By Carol, PANews

Ethereum's transformation into a PoS mechanism has long been considered to help achieve currency deflation and meet larger-scale application needs, which is conducive to the upward price of ETH. But on the second anniversary of its transformation, Ethereum faces many doubts. On the surface, these doubts arise mainly because ETH has underperformed in the latest market cycle, especially when compared to BTC and SOL in the same period, the price growth was not as expected.

But looking deeper, these doubts reflect the two main challenges in the development of Ethereum: First, the competition between Layer1 and Layer2. The core here is how to position the role of Layer2 and its relationship with Ethereum. The second is the contradiction between pledge and liquidity. The core here is how to position the attributes of ETH.

In order to further demonstrate the development status of Ethereum and the challenges behind doubts, PANews' data column PAData comprehensively analyzed the changes in Ethereum's handling fees, Blob fees and Layer2 demand, and found that: First, Ethereum has lowered the fee price, but Layer 2 diverts the demand for on-chain activities and interacts with Ethereum at a lower price, resulting in challenges for the value feedback and accumulation of ETH. Second, if ETH is positioned as a settlement currency, it is expected that Ethereum will have long-term sustainable high demand to achieve long-term stable appreciation of ETH. However, in the face of fierce competition, the market's willingness to pay for this long-term expectation may waver.

The main findings of this article include:

1. In the past 2 years, the increase of ETH against USD was about 44.28%, but the decrease of ETH against BTC was about 48.70%, and the decrease of ETH against SOL was about 63.55%.

2. In the past two years, Ethereum's monthly transaction fee income (only considering Tip fees) has shown a clear growth trend as a whole, with the average monthly fee income being approximately US$32.8156 million. However, monthly fee income began to decline in August this year.

3. After the introduction of Blob, the daily average TPS of Arbitrum One, Base and OP Mainnet increased by 122.00%, 694.69% and 54.94% respectively. Arbitrum One and Base are 60.24% and 158.85% higher than Ethereum’s daily average TPS.

4. The top 20 submitters by Blob payment fees submitted a total of 263.93 blobs and paid a total of US$5.9914 million, with the average fee per blob being approximately US$2.27. Among them, Base, the fastest growing TPS, has only accumulated US$109,300.

5. The total amount of pledges in Ethereum has grown by approximately 150.18% in 2 years, but the total amount of pledges has grown slowly at the margin. The average daily growth rate in the first nine months of this year was 0.06%, down more than 0.1 percentage point from the 0.17% average daily growth rate for the whole of last year.

6. The locked-up volume of DeFi on Ethereum has increased by 50.12% this year, but Solana has increased by 242.20% this year. Based on static estimates based on this year's average monthly growth rate, it is expected that Solana's locked position will exceed that of Ethereum in 12 months.

01. The exchange rates of ETH, BTC and SOL fell together, and Ethereum’s fee income increased from an increase to a decrease.

The direct reason why Ethereum faces doubts is the poor performance of ETH, but in fact, in terms of its own trend, ETH has maintained an obvious upward trend after the transformation. According to data from CoinGecko, in the past two years, ETH has increased by approximately 44.28%. During this period, it once exceeded US$4,000 and reached a maximum of US$4,071. The current price of more than US$2,300 is still at a high point in the past two years.

However, when ETH is compared with BTC and SOL in the same period, the performance of ETH is not satisfactory. Judging from the trend of these two ratios, in the two years since Ethereum's official transformation, BTC has always performed better than ETH, while SOL's performance has experienced a process of first being worse and then better than ETH.

According to statistics, in the past two years, when compared with BTC, the BTC that can be exchanged for 1 ETH fell from 0.0807 to 0.0414, a decrease of approximately 48.70%, and overall, the ETH/BTC exchange rate has a clear downward trend.

When compared with SOL, before September 2023, 1ETH can basically be exchanged for more than 50 SOL, and the overall trend is growing, with the highest exchange rate of 125.1895 SOL. However, after September 2023, the exchange rate fell rapidly, dragging down the overall exchange rate in the past 2 years. Currently, 1ETH can only be exchanged for 17.4939 SOL, an overall decrease of approximately 63.55%.

Some skeptics believe that the direct cause of ETH's poor performance is the reduction in fee income. Although this is one of the main purposes of a series of upgrades after the transformation, this hinders the accumulation of ETH value. However, according to the data trends collected by CryptoQuant, in the past two years, Ethereum’s monthly transaction fee income (only considering Tip fees) has shown an overall obvious growth trend.

As of September this year, the average monthly fee income of Ethereum in the past 25 months was US$31.8445 million. If September this year is not taken into account, then in the past 24 months, the average monthly fee income of Ethereum was US$31.8445 million. It will be increased to US$32.8156 million. And from November 2023 to July 2024, monthly fee income has been higher than US$33 million, significantly higher than most of the previous time, and once exceeded US$60 million.

However, in August this year, Ethereum’s monthly fee revenue dropped to $27.96 million. If we estimate based on the average of handling fees in the first 10 days of September, the monthly handling fee income in September may further decline to US$25.6847 million. This confirms the market’s concerns about the future value accumulation of ETH.

02, 3 Major Layer2’s TPS increased significantly after the introduction of Blobs, and the first 20 Blob submitters only paid a total of US$5.99 million.

The continued reduction of Ethereum handling fees should actually be expected, but why are the recent doubts surrounding this? The possible reason is that the balance between the demand for on-chain activities and the fee price has not been established.

The ideal expectation is that Ethereum has lowered its handling fee price through Layer 2 and other upgrades, which will directly boost or help boost the demand for on-chain activities in the long term, so the two can reach a balance and ETH can still accumulate value from it. But the problem now is that the total demand for on-chain activities is insufficient, plus Layer2 takes on more direct on-chain activities and interacts with Ethereum at a lower price. In this case, the continued reduction of handling fees has led to challenges in the value return and accumulation of ETH. In simpler terms, Ethereum’s fee optimization scheme designed during periods of high demand faced untimely difficulties during periods of low demand.

Judging from the data of Dune (@hildobby), after the introduction of Blob transactions, the TPS of the three Layer 2 chains with the highest lock-up volume have all grown significantly, and the TPS of two of them have exceeded Ethereum. Ethereum’s series of optimizations in terms of handling fees have objectively promoted the development of Layer 2, especially the development of Base.

From the beginning of this year to March 14, the daily average TPS of Arbitrum One, Base and OP Mainnet were 9.68, 4.33 and 4.15 respectively. From March 14 to now, the daily average TPS of the three have increased to 21.49, 34.41 and 6.43 respectively. , with increases of 122.00%, 694.69% and 54.94% respectively.

Moreover, from the beginning of this year to March 14, the daily average TPS of Arbitrum One, Base and OP Mainnet were all lower than the daily average TPS of Ethereum during the same period, with an average of 26.86%, 67.19% and 68.76% lower respectively. However, the introduction of Blob Finally, the daily average TPS of Arbitrum One and Base has been 60.24% and 158.85% higher than Ethereum. Although the average daily TPS of OP Mainnet is still lower than that of Ethereum, the gap between the two is also narrowing.

The growth in demand for Layer 2 has benefited from the introduction of the Blob transaction type, but the fees paid by Layer 2 for Blobs are very low. In other words, the improvement in Ethereum transaction fees cannot yet be returned to the value accumulation of ETH.

According to Dune (@hildobby), the top 20 committers by Blob payment fees have paid a cumulative $5.9914 million so far, accounting for more than 99% of the total fees. Among them, Base, the fastest growing TPS, only paid a total of US$109,300, Arbitrum paid a total of US$643,500, and OP Mainnet paid a total of US$49,400. Even Taiko, who paid the highest amount, only paid $2,407,900.

These committers submitted a total of 263.93 blobs, which equates to an average fee of approximately $2.27 per blob. However, this is cost data based on the current lack of total demand on the chain. If the demand for activities on the Ethereum chain increases significantly in the future and network congestion occurs, the price of Blob will also rise, and Layer 2 will naturally have to pay more to Ethereum. cost. It remains to be seen whether Blob can make up for the fee income transferred by Ethereum by then.

The growth in demand for Layer 2 is partly reflected in changes in lock-up volume. According to statistics from DefiLlama, after the introduction of Blob, Ethereum’s locked-up volume fell by 22.13%, with only Blast and Optimism falling more than it. Base, the fastest-growing TPS, has its locked-up volume increased by 105.33%, and Linea, which pays second Blob fees, has its locked-in volume increased by 414.02%. In addition, although Arbitrum’s locked-up volume also fell by 19.13%, the decline was smaller than that of Ethereum.

03. The growth rate of Ethereum pledges has declined, and TVL has grown but the growth rate is lower than that of Solana.

Another challenge after Ethereum's transformation is how to achieve a steady state between the pledge amount and the lock-up amount to ensure that activity on the Ethereum chain can safely remain at a certain level. The interplay between the price of ETH and the staking rate will be key to achieving this balance. Essentially, this will determine whether ETH has sufficient liquidity and sufficient demand, which is an important requirement for ETH to become a settlement currency. Another requirement is that ETH maintain its value over time, which means that violent fluctuations or short-term surges in ETH should not be expected.

If you accept the positioning of a settlement currency, then you expect Ethereum to have long-term sustainable high demand to achieve long-term stable value appreciation of ETH. The question is whether the market is willing to pay for such long-term expectations. When such long-term expectations fall short, doubts are natural.

Judging from the demand side reflected in the data, currently, the total amount of Ethereum pledged is 34.3842 million ETH, an increase of approximately 150.18% from 2 years ago, a significant increase. However, in terms of the growth rate of the pledged amount, the monthly average daily growth rate shows a downward trend, that is, the marginal growth of the total pledged amount is slow. The average daily growth rate in September has dropped to 0.02%, and the average daily growth rate in the first nine months of this year was 0.06%, which is more than 0.1 percentage point lower than the average daily growth rate of 0.17% last year.

Currently, the three entities with the highest cumulative pledge amounts are Lido, Coinbase and ether.fi. Among them, Lido’s pledge amount alone exceeds 9.75 million ETH. Since the beginning of this year, Renzo, ether.fi and Everstake have achieved rapid growth in pledged amounts, with growth rates exceeding 7457%, 3128% and 2044% respectively.

While the total amount of pledges remains high and is growing slowly, the amount of DeFi locked on Ethereum reached a short-term high of US$67.901 billion in June this year and is currently US$44.468 billion, an increase of 50.12% so far this year and an increase of 50% in the past two years. 50.53%. In other words, the demand for Ethereum at the application level has recovered this year.

But compared with Solana, Ethereum’s demand growth appears to be underpowered. Solana’s current locked-up volume is approximately $4.781 billion, and its overall size is approximately 1/10 of Ethereum. However, Solana’s locked-up volume increased by 242.20% this year and by 267.89% in the past two years, which is a very rapid development.

Doing a simple static analysis, if Solana continues to maintain its average monthly growth rate this year (this year’s growth rate / 254 days * 30 days), it is expected that its locked position will reach more than 46 billion US dollars in another 9 months. . If Ethereum maintains its average monthly growth this year, it is expected that Solana’s locked-up volume will exceed Ethereum in another 12 months. Competition may be one reason why the market is starting to question whether Ethereum’s long-term expectations can be realized.

(The above content is excerpted and reprinted with the authorization of our partner PANews, original text link)

Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.

"Second Anniversary of Ethereum's Conversion to PoS: Data Interpretation of the Deep Reasons for "ETH Price Sluggishness"" This article was first published on "Block Guest".