Ethereum replaced the original Ethereum chain (Ethereum PoW) consensus mechanism based on proof of work (PoW) on September 15, 2022. The status of ETH as a pioneer of decentralized cryptocurrency and its contributions to the industry cannot be erased; this is a basic fact. It was once the ideal of almost all practitioners, but after nearly 10 years of industry development, ETH now faces huge problems and extreme challenges.
Currently, the biggest concern for the market regarding ETH is the 'centralization' issue. The Lido protocol is about to reach the one-third threshold, theoretically gaining the capability to attack the Ethereum network. Although it is not in their interest to act maliciously or harm the network, there is still a need for 'objective protocols' to constrain behavior rather than relying on the 'subjective belief that they won't act maliciously.'
Currently, the largest contributions to the ETH on-chain ecosystem are: stablecoins, DeFi, NFTs, speculative activities, and the centralization issue of L2, along with the weakening ecosystem, seem to make institutions a bit cautious. From the market information, the demand for institutions to increase exposure to Ethereum has become very low, and the attraction is still concentrated on BTC.
Let's discuss a few key issues:
Firstly, the demand is lacking. The L2 and Restaking of Ethereum cannot vigorously promote Ethereum's demand as significantly as the previous ICO and DeFi. The similarity between L2 and the main chain is extremely high, resulting in very low trading activity. Although Restaking locks up some Ethereum, it has also failed to attract more assets priced in Ethereum, severely constraining demand.
Secondly, there is huge external pressure. The current macro environment is becoming increasingly tense, and ETFs have flexible and free characteristics, with old and new investors cashing out through ETFs, which further depresses Ethereum's price.
Thirdly, there are issues in the PoS era. In the PoW era, miners faced high costs, and if the Ethereum price fell below their costs, they would stop selling to support the price. However, in the PoS era, the costs for validators and stakers are relatively low, and they mainly adopt a coin-based model, which means there is no clear 'shutdown price', so the price floor cannot be maintained, and Ethereum naturally faces significant pressure.
Fourthly, there are historical legacy issues. After the ICO crash in 2018, the core team of Ethereum became extremely conservative, overly emphasizing orthodoxy and roadmaps. This ultimately led to an incomplete entrepreneurial ecosystem, slow splits, lack of liquidity, and poorer market returns compared to competitors, which resulted in Ethereum's market performance deteriorating.
Since the beginning of this year, ETH's performance has indeed not satisfied everyone. So, has Ethereum really reached its end?
Currently, ETH's network speed is fast and fees are low, but when demand and new gameplay are lacking, Gas tokens seem to lose their reasons for appreciation. Due to the decreased demand for ETH, the originally deflationary ETH has now turned inflationary.
To put it simply, if we compare ETH to oil, previously everyone needed to refuel their cars, and new cars (new concepts) were constantly being introduced, keeping oil prices high. However, with the large-scale adoption of L2, which is like a cheaper electric vehicle, if everyone starts driving electric vehicles, oil prices may be impacted. Of course, there are still those who prefer gasoline vehicles, as they believe gasoline vehicles are more stable and safer; we will not discuss this here. From the demand perspective alone, if the related demand for Gas tokens in a network continues to decline, their prices will inevitably decrease.
In this process, it also brings new short-term speculation opportunities to other networks. For example, the Solana network, which claims to be faster and cheaper, has made the SOL token a new point of demand through the hype of Meme and 'shitcoin'. ETH has experienced a certain degree of liquidity loss under the diversion effect of L2 and SOL.
In summary, if a network reduces its fees by 10 times, then the corresponding demand must increase by 10 times to maintain balance. Once this demand flows to rising public chains like Solana, the corresponding network token prices may face downward pressure. Just like Windows and Mac occupy most of the market share of computer operating systems, the market will tend to favor whichever is more user-friendly.
From this perspective, if you are looking for short-term investment, ETH's performance is indeed not as good as SOL. Moreover, although Solana currently mainly relies on the hype of MemeCoin, upcoming popular sectors such as AI, GameFi, and DePin may also continue to drive speculation.
From a longer-term perspective, it is recommended to focus on the layout of ETH, as the overall ecological development of Ethereum is more robust. Currently, over 28% of ETH tokens are staked. Next, aside from the macro market environment, we should pay attention to the inflow/outflow data of ETF funds, which will become one of the most important factors affecting the price direction of ETH. Once more funds (liquidity) start to flow back into Ethereum, it will inevitably further promote the ecological development on Ethereum (DeFi ecology, L2-related ecology, etc.), thus further enhancing the relevant demand for ETH tokens. Therefore, now is still one of the opportunities to buy ETH.
