Critique of Multicoin's interview "Why is ETH Down so bad?": From Ethereum's vision, development roadmap to current issues

Author: @Web3Mario (https://x.com/web3_mario)

Abstract: Last Sunday, I thoroughly read an interview by Bankless with Multicoin titled "Why is ETH Down so bad?" and found it to be both exciting and profound. I highly recommend everyone to read it. Ryan fully demonstrated the difference between Web3 pragmatism and fundamentalism in the interview, although I have discussed this in detail in previous articles. Additionally, the viewpoints expressed deeply resonated with me and sparked considerable reflection. Indeed, in recent times, Ethereum has begun to face a certain degree of FUD. The direct reason, I believe, is that the approval of the ETH ETF did not trigger a market reaction similar to that of the BTC ETF, leading some to reconsider Ethereum's vision and development direction. I have some thoughts on these issues that I would like to share. Overall, I recognize Ethereum as a social experiment aiming to create a decentralized, de-authorized, and even de-trusted "cyber immigrant nation," as well as its expansion direction based on Rollup L2. The real problems facing Ethereum are twofold: first, Restaking competes with L2 expansion plans, diluting resources for ecological development and reducing ETH's value capture ability. Second, key opinion leaders in the Ethereum ecosystem are becoming aristocratic, which leads to a lack of enthusiasm for ecological construction.

Evaluating Ethereum's Success or Failure Solely from Market Value is One-Sided

First, I would like to discuss the differences in vision between Ethereum and Solana from a value perspective and argue why evaluating Ethereum solely from a market value standpoint is one-sided. I wonder how many friends are aware of the background of Ethereum and Solana's birth, so let me first provide a brief review. In fact, Ethereum did not initially have the fundamentalism it has today. In 2013, Vitalik, one of the core contributors to the Bitcoin ecosystem, published the Ethereum white paper, marking the birth of Ethereum. At that time, the main narrative in the industry was "Blockchain 2.0." I wonder how many friends remember this concept, which specifically refers to establishing a programmable execution environment based on the decentralized characteristics provided by blockchain, expanding potential application scenarios. The core Ethereum team at that time, in addition to Vitalik, included five other core members:

• Mihai Alisie: He co-founded Bitcoin Magazine with Vitalik.
• Anthony Di Iorio: An early Bitcoin investor and advocate who assisted in the early promotion and financing of Ethereum.
• Charles Hoskinson: One of the early core developers who later founded Cardano.
• Gavin Wood: The author of the Ethereum yellow paper (technical white paper) and designer of Ethereum's programming language, Solidity, who later founded Polkadot.
• Joseph Lubin: He provided significant financial support for Ethereum and later founded the well-known company ConsenSys within the Ethereum ecosystem.

Ethereum conducted public financing through an ICO in mid-2014, raising approximately 31,000 bitcoins in 42 days, valued at about $18 million at the time. This was one of the largest crowdfunding efforts at that time, and Ethereum's core vision was to create a decentralized global computing platform capable of running smart contracts and decentralized applications (DApps) of any complexity. This platform aimed to provide developers with a universal, borderless programming environment free from the control of any single entity or government. However, in the subsequent development, there were value disagreements within the core team regarding how to build Ethereum:

• Disagreement on Governance Models: There were differing opinions within the team regarding Ethereum's governance model. Vitalik Buterin preferred a decentralized governance structure, while members like Charles Hoskinson (who later founded Cardano) advocated for a more commercial and centralized governance model. They hoped Ethereum could incorporate more corporate management experience and business models rather than relying solely on self-governance by the open-source community.
• Disagreement on Technical Direction: Team members also had differing views on the technical development direction. For example, Gavin Wood proposed his ideas on the technical architecture and programming language during Ethereum's development and wrote the Ethereum yellow paper. However, over time, Gavin developed different views on Ethereum's technical development direction and ultimately chose to leave Ethereum to found Polkadot, a blockchain project that emphasizes interoperability and on-chain governance.
• Disagreement on Commercialization Path: Team members also disagreed on how to achieve Ethereum's commercialization. Some believed Ethereum should focus more on enterprise-level applications and partnerships, while others insisted that Ethereum should maintain an open, borderless, and decentralized developer platform.

After a political struggle, the side represented by Vitalik, which favored cryptocurrency fundamentalism, emerged victorious, while the more pragmatic side, which valued utilizing blockchain's technical characteristics to promote integration and commercialization with traditional industries, left Ethereum to establish their own products. The disagreements at that time reflect the value differences between Ethereum and Solana as highlighted in this interview, with the main character now being Solana, which integrates better with traditional finance.

From then on, Vitalik became the actual guide for the Ethereum industry. The so-called fundamentalism refers to providing a decentralized online execution environment as a distributed "cyber parliament," thereby creating a censorship-resistant "cyber immigrant society." Users can meet all their online life needs through various DApps built on the Ethereum ecosystem, thus freeing themselves from reliance on authoritative organizations, including oligopolistic tech companies and even sovereign states.

In this vision, we can see that Vitalik's subsequent efforts mainly focused on two aspects:

1. Application Aspect: Thinking about and encouraging more non-financial use cases, allowing this decentralized system to accumulate more dimensions of user data, thereby promoting the creation of richer, high-retention products, ultimately increasing Ethereum's penetration into the online lives of ordinary people. Among these, we can easily find some well-known themes, such as DAOs aimed at distributed collaboration, NFTs with cultural value, SBTs aimed at accumulating diverse non-financial user data, and prediction markets that serve as tools for social cognition in the real world.
2. Technical Aspect: Improving network execution efficiency as much as possible through cryptographic means while ensuring decentralization and trustlessness. This is the direction Vitalik advocates for in terms of technology, from Sharding to Rollup-L2 scaling. By offloading the "heavy computation" execution process to L2 or even L3, L1 only handles important consensus tasks, thereby reducing user costs and improving execution efficiency.

For projects like Solana, which focus more on leveraging blockchain practicality to expand traditional financial services, the considerations are simpler and more focused: as a profit-driven public company, how to improve its price-to-earnings ratio. Whether to adhere to values like trustlessness depends on the potential profit behind this narrative. Therefore, Solana will not face much burden or resistance in promoting integration with CeFi products and will maintain a more open and inclusive attitude. With the entry of Wall Street capital, traditional finance's influence on the crypto world has greatly increased, and Solana is one of the core beneficiaries of this trend, or it could be said that Solana is also a preacher behind this trend. As a profit-oriented company, it naturally needs to adopt a customer-oriented mindset, which is why Solana places greater emphasis on user experience.

After clarifying these contexts, let's consider an interesting question: Are Ethereum and Solana competitors? From certain angles, the answer is affirmative, specifically referring to providing unrestricted, around-the-clock cryptocurrency-based financial services. In this regard, Ethereum's security and system robustness are superior to Solana's, as it does not experience frequent outages. However, user experience has indeed become an issue at this stage, with numerous L2 sidechains leaving many new users confused, while they also face significant financial risks and psychological pressure when using bridges.

However, in terms of the cultural attributes of being a "cyber immigrant society," Ethereum is unique. For such a non-profit, public good, and humanistic public product, evaluating its value purely from a market value perspective seems somewhat one-sided. This process can be understood as a subcultural community enriching its governance functions through certain technological means, thereby forming a sovereign state that exists on the internet. The core of the entire construction process lies in firmly establishing a universally applicable value system, which is to ensure decentralization to bring about censorship resistance. This is an idea, a belief. This is also why Ryan says the Ethereum community has a "human advantage," precisely because, as the highest value-added cultural product in human history, it can fully mobilize human enthusiasm, not just doing things from a utilitarian perspective, to achieve this kind of cold start success, which is consistent with any political revolution process. Imagine if you only evaluated the early United States based on its output; it would seem quite absurd. The establishment of a nation clearly takes much longer than a company and faces far greater difficulties, but the benefits achieved afterward cannot be measured by a company.

L2 and L1 Are Not Competitors but a Master-Servant Relationship, and Will Not Dilute Ethereum's Value Capture Ability Because L2's Legitimacy Comes from L1

The second point I wish to argue against is Ryan's core concern about Ethereum, which he believes is that L2 is an execution outsourcing strategy that will dilute Ethereum L1's value capture ability. At the same time, when L2 develops to a certain extent, it will form a competitive relationship with L1, leading to a breakdown in cooperation.

In this regard, I believe that the current development path of Ethereum based on Roll-Up L2 is a completely correct choice. L2, as a low-cost, high-execution efficiency technical solution, can not only effectively expand the potential application scenarios of the Ethereum ecosystem but also reduce data redundancy in the network without sacrificing decentralization. To some extent, this is also a relatively environmentally friendly technical solution. It can also help Ethereum actively explore some boundary scenarios, such as cooperation with CeFi or innovation in anonymity projects, using L2 to operate, thus achieving a risk isolation effect.

First, regarding the description of L2 as execution outsourcing, I believe it is not entirely accurate. In traditional business training, we can easily understand the pros and cons of execution outsourcing. By separating some low-margin businesses from the main business and outsourcing them to third-party companies, a company can focus more on high-value-added businesses and reduce management costs. However, the downside is the loss of iterative capability related to the technology, and outsourcing costs can be uncontrollably inflated. The relative development history of TSMC in the US and Japanese semiconductor industries illustrates this well.

However, L2 cannot be understood so simply. In fact, I think it is more reasonable to compare L2 to Ethereum L1's "colonial system." The biggest difference between the two lies in the content of their contractual relationship and the binding force of that contract, which is the different sources of legitimacy behind them. First, we know that L2 does not undertake the consensus tasks of transactions; it relies on L1 to provide finality through technical means such as "optimistic solutions" or "ZK solutions." L2 acts more as an executor or agent for L1 in certain niche areas. This is a subordinate relationship similar to a colonial system.

You can think of it as the British Empire's establishment of the British Raj in the Indian subcontinent, where it appointed governors and bureaucratic systems to support local tribes as full agents responsible for handling taxes and management in the colonial region. We know that the means by which the suzerain state profits from the colony are twofold: first, through exclusive trade laws controlling the colony's international trade and influencing its economic structure, such as promoting the tobacco and raw materials industries in the North American colonies and exclusively allowing trade only between the colonies and the suzerain state. This way, they profit through added value using industrial capabilities. The second is simpler: by establishing a tax system in the colony, directly taxing and transferring part of it to the suzerain state, which usually relies on a strong military presence from the suzerain state to maintain stable governance.

L2 acts as Ethereum's value capture agent in various fields. Ethereum benefits from this system in two ways: first, L2 needs to confirm finality on L1 for security, and this process requires ETH as a payment medium, creating a use case for ETH. This is similar to a "finality tax" that L1 collects from L2, or it can also be understood as a reward for L1 providing security guarantees to L2. Second, due to the master-servant relationship, ETH is more easily regarded by users in L2 as a store of value compared to other assets, thus achieving a similar effect to seigniorage. Imagine in L2's lending protocols, you will find that the collateral with the highest value is definitely ETH.

The reason this master-servant relationship is not easily broken is that L2 will not form a competitive relationship with L1, leading to a breakdown in cooperation, because L2's legitimacy comes from the finality provided by L1, just as the legitimacy of a colonial system comes from the military support of the suzerain state. Breaking away from this cooperative relationship would cause L2 to lose its legitimacy, leading to a collapse of the overall business logic, because most of your users use your service precisely because you are legitimized by L1.

Ethereum Currently Faces Two Problems: ReStaking's Vampire Attack on L2 Development Path and the Aristocratization of Key Opinion Leaders in the Ethereum Ecosystem

After discussing the above two points, I would like to talk about the real problems currently facing Ethereum's development. I believe the core issues are two:

• ReStaking's vampire attack on the L2 development path;
• Key opinion leaders in the Ethereum ecosystem are becoming aristocratic;

In my previous articles, I have detailed the vision and development direction of EigenLayer, and I hold a high opinion of EigenLayer. However, when I view this project from the perspective of the Ethereum ecosystem, I find it to be a "vampire attack," siphoning off a large amount of resources that should have been directed towards L2 construction and diluting them into the ReStaking track. At the same time, ReStaking fundamentally causes ETH to lose its value capture ability.

How to understand this? I have just explained how Ethereum benefits from L2, and you will find that the same logic cannot be reused in the ReStaking track. As another scaling solution, ReStaking is fundamentally in competition with L2. However, ReStaking merely reuses Ethereum's consensus capability but does not establish sufficient incentive models to encourage ReStaking builders to actively explore more use cases. The core reason is that L2 operators incur costs when using L1's consensus, and this cost is fixed and does not vary with L2's activity level. Since ETH is required as the payment medium for finality, L2 operators need to actively build and explore to maintain a balance between income and expenditure, seeking higher profits.

However, for ReStaking, reusing L1's consensus incurs no cost, as they only need to pay a simple bribe to the stakers on L1, and this bribe can even be a future expectation. Recall the Point debacle; I have analyzed this in detail in my previous articles. Additionally, ReStaking allows for the assetization of consensus capability, meaning that users can flexibly choose to purchase consensus services based on current needs. This is beneficial for potential buyers, but for Ethereum, it loses that kind of compulsion towards L2.

With ReStaking and its derivative tracks attracting a large amount of capital and resources, L2's development has stagnated. This has led to a waste of resources in the ecosystem on redundant efforts, with no one thinking about how to create richer applications and capture more benefits, instead getting lost in the capital games brought by storytelling. This is indeed a mistake. Of course, from EigenLayer's perspective, the mindset will undergo a 180-degree turn; I still admire the team's clever capture of public goods value!

Moreover, another issue that worries me more is that key opinion leaders in the Ethereum ecosystem are becoming aristocratic. You can observe a phenomenon: the Ethereum ecosystem lacks the kind of proactive opinion leaders seen in Solana, AVAX, or even the Luna ecosystem at that time. Even if they seem to be FOMO creators, there is no doubt that this is beneficial for community cohesion and the confidence of entrepreneurial teams. I do not agree with Ryan's historical perspective, but I do acknowledge that the opportunities for historical advancement cannot be separated from the efforts of individual geniuses.

However, in the Ethereum ecosystem, apart from Vitalik, it is quite difficult to recall other opinion leaders, which is naturally related to the split of the founding team. But it is also related to the lack of liquidity in ecological classes, where a large amount of ecological growth benefits are monopolized by early participants. Imagine, after completing a fundraising of 31,000 BTC, valued at over $2 billion at current market value, even if you do nothing, it is still okay. Moreover, the wealth created by success on Ethereum has long exceeded this figure. Therefore, for those early participants who should become opinion leaders, transitioning to a conservative strategy becomes more attractive than expansion. To avoid risks, they become more cautious, and it is understandable that they lean towards conservative strategies in promoting ecological construction. The simplest example is that if you can ensure AAVE's position and lend out a large amount of ETH you hold to leverage seekers, you can earn considerable stable returns, so why would you need to incentivize other new products?

The current situation, I believe, is largely related to Vitalik's style. I think he is more adept at being a religious leader, having constructive designs on metaphysical issues such as value design. However, as a manager, he does not seem to be enthusiastic about this. This is also why Ethereum's development efficiency is so slow. An interesting joke is that when the Ethereum community was just starting to design the Sharding technical solution, domestic public chains had already divided up their shares. This is naturally related to Vitalik's management style. You might say this is a problem that must be faced due to the pursuit of decentralization and non-profitability. However, I believe that Vitalik has the obligation to actively address this issue for this ecosystem.

Nevertheless, I am full of confidence in Ethereum's development because I recognize the public and revolutionary vision behind this group of people. It is Ethereum and the people behind it that brought me into this industry, established my own industry cognition, and even shaped my current values. Even if I am facing some resistance now, as an older youth, I feel that pursuing ideals beyond money does not seem so bad!