Original｜Odaily Planet Daily (@OdailyChina)
Author: Wenser (@wenser 2010 )
On September 13, Danny Ryan, a researcher at the Ethereum Foundation, posted on GitHub that "after careful consideration, he will indefinitely withdraw from the Ethereum L1 research and development work that has been invested for 7 years." As soon as the news came out, there was an uproar in the industry. After all, in the previously published article "Where is the Way Forward? A Brief Analysis of the 3 Major Abstract Problems Currently Facing the Ethereum Ecosystem", we also mentioned his "Related Views on the L2 Network" published in 2023. As the chief coordinator of Ethereum The Merge upgrade, Danny Ryan is undoubtedly one of the insightful leaders in the Ethereum ecosystem. His resignation may also indirectly confirm the current dilemma of the Ethereum ecosystem.
In this article, Odaily Planet Daily will provide corresponding potential solutions based on the three major problems mentioned above, and discuss with readers how to break through Ethereum.
Prescription 1: Centralized decision-making problem - clarifying the boundaries between government and individuals
Although the official account of the Ethereum Foundation, @ethereum, is relatively active, most official information still relies on the personal accounts of Ethereum Foundation members to release information. To some extent, it is difficult for people to distinguish whether certain behaviors and ideas are official decisions of the Ethereum Foundation or personal behaviors of Ethereum Foundation members.
Previously, in our article “Counting the Seven Deadly Sins of Ethereum, Who Can Play the “Saving Song” for It?”, we mentioned that “Ethereum Foundation researchers Dankrad Feist and Justin Drake joined the Ethereum re-staking project EigenLayer as project consultants” is a vivid example. This move by the two can easily lead the public to believe that Eigenlayer is a project that is “openly supported” by the Ethereum Foundation, and thus they will be skeptical about the “trusted neutral position” of the Ethereum Foundation, or have blind trust in the Eigenlayer project, leading to potential asset investment losses.
In view of this, I personally believe that the Ethereum Foundation may need to make efforts in the following aspects in terms of organizational management:
Clarify the boundaries between official statements and personal statements. Official solemn statements and serious statements should be released through official accounts and channels; members' personal statements, actions, and opinions should not be confused with official statements to avoid confusion.
Reform the internal organizational structure of the Ethereum Foundation. Clarify the corresponding roles and work functions of different departments and members of the Ethereum Foundation, and distinguish the different roles of community members and official members, especially the roles of part-time staff, funded personnel, and community volunteers. After all, management chaos brings organizational chaos, and organizational chaos is the reason why the Ethereum Foundation cannot play a real leadership role to provide a coherent development roadmap and a clearer development direction for the ecosystem, rather than relying on many "personal centralized nodes" including Vitalik to "wrack their brains" for Ethereum. This neither meets the long-term development needs of the Ethereum ecosystem nor supports the innovative growth of the Ethereum ecosystem.
Enhance the degree of connection between the Ethereum Foundation and the external ecosystem. For a long time, as an important part of the cryptocurrency industry, the Ethereum ecosystem has been in an atmosphere of "blind confidence", including many developers who believe that Ethereum ecosystem developers are more professional and authoritative than other ecosystem developers. This is only because the Ethereum ecosystem has a greater first-mover advantage and is relatively more prosperous. Some people even hold extreme views such as "The Ethereum mainnet gas fee is more expensive, so it is a 'noble chain' exclusively for rich people, and only those who can't afford Ethereum can play other ecosystems." The communication between the Ethereum ecosystem and the Bitcoin ecosystem, Solana ecosystem, Move language ecosystem, and TON ecosystem is relatively limited, and the strengths and advantages of other ecosystems are also indifferent. In the long run, the Ethereum ecosystem can only "hold on to its shortcomings" and sigh at the past DeFi Summer, GameFi Summer, and NFT Summer.
Of course, organizational change does not depend on a certain time or place, but needs to be steady and orderly. However, if the previous "fuzzy governance structure" is continued, the Ethereum Foundation may not be able to become the main leadership force that leads the Ethereum ecosystem to a more distant future.
Prescription 2: L2 network is too big to be eliminated - build a closed loop of L2 ecology and gradually eliminate "ghost chains"
Regarding the L2 network, which is now "emerging with many competitors", there are both pros and cons in the market. The representative views of the opposition have been mentioned in our previous article "Where is the Way Forward? A Brief Analysis of the Three Major Abstract Problems Currently Facing the Ethereum Ecosystem". We will not go into details here, and mainly talk about the representative views of the affirmative side.
ResearchNothing partner 0x Todd previously wrote: "The L2 plan allows potential competitors to at least become part of their own ecosystem, even if it is loose. Moreover, 1) loose friends > competitive enemies; 2) L2 creates real income for ETH."
After the giant company Sony announced the launch of Sonieum, he also said: "If ETH does not have an L2 strategy: Then Sony (even a non-core department of Sony) will definitely launch its own blockchain, and then everyone will worship it like Libra (and the subsequent Aptos and SUI), and will definitely not join the ETH ecosystem. L2 gives a new institution a particularly decent entry posture: 1. You don’t have to bother to conceive a bunch of new mechanisms; 2. You don’t have to worry about your own toy chain being unsafe; 3. You don’t have to invest capital to reinvent the wheel; 4. You don’t have to worry about the unit price of ETH being too expensive; 5. But you can still issue your own tokens! Because reasons 1, 2, 3, and 4 are just extras, and 5 is the core purpose. Now L2 gives everyone a decent and low-cost opportunity. That’s why I said that L2 is a successful strategy. This is an open conspiracy."
But today, we can see that, to some extent, the L2 network has become a "liquidity fragmentation crusher". Many L2 networks "go their own way" and their connection with the Ethereum main network is weakening. The benefits of bringing real income to Ethereum and reducing competition cannot completely cover the disadvantages it brings.
1) L2 cannot continue to bring long-term stable income to Ethereum.
In the article “Exploring the True Cost of L2 Projects: How Much Does It Cost to Run an L2?”, author Sharanya Sahai, Hashed Emergent, concluded: “The cost of using alternative data availability solutions for an average Op or ZK chain that processes 2 million transactions per month totals $10,500 to $16,500 per month for ZK Rollup and $4,000 to $6,500 per month for Op Rollup, in addition to sharing up to 20% of the sorter profits once the chain becomes profitable.”
Combined with "Ethereum Scaling Economic Account: Is it worth giving the bulk of sorting income to L2? 》Point of view mentioned in the article: "The DA layer can either have high throughput or high revenue, but not both. This makes it almost impossible for rollups to scale without affecting Ethereum network revenue. The rollup-centric roadmap is inherently flawed because it abandons the valuable part of the network (sorting) and mistakenly believes that it can be compensated by the worthless part (DA). I was initially optimistic about the rollup-centric roadmap because I thought rational people would recognize the economics of price differentiation and that it could develop in parallel with the expansion of L1. High-value and price-insensitive users will choose L1 because of its durability, security, and finality, while L2 focuses on marginal low-price users who are excluded by excessive L1 fees. Therefore, Ethereum can still obtain considerable sorter rent. However, Ethereum's leadership has repeatedly emphasized that L1 is actually no longer important as an application layer and will not scale. As a result, users and developers have responded rationally, resulting in the current gradual decline of the L1 application ecosystem and the reduction of Ethereum's network revenue. If you believe that the long-term value of ETH lies in being a monetary asset, then this may still be feasible. By allowing more people to hold ETH, making it a durable form of money. And subsidizing L2 without accumulating value to the base layer may facilitate this. But if you believe that the long-term value of ETH lies in network equity in a widely used protocol (which I think is more likely than ETH as money), then value accumulation needs to occur. Clearly, we are missing the mark here due to incorrect economic assumptions.”
2) The current fragmented ecosystem of L2 networks results in the benefits of reduced competition being far less than fewer L2 networks.
In the article "The War Escalates, Revealing the Current Status of the Ethereum L2 War", the author Ceteris pointed out: "The theme of Ethereum now boils down to 'global proof verification layer and currency', and Felipe of Theia believes that if we only value L1 tokens based on MEV and fees, then they will return to zero anyway, so the only thing that can justify their valuation is to become an 'emerging market reserve asset', that is, 'currency'. I support this view. As a result, Wei Dai, partner of 1kx investment research, proposed: "To make the Rollup-centric roadmap economically feasible, Ethereum needs to provide network effects for L2 in two ways: 1) Provide composability and censorship resistance based on sorting. 2) More powerful shared settlement, where assets issued by L2 can also be used on other L2s to eliminate fragmentation. This is the only way for Ethereum to work in the long run. "
Justin Bons, founder of Cyber Capital, also proposed in the article "Opinion: Most L2s will always remain centralized, and Ethereum is getting further and further away from its original intention": "Most L2s will always remain centralized because their incentive mechanisms are problematic. Currently, the solutions to these problems are overly optimistic because L2s, as for-profit companies, will not give up their income. In the end, Ethereum deviated from its original intention and gradually became a centralized service platform. (The current market situation is) Competitive L1 and L2 are devouring Ethereum's user base, while its leaders are promoting and celebrating the downfall of Ethereum. This status quo is sad because it goes against Ethereum's original intention. They promote centralized solutions, and companies that are forced to comply with government censorship are given greater power. This runs counter to the tradition of the cypherpunk movement of privacy. Ethereum is pushing most users to L2, which can monitor, freeze, steal, and censor user funds. Ethereum is on the same path of self-destruction as Bitcoin, abandoning on-chain expansion in favor of L2. History is repeating itself."
Therefore, for the L2 network that is too big to be eliminated, the subsequent treatment of the Ethereum ecosystem may be to build an "ecological closed loop" between L2 networks, allowing the social L2 to focus on the development of social networks, allowing the game L2 network to subdivide and incubate game application products, and allowing the financial L2 to provide liquidity and derivative products between L2 networks, etc. At the same time, in this process, the "data bubble network" created by the "capital game" will be gradually squeezed out of the mainstream Ethereum ecosystem, so as to achieve the goal of getting back to the original source and eliminating the "on-chain ghost town" in the "ecological cancer".
Prescription 3: The curse of cyclical liquidity tightening - introducing a wider range of asset liquidity
Finally, in view of the “cyclical liquidity tightening curse” that is crucial to the cryptocurrency industry, including the Ethereum ecosystem, now that the DeFi track can only be barely supported by Ethereum POS staking and re-staking tracks, it has become imperative to further expand the scope of liquidity absorption.
Therefore, the Ethereum spot ETF as a single channel is not enough to become a window for asset liquidity to enter a larger range. Instead, it should focus on the direction of on-chain real assets with a potential market size of trillions or even tens of trillions.
As mentioned in the article "DeFi declines, the market is eaten away by L2, where is the cure for Ethereum?"
The key question now is: what will drive the next wave of cryptocurrency adoption, potentially enabling it to grow 10-100x? While Vitalik’s concerns about the sustainability of DeFi are worth taking seriously, this does not negate the potential of blockchain technology in the financial sector. The answer may not lie in improving existing DeFi models or perpetuating the current speculative cycle, but in a more fundamental shift: the tokenization of traditional financial assets, or RWAs. This is the largest untapped market for cryptocurrency, with the potential to bring trillions of dollars of capital to the blockchain. This shift may alleviate some of Vitalik’s concerns about the circularity of DeFi by introducing a large number of “real world” assets.
Consider the sheer size of traditional financial markets: BlackRock alone manages nearly five times the assets of the entire crypto market. By tokenizing assets such as bank deposits, commercial paper, treasuries, mutual funds, money market funds, stocks, and derivatives, we can bring unprecedented capital inflows to the crypto ecosystem. This capital can be integrated into the DeFi infrastructure that has already demonstrated utility in creating more transparent, accessible, and liquid markets. This tokenization potential aligns with Larry Fink’s views on Ethereum and could create a fascinating future for the platform.
…Financial derivatives emerged to manage risk and speculate on real assets, such as commodities, commodity contracts, and corporate shares. However, cryptocurrencies have almost directly entered the derivatives stage without sufficient underlying assets. This is not the fault of the industry itself, as regulatory issues have hindered the tokenization of many important real-world assets (RWAs). Many of the top crypto assets actually represent a platform for trading and speculation, and the assets traded are themselves highly speculative.
Cryptocurrency is not alone: how many of the most valuable U.S. companies pay dividends? Dividends were once a core attraction for companies going public, but have mostly been replaced by strategies like the Greater Fool Theory. Even gold is highly speculative in nature, as its actual use in semiconductors and other devices is minimal relative to its market value. Therefore, speculation plays a role in the market, especially in an inflationary fiat currency regime.
In short, before the leading innovation trends of this cycle emerge, it is more important to involve the Ethereum ecosystem in a larger and broader ecosystem.
In this regard, the performance of OpenAI founder Sam Altman may provide some reference value for the Ethereum ecosystem: he has previously mentioned that a large amount of review of AI technology is very necessary. He also claimed that he would communicate with the government "every few days" to establish technical guardrails and let the government begin to study how to conduct security tests on AI systems.
Of course, starting from this aspect, it may conflict with the cypherpunk spirit, decentralization concept and d/acc accelerationism that Vitalik has always believed in, but since there is a "live case" like the island nation of El Salvador, whether willing or not, the deep coupling of the Ethereum ecosystem and even the cryptocurrency industry with real assets is the general trend, and it is only a matter of sooner or later. It is better to take the initiative than to wait passively.
Conclusion: There are always people getting older, but there are still people who are young, and the same is true for the ecology
Finally, I would like to summarize with the previous posts by Ethereum co-founder Vitalik and Danny Ryan, who just resigned.
Vitalik had previously written a long article entitled "The end of my childhood" on his 30th birthday, expressing his feelings on many topics such as Ethereum's technology, the current state of the crypto world, the impact of the Russian-Ukrainian war, survival and death, growth and experience. Among them, he mentioned: "One of my most profound memories of the past two years is speaking at hackathons, visiting hacker houses, doing Zuzalu in Montenegro, and seeing people who are a full ten years younger than me take on leadership roles in various projects as organizers or developers: cryptographic audits, Ethereum layer 2 expansion, synthetic biology, etc. One of the memes of the Zuzalu core organizing team is 21-year-old Nicole Sun. A year ago, she invited me to visit a hacker house in South Korea: a hacker house of about 30 people. “I went to a gathering of people who were so far ahead of me, and I remember it was the first time I was the oldest person in the room. When I was the same age as the current Hacker House residents, I remember a lot of people praising me as one of those awesome, young wunderkinds who were changing the world, like Zuckerberg. Now I kind of cringe at this, both because I don’t like the attention and because I don’t understand why people had to translate ‘wonder boy’ into German when it works just fine in English. But watching all these people who were further along than I was, who were younger than I was, made it clear to me that if that was my role, it wasn’t anymore. I was playing a somewhat different role now, and it was time for the next generation to take up the mantle that was once mine.”
Danny Ryan, who has been involved in the Ethereum ecosystem for 7 years, wrote on GitHub The farewell document said: "I won't wax poetic with a ton of thoughts and advice, but I will say a few words to those in the R&D department and the entire ecosystem - 1) Strive to achieve real value, rather than focusing on the short-term gains that many are chasing: Ethereum and what we can build on it have deep intrinsic value to humanity. Focus your time and energy on expanding this core value, rather than chasing numbers. This is how Ethereum succeeds, and in the long run, the real value will be reflected in the numbers we can be so obsessed with. 2) Be careful! Ethereum's infancy is long gone, and its adolescence is now over. As a young person (the same ecosystem), the world is full of complexity, false prophets, complex incentives, dead ends, and other dangers. Everyone has a slightly different idea of what Ethereum should be and where it should go, but in general, every decision you make will add up to all the others to guide Ethereum through this critical period. Be true to the good. Do your part to keep Ethereum on the accidental path it has nurtured since its birth. 3) Finally, be kind. Do this during both bull and bear markets. We are usually on the same team - working hard to make Ethereum have a profound and positive impact on the world."
There are always people getting older, but there are also people who are still young, and the same is true for the ecology. What we can do is to ride on this wave and head towards the next promised land.
