原文标题：Why Has the King of Altcoins Found Itself Surrounded by Crisis?
Original author: YBB Capital Researcher Zeke
Original source: https://medium.com/
Compiled by: Mars Finance, Daisy
Preface
The halving rules are starting to falter, and many altcoins are in the doldrums. Speculators are pulling out, and believers are starting to doubt themselves. Despair within the industry stems not only from plummeting prices in secondary markets, but also from uncertainty about future direction. Criticism has become a major theme in the space, covering everything from a lack of adoption to the details of financial reporting by major blockchains. Now, attention is focused on Ethereum, once the fertile ground for cryptocurrencies. So what exactly is the internal struggle of the “king of altcoins”?
1. Main chain expands horizontally and is layered vertically
Vitalik set out his vision for Ethereum’s ultimate goal between 2018 and 2019: achieving fractal scalability through full modularity. The idea is to optimize the bottom layer around data availability while infinitely scaling the upper layer, thereby bypassing the blockchain trilemma and positioning Ethereum as the settlement layer for countless chains, ultimately achieving the ultimate goal of blockchain scalability.
Once the feasibility of this vision was confirmed, Ethereum's roadmap advanced rapidly in both horizontal and vertical dimensions. In 2023, modularity became a driving theme for the Ethereum ecosystem with the successful merger of the main chain with the Beacon Chain during the Shanghai upgrade. Now, with the Cancun upgrade taking the first step of EIP4844, the main chain is approaching Vitalik's early vision. The upper layer is also booming, with improvements in Gas, TPS, and diversity steadily surpassing previous competitors. In addition to the fragmentation problem, the narrative of Ethereum killers from heterogeneous chains should now be considered over. But the harsh reality is that TON and Solana are on the rise, and many projects that replicate the modular narrative have outperformed the "modular pioneer" Ethereum in the secondary market - even with the promotion of ETFs. What is the reason for this?
Recently, the focus of Ethereum's criticism has been on its shift to PoS and Layer 2 development. But in my opinion, neither Vitalik nor Ethereum developers are wrong to promote modularization. If there is a mistake, it may be that the process is moving too fast and too idealistic. I mentioned something like this in an article I wrote earlier this year: If blockchain really has major use cases outside of the financial field and will eventually be widely adopted, then it makes sense for Ethereum to turn to modularity. Obviously, Ethereum is too idealistic in this regard, because there is currently no sign that these two conditions are being met. The same is true for the pricing curve of DA. Judging from the current status of Layer 2, the expected application layer explosion has not been realized. Moreover, many general chains have shrunk, and only ARB, OP, and Base are still active. The income from DA alone is far from enough to maintain Ethereum's positive cycle.
There are other issues that have not yet been resolved. For example, Gas consumption has dropped by tens or even hundreds of times; what used to require 0.1 ETH now only requires 0.001 ETH, but user activity has not increased by the same magnitude, resulting in supply far exceeding demand. However, there seems to be nothing wrong with promoting mass adoption of public chains while maintaining maximum decentralization and security. Ethereum has successfully turned most of its "promises" from eight years ago into reality, which is commendable in the crypto world. Unfortunately, the market is driven by pragmatism rather than ideals. In the absence of applications and liquidity, the conflict between Ethereum's technology-driven idealism and investor needs will continue to deepen.
2. Human nature
Ethereum's idealism is reflected not only in its vision for the future of the application layer, but also in its understanding of human nature. Currently, the two most discussed issues about Layer 2 are: 1) centralized sequencers and 2) tokens. From a technical perspective, Layer 2 has the potential to be decentralized. However, from a human perspective, it is unlikely that the top Layer 2 projects will give up the huge profits generated by sequencers unless decentralization somehow enhances the value of the tokens and generates greater benefits. For example, the leading Layer 2 projects certainly have the ability to decentralize their sequencers, but they choose not to do so. This is because they are top-down projects driven by a lot of money, and their operating model is very reminiscent of Web2. The relationship between community members and Layer 2 is more like the relationship between consumers and cloud service providers. Just as regular customers of Amazon AWS servers may receive discounts or cash back offers, Layer 2 projects offer airdrops. However, for Layer 2 projects, income from sequencers is their lifeblood. Design, funding, development, operations, and hardware purchases do not require community support. In their view, users contribute little, which explains the often indifferent attitude of many Layer 2 projects towards users. Therefore, the possibility of sequencer decentralization is small, because appealing to moral sense alone is not enough. For sequencers to be decentralized, new designs must be in the interests of Layer 2 project teams, but such proposals will undoubtedly be controversial. A better approach may be to delete or indefinitely postpone any roadmap items related to decentralized sequencers. Currently, Layer 2 projects run counter to Ethereum's original modularization goals; most of them simply divert concepts and siphon off anything of value from Ethereum.
Let’s move on to tokens. Layer 2 in its current form is still a relatively new concept in the crypto space, and tokens create significant contradictions from the perspective of Ethereum, Layer 2 project teams, and the broader community. Let’s start with Ethereum’s point of view: From Ethereum’s perspective, Layer 2 should not issue tokens. In the Ethereum ecosystem, Layer 2 is similar to a “high-performance expansion server” that is simply used across chains and charges service fees. This is a healthy model for both Ethereum and Layer 2 because it maximizes the stability and value of ETH. More specifically, if the entire Layer 2 ecosystem is compared to the European Union, it is crucial to maintain the stability of the Euro. If many member states begin to issue their own currencies and weaken the Euro, the EU and the Euro may eventually collapse. Interestingly, Ethereum does not restrict Layer 2 from issuing tokens, nor does it force the use of ETH as gas fees. This open attitude towards rules is typical of “crypto”. However, as ETH continues to weaken, “EU members” have also shown signs of uneasiness. Among the main tools used by top Layer 2 projects to launch new chains, it is clearly stated that projects can use any token as gas fee and choose any integrated DA (data availability) solution. In addition, one-click chain launch is likely to lead to the formation of smaller alliances in the Layer 2 ecosystem.
Now let’s look at this from the perspective of Layer 2 and the community. Even if ETH rebounds strongly in the future, the token faces a dilemma. In fact, major Layer 2 projects were initially hesitant to issue tokens. In addition to Ethereum’s opposition mentioned above, there are several reasons: regulatory risks, sufficient funds without the need for additional financing, difficulty in determining the scope of the token’s use, and the fact that using ETH directly will drive TVL (Total Value Locked) and ecosystem growth more quickly. Issuing your own token may conflict with this goal, and liquidity will never surpass ETH.
Again, human nature makes it so. Who can resist printing tens of billions of dollars out of thin air? Moreover, from the perspective of community members and ecological development, tokens seem to be necessary. In addition to charging a fixed service fee, they can also provide a vault that can be withdrawn at any time. Who would not like it? But the design of tokens must also take into account the above issues, resulting in the minimization of utility. As a result, a large number of "air tokens" that do not require PoS staking or PoW mining have emerged. These tokens have only one purpose: voting, and each linear release will drain the liquidity of the market. Over time, these tokens that lack real driving force will continue to fall after the airdrop, leaving the community and investors dissatisfied. So, should these tokens be given utility? Any meaningful utility will contradict the above issues, leading to a dilemma. The token situation of the "Four Heavenly Kings" of Layer 2 perfectly illustrates these problems.
On the other hand, Base, which has not issued tokens, is in a much better situation than Zks and Starknet, and its sequencer income has even surpassed OP, the founder of Superchain. In the previous article on the attention economy, it was mentioned that using social media influence, project operations, and price-raising strategies to create wealth effects for MEME tokens and various projects is an indirect, multiple small airdrop method. This method is much healthier than directly issuing tokens and then airdropping them once. In addition to continuously creating attraction, it also avoids many problems. By allocating a portion of sequencer income every month, Layer 2 projects can maintain activity and build a sustainable ecosystem. It is worth noting that the current point system in Web3 is only a superficial imitation of the PDD model. Coinbase's stable and long-term operating strategy far exceeds that of explosive players such as Ironfish.
3. Vicious competition
The trend of homogenization between Layer 1 and Layer 2, and even between different Layer 2 solutions, is becoming more and more obvious. This situation stems from a key problem: in this cycle, few independent applications can prove the existence of a specific application chain, and the few applications that stand out have "run away" (such as DYDX). At present, it can be said that all Layer 2 projects target the same user base and even overlap with Ethereum's main chain. As a result, a very problematic phenomenon has emerged: Layer 2 solutions continue to erode Ethereum while engaging in vicious competition in terms of TVL. No one can clearly distinguish these chains, and users rely on incentive plans to decide where to store funds or on which platform to trade. Homogenization, fragmentation, and lack of liquidity - Ethereum is currently the only public chain ecosystem that contains all three problems at the same time. These problems also stem from the inherent open spirit of Ethereum, which leads to some drawbacks. We may soon see the natural elimination of many Layer 2 solutions, and the centralization problem may lead to various forms of chaos.
4. Leaders don’t understand Web3
Whether it is the early "Vitalik" or the current "Little V", Vitalik Buterin's contribution to infrastructure has undoubtedly pushed the crypto field into a new era of prosperity second only to Satoshi Nakamoto. However, the reason why he is now called "Little V" is not only due to problems in his personal life, but also due to a common criticism: Ethereum leaders do not understand DApp, let alone DeFi. To some extent, I agree with this statement, but before I delve into this topic, I want to make it clear: Vitalik is Vitalik-neither an omnipotent god nor an incompetent dictator. In my opinion, Vitalik is a relatively humble and active leader in the blockchain field. If you have read his blog, you will notice that he regularly publishes one to three updates on topics ranging from philosophy to politics, infrastructure, and DApp. He also likes to share on Twitter. Unlike some blockchain leaders who occasionally criticize Ethereum, Vitalik is more pragmatic.
Now that I’ve said some positive things, let’s talk about the problems I see with Vitalik:
His influence in the space is so huge — affecting everyone from retail investors to venture capitalists. Everything he says influences people’s decisions, and “To Vitalik” has become a pathological trend among founders of Web3 projects.
He was overly enthusiastic about certain technological directions he favored and even openly supported them.
He may not fully understand what crypto users really want.
Let’s start with Ethereum’s scalability. The idea that Ethereum is in dire need of scaling is often supported by the unusually high on-chain activity driven by the abundance of external liquidity in 2021-2022. But every time Vitalik discusses this topic, he seems to be unaware that this is only a temporary phenomenon and misses the original intention of users flocking to the chain. For another example, he repeatedly emphasizes the technical advantages of ZK (zero-knowledge) technology in Layer 2 solutions. However, ZK technology is not particularly user-friendly and is not conducive to ecosystem growth. Today, many ZK Rollup projects founded with a "To Vitalik" mentality are not just T2 or T3 categories; even the top two players are struggling, and the Optimistic Rollup trio outperforms all ZK Rollups combined. There are many similar issues, such as last year’s criticism of MPC (multi-party computation) wallets was too one-sided and favored AA (account abstraction) wallets. Earlier, he proposed the concept of Soulbound Tokens (SBT), but the actual application effect was not ideal and was rarely mentioned. In short, most of the technical solutions that Vitalik has supported in recent years have not performed well in the market. Finally, his recent comments on DeFi are also puzzling. Taking all these factors into consideration, Vitalik is not perfect. He is an excellent developer with an idealistic vision, but lacks a deep understanding of the user community and sometimes makes subjective judgments on topics he does not fully understand. The industry needs to unveil the mystery of Vitalik and treat the controversy surrounding him with clarity and discernment.
5. From Virtual to Reality
From the ICO boom in 2016 to the P2E bubble in 2022, the blockchain industry has witnessed the emergence of various Ponzi schemes and new narratives in each era, pushing the industry towards larger and larger bubbles, limited only by infrastructure. We are now witnessing the bursting of these bubbles - projects with huge funds are self-destructing, grand narratives are failing, and the disconnect between the value of Bitcoin and altcoins is growing. How to create real value has been a recurring theme in many of my articles this year. Moving from the virtual world to the real world is also the current popular trend. While Ethereum embraces modularity, some people declare that the narrative of "Ethereum killer" is over. Yet today, the hottest ecosystems are TON and Solana. Do these chains bring any innovations that can truly change cryptocurrency? Are they more decentralized or more secure than Ethereum? The answer is no. They also did not introduce any groundbreaking narratives. All they did was make those seemingly complex technologies more like real-world applications, blending Web2 standards with blockchain advantages, and that's it.
The pursuit of new narratives cannot fill the block space on Layer 2 when Ethereum is experiencing internal exponential growth while external liquidity remains scarce. As an industry leader, Ethereum should first address the fragmentation and internal decline of its Layer 2 ecosystem. Particularly noteworthy is the Ethereum Foundation (EF), which I did not mention before. Why has EF failed to fulfill its responsibilities despite its huge investment? In a market where Layer 2 infrastructure is already severely oversupplied, why does EF continue to prioritize funding infrastructure projects? Even the leaders of centralized exchanges are being humble and seeking transformation, while EF, the organization that should be accelerating the growth of the ecosystem, seems to be moving in the opposite direction.
About YBB
YBB is a web3 fund dedicated to discovering Web3-defining projects, with the vision of creating a better online environment for all Internet residents. YBB was founded by a group of blockchain believers who have been actively involved in the industry since 2013, always willing to help early projects from 0 to 1. We value innovation, self-driven passion and user-oriented products, while recognizing the potential of cryptocurrency and blockchain applications.
