作者: YBB Capital Researcher Zeke
Preface
The halving law began to fail, and a large number of copycats also became sluggish. Speculators are withdrawing, and believers are beginning to doubt themselves. The despair of the industry comes not only from the low prices in the secondary market, but also from confusion about the future direction. Criticism has begun to become the main theme in the circle, from the lack of applications to the details in the financial reports of major public chains. Now, the spearhead has begun to point to Ethereum, the former hot spot of encryption. So, what is the internal dilemma of the king of copycats?
1. Expand the main chain horizontally and create multiple layers vertically
The expansion towards fully modularized type was Vitalik’s vision for the end of Ethereum in 2018 and 2019. That is, the bottom layer is optimized around Data Availability, and the upper layer is infinitely expanded, thus escaping the public chain triangle paradox, and Ethereum becomes the settlement layer of all chains, and finally realizing the end game of blockchain expansion game.
After determining the feasibility of the idea, Ethereum’s roadmaps at both ends began to advance rapidly. In 2023, with the successful merger of the main chain and the Beacon Chain in the Shanghai upgrade, the main theme of modularity began to cover the Ethereum ecosystem. Now, the first step towards EIP4844 after the Cancun upgrade, the main chain itself It is infinitely close to Vitalik's idea in his early years. Its upper layer is also blooming, with Gas, TPS, and diversity gradually crushing its former opponents. It can be said that except for the shortcoming of fragmentation, the narrative of all heterogeneous chains about Ethereum Killer should be overturned. But on the contrary, the cruel reality is that TON and Solana are constantly rising, and many Infra projects that copy modular narratives are even better than the "modular owners" supported by ETFs in the secondary market. This status quo is What exactly is attribution?
The transition from POS to Layer2 is the main focus of recent criticism of Ethereum's "crimes", but in my opinion, Ethereum developers and Vitalik have done nothing wrong in promoting modularization. If there is any, it may be that the process is pushed too fast and too idealistic. I wrote a paragraph in an article at the beginning of the year, which roughly means: If blockchain has a lot of application value outside the financial field, and Mass Adoption will eventually come, then Ethereum's shift to modularization will make sense. Obviously, Ethereum is too idealistic in this regard, and there is currently no evidence to prove that these two points are real. The same is true for the pricing curve of DA. With the current status of Layer2, the imagined application layer explosion has not arrived. Secondly, there are basically only ARB, OP, and Base, the top streams of a large number of general chains that are still active. It is impossible to satisfy Ethereum's positive cycle by relying solely on DA income. There are still many remaining problems. For example, Gas consumption has been reduced by dozens or even hundreds of times. Things that once required the purchase of 0.1ETH can now be done with only 0.001ETH, and user activities have not increased by dozens or hundreds of times, making the market supply far greater than demand. However, under the premise of maintaining decentralization and security to the maximum extent, it seems right to promote the development of public chains towards large-scale adoption. Ethereum has been able to gradually turn the "pie" it has drawn for eight years into reality, which is already precious in the crypto world. Unfortunately, reality is utilitarianism first, and the market will not pay for ideals. In the current situation of lack of applications and liquidity, the contradiction between technical idealists and investors will continue to deepen.
2. Human Nature
Ethereum's idealism is not only reflected in the judgment of the future of the application layer, but also in the judgment of human nature. Currently, there are two most hotly debated issues in Layer2: 1. Centralized Sequencer; 2. Token. From a technical point of view, Layer2 can be decentralized. But from a human point of view, it is impossible for the top Layer2 projects to hand over the huge profits brought by the sequencer. Unless the three words of decentralization can activate the token and achieve greater benefits. For example, the several top Layer2s just mentioned are of course fully capable of decentralizing the sequencer, but they will not do so. Because they are all top-down projects that have been burned through huge financing, their birth method is very Web2, and so is their operating logic. The relationship between community members and Layer2 is more like the relationship between consumers and cloud server operators. For example, those who often use Amazon's AWS servers may receive some coupons and cash back, and the same is true for Layer2 (airdrop). But the sequencer income is the lifeblood of Layer2, from the perspective of the project. Design, financing, development, operation, hardware purchase, each link does not require community support. In their logic, users do not contribute much (this is why many Layer2 project parties always have a bad attitude towards users), not to mention that the community wants to decentralize the sequencer. Morality alone cannot constrain Layer2. If you want to decentralize the sequencer as much as possible, you have to design a new sequencer solution from the perspective of the interests of the Layer2 project party, but obviously this solution will be very controversial. A better approach is to erase the decentralized Sequencer part of the roadmap, or put it in an invisible place on the roadmap. Today's Layer2 is completely contrary to Ethereum's original intention of embracing modularity. Most Layer2s are just stealing concepts and dividing up everything valuable in Ethereum.
Let's talk about Tokens. The public chain of Layer2 is still a new product in encryption. From the perspectives of Ethereum, Layer2 project parties, and the community, the existence of Tokens is very contradictory. Let's start in order. From the perspective of Ethereum, there should be no Tokens in Layer2. Layer2 is just a "high-performance expansion server" that needs to be used across chains for Ethereum. It only charges user service fees, which is healthy for both parties. Only by maintaining the value and status of ETH to the maximum extent can the business be carried out for a long time. To put it in a more concrete way, if the entire second-layer ecosystem is compared to the European Union, then maintaining the stability of the euro is necessary. If a large number of member states are issuing their own currencies to weaken the euro, then the European Union and the euro will eventually cease to exist. What's more interesting is that Ethereum does not restrict Layer2 from issuing coins, nor does it restrict whether Layer2 should use ETH as a gas fee. This open attitude in terms of rules is indeed very "Crypto". However, with the continued weakening of ETH, "EU members" are ready to move. In the top Layer2 chain-issuing tools, it is basically clearly marked that projects can use any token as Gas and can choose any integrated DA solution. In addition, one-click chain-issuing will also lead to the birth of a small alliance on the second layer.
On the other hand, from the perspective of Layer2 and the community, even if ETH rebounds strongly in the future, Token's situation is still very embarrassing. As for issuing coins, the leading Layer was actually very hesitant in the early days. In addition to the problems mentioned above that are opposite to ETH, there are also the following points: regulatory risks, no need to maintain development through tokens, the scale of token empowerment is difficult to make, and direct use of ETH can promote TVL and ecological growth the fastest. Issuing tokens by yourself may conflict with this matter, and liquidity cannot be stronger than ETH.
It is still a question of human nature. No one can refuse to print billions of banknotes out of thin air. Furthermore, from the perspective of community members and ecological development, Tokens seem to be supposed to exist. In this way, in addition to charging a fixed service fee, there is also a treasury that can be cashed out at any time. Why not? However, the design of Tokens must be combined with the above issues to minimize empowerment. As a result, a bunch of air tokens that do not need to be staked through POS and mined through POW were born. Their functions are only voting, and each linear release will also divide a large amount of liquidity from the market. As time goes on, these unmotivated tokens will continue to fall after a one-time airdrop. Neither the community nor the investors can give a good explanation, so should they be empowered? Any valuable empowerment will conflict with the above issues and eventually fall into a dilemma. The status of the tokens of the four kings can also well illustrate the above issues.
Base, which does not issue tokens, is now much more prosperous than Zks and Starknet, and its sorter income has even exceeded that of OP, the creator of Superchain. This has been mentioned in previous articles about the attention economy. Borrowing social media influence, operations, and pull-ups to create the wealth effect of MEME and multiple projects in the ecosystem is actually an indirect multiple small airdrops, which is much healthier than directly issuing coins and then airdropping them all at once. In addition to creating continuous attraction, it can also avoid a lot of problems. Allocating a portion of the sorter income every month can keep it active and build a healthy ecosystem. In addition, the current Web3 points gameplay is just the tip of PDD's. Coinbase is far better than nouveau riche like Tieshun in the way of long-term operation.
3. Inferior Competition
The first layer is homogenized with the second layer, and the second layer is also homogenized with the second layer. This situation stems from a very critical problem. In this round, there are not many independent applications that can support an application chain, and the few that can support it have "run away" (DYDX). From the current situation, it can be said that the target users of all Layer2 are the same, and even the same as the main chain. An extremely bad phenomenon has also arisen from this. The second layer is constantly eroding Ethereum, and there is a vicious competition between the second layer and the second layer for TVL. No one understands the difference between these chains. Users can only rely on the points activity to determine where to store money today and where to trade. Homogeneity, fragmentation, and lack of liquidity. In the public chain ecology of Web3, Ethereum is currently the only one that can occupy the above three points at the same time. These problems also stem from the disadvantages brought about by the open spirit of Ethereum itself. We may soon see a large number of Layer2 being naturally eliminated, and the centralization problem will also cause various chaos.
4. The leader does not understand Web3
Whether it is the former V God or the "Little V" in the mouth of KOLs now, Vitalik's contribution to infrastructure has indeed promoted the prosperity of the entire circle since the Satoshi era, which is obvious to all. However, the reason why Vitalik is now called "Little V" is not only because of his private life, but also because of a very interesting argument that the Ethereum leader does not understand DApp, let alone DeFi. I agree with this statement to a certain extent, but before continuing to discuss this issue, I would like to make one thing clear first. Vitalik is Vitalik, and only Vitalik. He is not an omnipotent god, nor is he a dictator who is useless. In my eyes, Vitalik is actually a relatively humble and active public chain leader in work and study. If you have read his blog, it should not be difficult to find that he updates one to three discussions on philosophy, politics, Infra, and DApp every month, and is also happy to share on Twitter. Compared with some public chain leaders who like to criticize Ethereum from time to time, Vitalik is much more pragmatic.
After saying the good things, let's talk about the negative side. In my opinion, Vitalik has three problems:
1. He has a huge influence on this circle, from retail investors to VCs. Everyone is influenced by his words and deeds. To Vitalik's entrepreneurship is also a pathological trend for Web3 project parties;
2. He is very persistent in the technical direction he is optimistic about, and sometimes even supports it;
3. He may really not understand what crypto users need.
Let's start with Ethereum's expansion. The argument that Ethereum urgently needs to expand is often supported by the ultra-high on-chain access brought about by the overflow of external liquidity in 21-22 years. But every time Vitalik talks about this, he seems to really not understand that this is obviously a short-term phenomenon, and why users come to the chain. Another point is that he has repeatedly emphasized the technical superiority of ZK on Layer2, but ZK is obviously not so friendly in terms of user experience and ecological development. Nowadays, a large number of ZK Rollups started by To Vitalik, not to mention the T2 and T3 echelons, even the two top kings are on the verge of death, and the performance of the three giants of Optimistic Rollup is better than the sum of dozens of ZK Rollups. There are some other problems like this. For example, in the middle of last year, the criticism of MPC wallets was biased and directly supported AA wallets. Earlier, SBT was proposed, but it was so useless in application that no one mentioned it later. It can be said that the technical solutions supported by Vitalik in recent years have not performed well in the market. Finally, his recent remarks on DeFi are also confusing. In many aspects, it can only be said that Vitalik is not perfect. He is an excellent and idealistic developer, but at the same time he lacks understanding of the user group and occasionally expresses subjective opinions on things that he does not understand deeply enough. The industry needs to disenchant him and distinguish right from wrong in the controversy about him.
5. From Virtual to Real
From the ICO boom in 2016 to the P2E bubble in 2022. In the history of infrastructure being limited by performance and constantly developing, each era will have a matching Ponzi scheme and emerging narrative, thus pushing the industry towards a bigger bubble. And now we are experiencing an era of bubble bursting, huge financing projects are self-destructing, high-sounding narratives have repeatedly failed, and Bitcoin and copycat value are disconnected. How to do valuable things is the main point that I will continue to output in many articles this year. From virtual to real is also the current main trend. When Ethereum embraces modularization, many people say that the narrative of Ethereum killers should be turned over. But now the hottest ecosystems are TON and Solana. Do the two have any innovations that change Crypto? More decentralized or secure than Ethereum? None, and there is no innovation in the narrative. They just make those things that sound mysterious more like applications, and integrate the advantages of the chain into a level closer to Web2, that's all.
In the context of geometric growth of internal volume and lack of external liquidity. Efforts to find new narratives are also insufficient to fill the block space of Ethereum's second layer. As an industry leader, Ethereum should first solve the fragmentation and internal corruption of the second layer. In particular, why did the Ethereum Foundation (EF), which was not mentioned above, not play a commensurate role despite the massive squandering of funds? In the case of an extreme oversupply of second-layer infrastructure, why is infrastructure funding still given the highest priority? Even the leaders of Cex are lowering their profile and seeking change. EF, as a key organization to accelerate the growth of the ecosystem, is going in the opposite direction.
