on Pump.Fun creates demand for Solana

Although Ethereum has a pledge mechanism, this is more biased towards large investors. For example, if a large investor invests tens of thousands of Ethereum, but retail investors only have 0.1 Ethereum, the significance of participation is not great. I have calculated that even at the current yield of about 6%/7%, it is not attractive enough for ordinary investors. This explains why Ethereum has performed worse than expected in this round of market conditions, and it has failed to find new and powerful "monetization" scenarios.

Kevin:

Ethereum’s performance this year can be divided into two stages:

• In fact, the performance in the first half of the year was not bad, the transaction volume remained at a high level, and the market expectations were relatively optimistic.
• But in the second half of the year, the situation changed significantly. Even if ETFs are approved in both the United States and Hong Kong, the application scenarios are still not active enough. Meme currency is hot in Solana, and GameFi is in Telegram. DeFi projects in 2021 are now less popular, and the NFT market is far less hot than before.

NingNing:

Ethereum’s price performance this year has really surprised the market. Recently, there was a news report that a giant whale was long the exchange rate of Bitcoin and Ethereum, and the transaction was forced to stop loss, resulting in a loss of tens of millions of dollars. Ethereum faced some problems during the Cancun upgrade. Although there were no technical problems, the ecological impact was not sufficiently considered in the economic model. In particular, the blob pricing curve of the DA layer was set too high, which affected Ethereum's ability to capture L2 value. . (Affected by market optimism at the time)

The rise of Meme and AI agents has caused a large number of users to flow to Solana. Although on the surface, Ethereum’s TVL has reached more than 100 billion U.S. dollars, far exceeding Solana’s 10 billion U.S. dollars, in fact, a large amount of Ethereum is dead money (various pledges/packaging ), and there is a problem of double counting. Now it has become difficult to issue coins or build projects on Ethereum and raise funds on DEX, causing many projects to turn to Solana or Base. This shows that Ethereum is facing its strongest challenge from Solana, just like it faced Polygon and Avalanche in the previous cycle.

L2 development status

PANews : In the Ethereum L2 field, ZK narrative used to be a prominent topic, but with the launch of multiple large-scale ZK projects and token airdrops, negative news has ushered in. So, has Ethereum’s ZK track failed? Has the pattern of L2 been determined? Is it possible for ZK L2 to overtake OP L2 in 2025?

Pan Zhixiong:

From the perspective of the Ethereum Foundation, they have invested a lot in ZK research. Although ZK zero-knowledge proof technology has not yet been implemented, the roadmap is still very focused. In the short term, it will be difficult for the community as a whole to see a significant difference:

• In terms of expansion, OP can also meet the demand, but ZK has a greater burden in generating proofs.
• ZK is more suitable for use in privacy technology, but recently privacy technology has been restricted by policies.
• It is difficult for users to directly feel ZK’s privacy advantages

Ethereum is currently promoting ZK applications in two directions:

• Privacy and expansion exploration group (such as 0xPARC project ): implement specific scenario applications, such as personal tickets, email content reading, etc.
• Development tools: Provide open source tools for developers to easily read specific content while protecting user privacy

Todd:

I have a perhaps radical point of view. First of all, we must admit that the strongest applications in the industry currently are Binance and Coinbase. Judging from the Layer 2 ranking, Arbitrum is first, Base is second, and OP is third. Base’s second ranking is largely due to Coinbase’s currency listing support.

OP convinced Coinbase that this decision gave it a huge advantage against ZK. Considering that most users participate in Layer 2 for speculative purposes, projects on Base may have more opportunities to be listed on Coinbase in the future, which also increases users' willingness to participate.

Another key point is the ease of depositing and withdrawing funds. In the past, it was an advantage for ZK to complete withdrawals in one day, while OP needed seven days. But now mainstream exchanges such as Binance support OP’s fast deposit and withdrawal, which can be completed in 20-30 minutes. This actually eliminates ZK’s timeliness advantage.

From the perspective of technology maturity, in the rating system launched by L2Beat (the higher, the better), stage zero means that the sorter is still controlled by the security committee, stage one is managed by the whitelist sorter supplier, and stage two is completely decentralized. ization.), only OP and Arbitrum have reached the stage one level, while most ZK projects are still in the stage zero stage. This is why mainstream exchanges are more inclined to support OP technology.

Kevin:

The biggest problem at present is the lack of necessary application scenarios. Looking back on 2021, the booming NFT market has led to high gas costs. At that time, Layer 2 solutions, both OP and ZK, began to appear. But in this cycle, we have not seen a similar explosion of applications.

In addition, many other L1 public chains have solved the expansion problem, and users have no urgent need to use L2. The reality is that when users find that other public chains can already meet their needs, why should they go out of their way to use Ethereum and use additional L2 solutions on Ethereum?

However, I still have faith in Ethereum. If new applications appear in the future, such as NFT or other applications, and Ethereum faces expansion problems again, these L2 solutions can truly exert their value.

NingNing：

Now OP Stack also provides ZK rollup solution, but the adoption rate is not high. Although ZK has technical advantages, it has not been able to translate into market advantages. It is a difficult problem for the ZK camp, but it is not hopeless. The key lies in how to find a breakthrough.

Copycat ETFs

PANews : How do you think Ethereum’s status as the leading altcoin has changed? In addition, projects such as Litecoin, Solana and Ripple are also currently applying for ETFs. If Trump takes office, ETFs for these currencies may be approved. Will they repeat the mediocre market performance of Ethereum ETFs?

Pan Zhixiong:

Overall, Ethereum’s leading position remains solid. This is mainly reflected in two aspects: first, market capitalization, Ethereum is still the second largest cryptocurrency after Bitcoin; second, application ecology, Ethereum has the richest and most representative DeFi and NFT applications ecosystem. As for the ETF approval process for other projects, I think this is a step-by-step process that requires the market and supervision to adapt together. Different projects may face different challenges and opportunities.

Todd:

Regarding the topic of ETF, I would like to analyze it from several key dimensions:

• First of all, small-cap cryptocurrency ETFs face practical difficulties when launching ETFs. Taking Litecoin as an example, its current market value is about US$7.7 billion. Even assuming that 10% of the coins flow into the ETF market (about US$770 million), based on a management fee of 0.2%, the annual income is only more than US$1.4 million. For large financial institutions such as BlackRock and Fidelity, this level of revenue may not even cover the basic expenses of maintaining an operating team, let alone the expenses of high-paying positions such as legal affairs.
• Secondly, there is the issue of pledge income. Current ETF products do not support staking functions, which is an obvious shortcoming for projects like Solana that provide about 7% risk-free staking returns. When investors weigh this, they will find that if they choose ETFs, they will not only be unable to obtain pledge income, but will also have to pay management fees. This difference will inevitably affect the flow of funds.

Kevin:

As a practitioner who has worked in a traditional bank for more than ten years, I think the current cryptocurrency ETF products are still very rudimentary. In traditional financial markets, ETFs usually do not just track a single asset, but develop richer product forms such as index ETFs and sector ETFs. In the future, the cryptocurrency market will inevitably see more diversified ETF products, such as Layer 1 sector ETFs, DeFi sector ETFs, etc. In this evolution process, Ethereum, as the largest smart contract platform, will continue to play its core role.

NingNing：

I noticed an interesting phenomenon. There is a clear gap between market expectations and reality. Previously, the market generally believed that the approval of ETF would bring a large amount of incremental funds, driving the rise of the entire Ethereum ecosystem and related altcoins. But the reality is that in the U.S. stock market, cryptocurrency ETFs may only be regarded as a type of small and medium-sized technology stocks.

Judging from the market performance since November, funds have not flowed according to the expected path of " Bitcoin ETF→Ethereum ETF→Altcoin ETF ". Instead, funds such as XRP and Stellar Lumens (XLM) have been deeply cultivated in the US market. The performance of long-term projects is more outstanding. This gap between market perception and reality deserves investors to think deeply.

Ethereum ETF inflows increase

PANews : After the Ethereum ETF was approved, its capital inflow performance has been worse than that of the Bitcoin ETF. But recently, we have seen a gradual increase in inflows into the Ethereum ETF. I would like to ask you, what is the reason behind this? Is it possible that Ethereum ETF inflows will exceed those of Bitcoin ETFs in the future?

Todd:

Let's look at this from an investor's psychological perspective. Recall that when many people first enter the cryptocurrency market, their first reaction is often "Bitcoin is too expensive, I want to buy something cheap", and then they choose Ethereum or other currencies. This is a very common psychology.

Based on this observation, I believe there are three key factors that will affect the future development of the Ethereum ETF:

• Price threshold effect: When the price of Bitcoin reaches a new high, such as $150,000 or $200,000, investors will naturally look for relatively lower-priced alternatives. Since it is difficult for small-capitalization coins to obtain ETF approval (because management fee income may not cover costs), Ethereum will become the most natural choice.
• Staking income issue: An obvious disadvantage of the current Ethereum ETF is that it cannot support staking. If investors purchase Ethereum directly on the chain and perform native staking, they can obtain a risk-free return of approximately 3.26%. If you buy ETFs, you will miss out on this part of the income. This does affect the decision-making of some investors, but if ETFs can support staking in the future, the appeal will be greatly enhanced.
• Hybrid ETF opportunities: Mixed ETF products of Bitcoin and Ethereum are likely to appear in the future market, such as an allocation of 80% Bitcoin + 20% Ethereum. This "package" product will attract investors who want to diversify their investments and bring new capital inflows to Ethereum.

Although the inflow of funds into the Ethereum ETF may still be limited in the short term, based on these three reasons, I am optimistic about its long-term development, but I just need to give the market some time.

Kevin:

From the perspective of trading strategy, I mainly see two possible fund flows:

• Long-Short strategy : There are indeed traders who try to do arbitrage strategies such as long Ethereum and short Bitcoin. But from October this year to now, since Bitcoin has performed better than Ethereum, the effect of this strategy is not ideal. This strategy has now become much less attractive.
• Fund rotation effect : One feature of ETF is that it provides a more convenient channel for fund conversion. For example, when investors sell Bitcoin ETFs, they receive cash that they can freely choose to invest in the stock market, Tesla, or other assets. This convenience is a double-edged sword: the advantage is that it can be more easily converted between different assets; the disadvantage is that the funds do not necessarily stay circulating within the cryptocurrency market.

So my judgment is that although the capital inflow of Ethereum ETF will continue to increase next year, it is unlikely to exceed the Bitcoin ETF.

When will the new copycat season arrive?

PANews : The Ethereum ecosystem seems to be still focusing on infrastructure. Does it need to shift to the application level? In addition, many investors are paying attention to when a new round of copycat season will arrive.

Pan Zhixiong:

This question is very interesting. Although Ethereum has been developing for more than ten years and Solana's performance is quite good, there is still a lot of room for improvement from an infrastructure perspective. Let me give some specific examples:

• Parallel processing has not yet been implemented on a large scale
• The construction of privacy layer is still imperfect
• Front-end data storage issues for decentralized applications
• Reliability and continued accessibility of data
• The gap between user experience and Web2

With the current level of infrastructure, it is still difficult to achieve a truly decentralized Web2-level user experience. Only when the capabilities of each layer are improved can we approach the experience level of Web2.

When it comes to the application level, the new generation of applications will inevitably develop with the improvement of infrastructure. For example, look at the evolution of Uniswap: from V1 to V4, every upgrade is adapting to new infrastructure capabilities, taking into account new features such as performance optimization, multi-Layer2 deployment, cross-application calls, and automation.

I think copycat season is definitely coming, usually accompanied by:

• Innovative gameplay mechanics
• New liquidity model
• New ways to monetize
• Wider user engagement

Todd:

The key to this issue is how to define "cottage". This definition has evolved significantly over the past few bull markets:

• 2013: Modify the Bitcoin code and change the name to become a copycat
• 2017: New public chain projects, even if they are not online yet
• 2021: DeFi projects and NFT projects are regarded as copycats
• 2024: New forms emerge, including: AI agent projects, Meme of blue-chip projects, PPB (Protocol-owned-Bots)

In fact, if we follow the new definition, the copycat season has quietly begun . This is like a wave of turmoil. In every bull market, new copycat projects will replace the old ones, grabbing attention and funds. Investors need to embrace this evolution rather than cling to past perceptions.

Kevin:

I strongly agree with Todd's point of view. Now that the crypto market has become more segmented and mature, we should analyze it by different sectors just like we look at the traditional financial market:

• AI related projects
• NFT sector
• exchange tokens
• Public chain ecology
• DeFi project

It is no longer appropriate to use a unified "altcoin" to describe these projects. Each segment has its own unique development trajectory and valuation logic.

NingNing：

I want to analyze it from two core dimensions:

1. Periodic dislocation:

• The current monetary cycle is about a year later than expected
• This directly affects the funding cycle of the entire financial market
• This time difference needs to be added to the traditional analysis

2. Necessary conditions for copycat season:

• Mature technological innovation : AI agent may have major breakthroughs within a year, and it is expected that many applications will be reconstructed using AI in 2025, which will bring new user needs and usage scenarios.
• Funding environment : The current U.S. bond yield is close to 4.6%, and is about to hit a record high of 5%. In such a high yield environment, it is difficult to expect a large-scale influx of hot money into the crypto market, and we need to wait for substantial changes in monetary policy.

Taken together, I expect the real full-scale copycat season to wait until the end of 2025 or the spring of 2026. This time point takes into account not only the maturity cycle of technological innovation, but also changes in the macro-financial environment.

Ethereum upgrade

PANews : Two upgrades to the execution layer and consensus layer will be launched in the first quarter of 2025. What changes will these upgrades bring to Ethereum? In addition, when will the subsequent Fusaka upgrade be implemented? What is the specific content? In addition, what other nodes and new narrative directions are worth paying attention to in Ethereum in 2025?

Pan Zhixiong:

Okay, I will mainly talk about Prague upgrade and Fusaka upgrade. The Prague upgrade is expected to go live in the first quarter of next year, with three important improvements:

• The first is EIP-7251, which allows a single validator to hold up to 2048 Ethereum, instead of having to be spread across multiple nodes before. This can reduce network redundancy, improve efficiency, and introduce a partial withdrawal mechanism.
• Next is EIP-7702, a new form of account abstraction. It allows existing EOA wallets to mount new contract logic, lowering the threshold for users to use smart contract wallets.
• The third is EIP-7691, which targets the blob ecosystem. It increases the block data capacity, optimizes the pricing mechanism, and may reduce Layer 2 gas fees, but this may affect the deflation of Ethereum.
• As for the Fusaka upgrade, it is expected to be implemented in 2026 and mainly contains two important contents: EOF (Ethereum File Format) and PDAS (Data Availability Sampling). EOF is a major upgrade to the Ethereum Virtual Machine, while PDAS is a key step in implementing DA technology to prepare for future sharding expansion.

Todd:

I want to talk about Prague upgrade from several aspects. The first is the issue of timeline. Although the original plan was to implement it at the end of 2024, based on current progress, it may be postponed to February or March 2025. The fifth version of testing has just been completed. According to Ethereum's usual rigorous attitude, it will still need to be tested until at least the 10th or 12th version. After that, it will be verified by private testnets and public testnets, so it is conservatively estimated that it may be until March next year.

As a blockchain fundamentalist, I especially appreciate the concept of this upgrade of Ethereum. Let me explain why:

First of all, the core value of blockchain is decentralization, which means there need to be enough nodes. Each node is like a backup of a ledger. If there are tens of thousands or even 100,000 backups around the world, the network will be truly indestructible. This is the essential meaning of blockchain.

But now there are some public chains on the market that have taken another path in pursuit of so-called "performance":

• They chose to limit the number of nodes
• Set extremely high hardware requirements for nodes
• Requires expensive servers
• Requires huge bandwidth and high-performance CPU

The result of this approach is that only large cloud service providers such as AWS, Huawei Cloud, and Alibaba Cloud can meet the requirements. On the surface, this does indeed lead to better performance, but the problem is:

• Over-reliance on these centralized cloud service providers
• Once there is a problem in these computer rooms, the entire blockchain network may be affected.
• This has happened many times over the past year, with some chains experiencing downtime or downtime

In contrast, the direction in which Prague has been upgraded is admirable. It makes two important improvements:

Significantly reduce node storage burden:

• Removed ancient historical status data
• Only keep necessary recent transaction data
• Reduce hard drive requirements from several terabytes to maybe just 100GB
• Allow ordinary home PCs to run nodes

Optimize the pledge mechanism:

• Increase the stake limit for a single validator from 32 Ethereum to 2048 Ethereum
• Solved the problem of congestion in node entry and exit queues
• In the past, if you wanted to pledge 3,200 Ethereum, you would need to create 100 nodes.
• Now only two nodes are enough
• Greatly lowers the threshold for participation, making it easier for ordinary users to participate

What touches me most is that even though Ethereum has grown to the scale it is today, it still has not given up on its original ideals. It did not choose the "computer room chain" route in pursuit of performance, but insisted on:

• Continue to lower the threshold for participation
• Pursuing true decentralization
• Allow ordinary users to participate in the network using their home computers
• Expand the number of nodes without affecting performance

While these updates are often delayed, drawing some criticism, I totally understand. Because this is an extremely complex balance:

• To maintain or improve performance
• It is also necessary to allow more nodes to join
• Also make sure your home PC can run the node as well

This requires repeated demonstrations and discussions to find the optimal solution. Although these technical upgrades may not directly affect currency prices, this effort to adhere to ideal research directions and allow more people to participate in verification of blockchain ledgers is very admirable.

NingNing :

Every upgrade of Ethereum’s underlying protocol will bring structural changes to the application layer. For example, the Shanghai upgrade brought about the prosperity of LST, and the Cancun upgrade promoted the development of L2. I think this Prague upgrade and Fusaka upgrade may promote the development of DEX based on account abstraction, because the new version reduces the gas overhead of creating an account abstract address.

Additionally, optimization of the blob pricing mechanism may better reflect L2 demand, impacting Ethereum’s token economics. As for PDAs, although the modular narrative has changed, its specific impact on the industry requires further observation.

2025 predictions

PANews : Teachers, what do you think of the market changes in 2025? Will this round of bull-bear transition happen in 25 years?

Pan Zhixiong:

From a macro and policy perspective, there are indeed many benefits that have not been realized, such as the policy adjustments after Trump came to power. Another important factor is that Bitcoin has exceeded $100,000, which is a landmark psychological price level. Compared with the past, this time it hit a record high and maintained it for a long time, indicating that the market has fully changed hands. For traditional capital, this price may be a new starting point, and there is still a lot of room.

Todd:

Let me start by saying this is non-financial advice. There are three things I look forward to most in 2025:

• The staking of Ethereum ETF is loosened, which will bring more incremental funds
• Trump family’s involvement in Ethereum DeFi could lead to new developments
• The introduction of RWA (Real World Assets) could become a new growth engine and narrative

Kevin:

Although it is a light topic, we are very cautious when it comes to compliance issues. I agree with Teacher Pan, the benefits related to Trump are still continuing. But I would like to suggest that you think about it from another angle: Instead of predicting the highest point, it is better to think about where the lowest point will be next year. Just like this time last year I predicted that this might be the last time I would see $30,000 in Bitcoin, and now it appears that is indeed the case. So will next year be the last time we see $60,000, $80,000, or $90,000? This is related to everyone's investment strategy and risk tolerance.

NingNing：

Predictions are primarily entertainment in nature and are difficult to predict accurately even with the most advanced AI models. I personally think that 2025 may not be much different from 2024. There will not be a super bull market, but the seasonal market will continue to show. It is recommended to grasp the spring and autumn market. Although there will not be a big altcoin bull market, there will be alpha opportunities for sector rotation. I will pay attention to projects in new narrative directions such as chain abstraction, AI agent, consumer chain and PayFi.