Author: David Hoffman
Compiled by: Shen Chao TechFlow
Ethereum is winning, yet ETH investors are still not winning.
You may have noticed that my stance on ETH has become more tempered recently. The decline in ETH's relative valuation has led to a loss of investor confidence, and when ETH aspires to be the currency of the internet, investor confidence is key.
The reason for ETH's underperformance over the years has been a focal point of debate. Many issues troubling ETH's relative valuation are beyond its control—contributions have come from people like Gary Gensler and Michael Saylor. (Gensler has already left, and the ETH fund management company has finally been established; some external issues will resolve themselves.)
Today, I want to emphasize the challenges firmly controlled by the Ethereum community, as many reasons for Ethereum lagging behind the market for over three years have been decided by the community itself. We should focus on addressing these issues to revive potential ETH buyers.
The value capture problem of ETH
Many challenges facing Ethereum can be boiled down to one core theme: there is a broken value capture supply chain between Ethereum's utility and ETH's value.
"I am surprised... the usage of stablecoins on Ethereum, Solana, and Tron... does not seem to create more value for holders of the Layer1 tokens these stablecoins rely on."
— Joe Weisenthal on The Chopping Block
In this episode, the CB team continues to discuss this Ethereum-specific issue as SOL and TRX have reached all-time highs, while Ethereum's economic model is particularly flawed compared to its competitors, especially the Layer2 model.
Speaking of stablecoins, concerns about the relationship between stablecoin supply and its Layer1 token value capture date back to the bear market of 2018-2019. Nic Carter published an article discussing this issue in 2020 on Bankless—Crypto Fiat: Symbiosis or Parasitism?
In short, buyers and holders of stablecoins on Ethereum Layer1 bring no value to ETH apart from spending about $0.50 in gas fees to purchase these stablecoins. If they do the same on Layer2, even with purchases worth billions of dollars in stablecoins, the value capture of ETH will drop below $0.01.
The narrative momentum of Ethereum
Nevertheless, the adoption metrics for Ethereum are undoubtedly bullish.
The recently launched Robinhood Chain deploying tokenized stocks on Ethereum validates the Layer2 roadmap of Ethereum and its position as a trusted neutral settlement layer for Wall Street assets. With Robinhood Chain, OG commits that blockchain technology will upgrade Wall Street's outdated financial system for tokenization and trading, and everything is coming to fruition.
This statement is just one of many bullish signals for the network:
The Ethereum ecosystem maintains a dominant position of 50% in stablecoin supply, and if you overlook the opaque Tron ecosystem, that proportion rises to 75%.
The sensational IPO of CRCL particularly validates Ethereum, as Ethereum holds 66% of all USDC.
Coinbase is the most trusted and respected brand in the crypto industry and is building Ethereum Layer2.
Ethereum operates with 100% uptime, prioritizing true decentralization without needing any counterparties to resonate with Wall Street's demands or enhance its brand image to compete with others.
The economic influence of the ETH fund company is continuously growing:
Original tweet link: Click here
If you want to promote bullish rhetoric for ETH and Ethereum, it will become increasingly easier to do so.
All efforts by Ethereum developers to maintain decentralization and trusted neutrality have been rewarded, with adoption metrics in the world's capital gravity center—Wall Street—being incredible.
Expanding the narrative of ETH
Many people see the above adoption and success stories and see opportunities.
Tom Lee's Bitmine fund management strategy leverages the narrative advantage of Ethereum. The strategy is simple: incorporate ETH into the balance sheet and then pitch ETH to Wall Street. Ethereum itself has many narrative highlights; all ETH needs is someone vibrant enough to excite Wall Street.
We are about to witness how underestimated ETH has been over the past four years. Is ETH's poor price performance due to market irrationality? Or does its decline genuinely reflect deeper, structural issues?
Tribalism and social scalability
A deep dive into the above will give you a deeper understanding of two aspects of ETH.
On one hand, a network adopting a Layer2 model cuts off a link in the ETH value capture supply chain. On the other hand, you see an incredible success story where Wall Street seems to just need a gentle push to send ETH to $10,000.
My perspective on this dichotomy is as follows:
If you add narrative firepower to an unresolved value capture supply chain, you get tribalism, which is loved by insiders of the tribe but rejected by outsiders:
Original tweet link: Click here
Now, most people within Ethereum see Ryan's proposed price of $740,000 per ETH and feel excited, while those outside Ethereum might see the same thing and consider it delusional (just read QT).
However, let’s imagine an alternative scenario where ETH's superior value capture supply chain becomes a core part of the ETH narrative, just like in 2021. In this case, all Ethereum Layer2s are based on Native+Based Rollup, and Ethereum's block time is reduced to about 2 seconds (this is Ethereum's long-term goal).
In this world:
Rollups possess synchronous composability, eliminating the need for network bridging. A lower Layer1 block time allows market makers to provide narrower spreads, resulting in greater on-chain trading volume. Price execution power significantly improves.
Ethereum's robust MEV infrastructure can ultimately be used to provide optimal execution for traders (on Memecoin, etc.), instead of the roughly 20% slippage they find elsewhere.
Cross-chain liquidity flows back to Layer1, while Native+Based Rollup can seamlessly tap into Layer1 liquidity, resulting in increased trading volume.
Based+Native Rollup consumes 10 to 100 times the gas of current L2s while providing shared liquidity and composability, meaning all this activity on Rollup will actually consume significant amounts of ETH.
Tokenized assets on rollups can be accessed by other parts of the Ethereum ecosystem. Ethereum's status as a platform for issuing and trading tokenized assets will be further enhanced.
What I outlined above is a future: the feedback loop between Ethereum's utility and ETH value capture will be restored.
Original tweet link: Click here
Breaking the tribalism narrative
In 2024, Bitcoin will leap from an asset predominantly promoted by its tribal community to an asset regarded as a "special snowflake" by the world's most powerful governments. Only Bitcoin has strategic reserves. No other asset has this reserve.
The fundamentals of Bitcoin (21 million cap) force non-tribal investors to at least hold some Bitcoin.
Ethereum needs to do the same.
While Tom Lee and all other ETH fund companies are spreading the gospel of ETH to Wall Street, it would be better if they could stand on a coherent value capture story and leverage it.
The Ethereum community must quickly fix the feedback loop between Ethereum utility and ETH value. We understand the necessary inputs. We also recognize stakeholders, including many who have already participated in realizing this vision, and some who may need to be persuaded by other community members. We believe we can achieve this goal.
What are the stakes? It is a more effective Ethereum growth story that we can sell to the world—a story that ultimately allows the ETH tribe to realize their expectations for ETH: a price breakthrough of $10,000.
