Personally, I think that solving the liquidity fragmentation problem and improving token economics are the keys to driving ETH to rise again!
ETH has performed quite poorly in this market cycle.
Back in 2022, when BTC was at the bottom of the bear market, many people predicted that ETH would easily break through $10,000 during this cycle.
However, many are now beginning to doubt whether ETH can still set new all-time highs this year.
This skepticism is understandable given the current low market sentiment, as even ETC has outperformed ETH.
Of course, I am still a staunch supporter of the Ethereum ecosystem, but in my opinion, ETH's poor performance reflects that the Ethereum ecosystem needs some profound changes.
Next, I will try to answer a key question:
Why has ETH performed poorly in this cycle?
Although the reasons are difficult to pin down, I believe the following points are the main factors.
Too many ETH Beta Tokens
Almost all Ethereum L2 projects have issued their own tokens, which has led many Ethereum supporters to put their funds into these L2 tokens rather than ETH itself.
This significantly reduced the amount of capital flowing into ETH.
For example, if you are bullish on Solana (no L2 projects), you only need to buy SOL; but if you are bullish on ETH, you may be faced with dozens of ETH-related tokens to choose from, such as tokens of L2 projects.
Liquidity dispersion
There are currently more than 100 L2 projects in the Ethereum ecosystem.
For skilled DeFi users, crossing from one L2 chain to another is not difficult, but for ordinary investors, the process can be very complicated and confusing.
Although Ethereum L2 transactions are fast and low-cost, this scalability will make it difficult to promote the large-scale adoption of Ethereum if the user experience across L2 cannot be improved.
Other L1 technology catch-up
In the last market cycle, Ethereum was undoubtedly the leading L1 blockchain in various indicators.
While Ethereum still has the strongest DeFi ecosystem, other L1s like Solana have surpassed Ethereum multiple times in metrics like revenue and decentralized exchange (DEX) volume.
This is partly due to their technological advancements. While Ethereum has made some important progress in recent years, some L1 competitors have developed their technology faster and are now able to provide a better user experience (UX).
How to make ETH return to its peak?
Here are some directions worth trying:
Ethereum's L2 projects are encouraged to incorporate ETH into the ecosystem, and by reducing the supply of tokens through a mechanism that burns part of the transaction fees, the scarcity and value of ETH will be increased.
Strengthening ETH’s central position in the Ethereum economy (Vitalik has suggested that more support should be given to decentralized applications (dApps) that use ETH as their primary collateral asset)
Allocating more resources to solve the L2 fragmentation problem and unify liquidity should be the top priority for Ethereum's development.
Accelerate Ethereum’s technical upgrades (although Ethereum reduces its token supply by more than $100 million per year through a destruction mechanism, its technical upgrades lag significantly behind other L1 blockchains.)
Establish a sustainable revenue model for the Ethereum Foundation. By obtaining stable income from transaction fees or staking income, the Ethereum Foundation can reduce its reliance on selling ETH, thereby avoiding negative impact on market prices.
Promote the expansion of Ethereum L1. Although Ethereum's long-term goal is to achieve expansion through L2, there is still great potential for L1 performance improvement. By optimizing the expansion capabilities of L1, the overall user experience and competitiveness of Ethereum can be further improved.
These measures could be a major step in pushing Ethereum to new heights.
However, the Ethereum Foundation and its community appear to have fallen into a degree of complacency over the past few years, an attitude that could undermine the project’s competitiveness in the long run.
Ethereum remains the leading L1 blockchain, but other L1 projects with motivated and innovative teams may gain the upper hand in this competition if a more aggressive strategy is not adopted.
Now is the time for the Ethereum community to rekindle its “winner mentality” and secure its leadership in the blockchain space.
The good news is that we can already see some positive changes, especially from the efforts of Ethereum ecosystem projects, which are trying to improve market confidence in ETH:
MegaETH: A high-performance Ethereum L2 is being developed with the goal of supporting over 100,000 transactions per second (TPS) to compete with highly scalable L1 blockchains.
Eclipse: Working to build the first Ethereum L2 powered by the Solana Virtual Machine, aiming to combine Solana’s high-speed performance with Ethereum’s high security.
Pectra Upgrade: Pectra, Ethereum’s upcoming major upgrade, will significantly improve the user experience (UX) by introducing native account abstraction functions, making blockchain interactions simpler and more efficient.
Eric Trump’s Promotion: Eric Trump recently publicly supported ETH, which makes people wonder whether it is possible for the United States to establish a national Ethereum reserve?
The above three technical advances will undoubtedly further promote the adoption rate of Ethereum L2. But the more important question is:
Whether these developments can actually drive ETH’s price higher remains to be seen.
In my opinion, the following two points are the key to driving ETH up again:
Solve the problem of liquidity fragmentation (need to optimize the user experience across L2).
Improving ETH’s token economics (Vitalik recently proposed in a blog post that the supply of ETH could be reduced, thereby increasing its value, by encouraging L2 projects to burn some of their transaction fees).
Personally, I don’t currently hold a large amount of ETH as I prefer to invest in fast-growing DeFi project tokens.
However, ETH’s rising price is good news for all altcoin holders.
Judging from historical data, the rise of ETH is often an important trigger point for the Altseason.
The future development of the ETH ecosystem will not only affect Ethereum itself, but will also have a profound impact on the entire crypto market.
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