Revisiting the Development and Challenges of ETH: What Exactly Caused ETH to Lose Its Vitality

Author: ++@Web3Mario++

Abstract: This weekend, social networks were quite lively, sparking a new round of debates about ETH. I believe there are two main reasons for this. First, the interview between Vitalik and ETHPanda has sparked widespread discussion in the Chinese community. On the other hand, the continuous decline of ETH's exchange rate against BTC, compared to SOL, has also triggered widespread dissatisfaction. Regarding this issue, I have some viewpoints that I would like to share with everyone. Overall, I believe the long-term trend of ETH is not problematic, as there are in fact no direct competitors in the market. In the narrative of Ethereum, the positioning of a "decentralized execution environment" emphasizes "decentralization" rather than "execution environment." This fundamental aspect has not changed. The core reasons for the current bottleneck in ETH's development are twofold. First, the Restaking track has caused a vampire attack on the mainstream technological development path of Layer 2, diverting a large amount of resources from the ETH ecosystem. The core mechanism of Restaking does not create incremental demand for ETH, directly leading to the application side being unable to obtain sufficient development resources and user attention, causing promotion and user education to stagnate. Second, the key opinion leaders in the Ethereum ecosystem are becoming aristocratic, forming a class of vested interests, which has led to a solidification of class mobility. The developer ecosystem lacks sufficient incentives, making innovation appear weak.

The Vampire Attack of Restaking on Ethereum's Ecosystem Resources, Leading to Insufficient Development Resources for Applications

There has been some discussion on this topic in a previous article of mine, and today I would like to take this opportunity to reiterate it.

We know that Ethereum's official development path has always been to create a completely decentralized execution environment through Sharding. In simple terms, it is a fully distributed cloud that is not controlled by any party. Applications can bid for computing and storage resources on this cloud, with all resources being regulated by the supply and demand relationship in the market. Considering the complexity of the technology, Sharding was chosen because you cannot tolerate 100% redundancy of all data, which would cause significant waste. Therefore, data must be processed separately by different shards and then summarized by a relay.

Given the complexity of technological iterations, the technical selection of Sharding has indeed undergone some changes, and the community ultimately decided on the Rollup-Layer 2 solution as the mainstream direction. In this solution, all applications can choose to build on separate Layer 2s, while the Ethereum mainnet serves as the infrastructure for all application chains. In addition to providing data finality for application chains, it can also act as an information relay. This master-slave architecture is a good solution in terms of efficiency and cost, as it reduces the operational costs of applications while also providing a good guarantee of "security" based on the degree of decentralization.

At the same time, Ethereum has designed a relatively self-consistent business model and a good economic model for ETH. On one hand, it switched the main chain's POW consensus mechanism to an asset voting-based POS mechanism, allowing participants to receive dividends from the main chain's transaction fees in exchange. On the other hand, each application chain needs to confirm data finality through transactions on the main chain, and these transactions require ETH as Gas. Therefore, as long as the various Layer 2s of the application chains remain active, they will indirectly promote the activity of the Ethereum main chain. This gives ETH the ability to capture value from the entire Ethereum ecosystem.

However, the real problem began with the rise of the ETH ReStaking track, represented by EigenLayer, at the end of last year. The original idea of this track is not complicated; those who have participated in DeFi may know that a considerable number of projects innovate around idle assets, also known as "nested dolls." However, Restaking is bolder, choosing to directly reuse ETH participating in PoS Staking and directly providing execution functions, known as AVS. While I strongly support this direction in terms of entrepreneurial creativity, it is indeed the most direct reason for Ethereum's current predicament. At that time, the technical selection for Layer 2 had basically been completed, and relatively mature technical solutions had already been developed. It was precisely the time for the application side to make efforts, such as accelerating the iteration of related applications and increasing market promotion budgets.

However, the emergence of the ReStaking track is, in fact, a vampire attack on Layer 2, directly causing ETH to lose its value capture ability. This is because ReStaking provides applications with a "second consensus solution" that does not require paying the main chain's ETH costs. The most intuitive understanding is to take the currently most practical AVS and DA layer as an example. DA refers to data availability, which means making data immutable through a technical solution, equivalent to data finality. In previous discussions, we clearly stated that application chains achieve data finality by calling contracts on the main chain, creating a demand for ETH. However, Restaking offers a new option, allowing consensus to be purchased through AVS, where you don't even need to pay with ETH; you can use any asset to pay for the consensus purchase. This transforms the entire DA market from a previously monopolized market by Ethereum into an oligopolistic competitive market shared by ReStaking and Ethereum, naturally causing Ethereum to lose market pricing power, directly affecting its profits.

Moreover, the more critical issue is that it has occupied the precious resources during the bear market. These resources should have been diverted to various applications for promotion and market education but were instead attracted to the "wheel reinvention" projects of the infrastructure. Today, Ethereum's predicament is precisely due to the lack of sufficient active applications, leading to a downturn in the value capture system. Those who have worked on projects may understand that the rhythm of project operations is crucial; launching the right product in the appropriate market will lead to long-term development for the project, and any wrong decision can cause stagnation in development. Therefore, it is indeed lamentable.

Of course, the essence of this problem is also understandable; it is actually a problem of the democratic system, which leads to efficiency issues due to the lack of unified authority. In an organization that pursues decentralized distribution, all parties can naturally develop and compete for resources based on their own will. This is more conducive to value capture during a bull market because the potential for innovation is significant. However, in the stock market battles of a bear market, the lack of unified resource scheduling leads to deviations in the development path, making stagnation in development quite understandable. In contrast, Solana, as an organization operating under a corporate structure, naturally benefits from the efficiency advantages brought by centralization, making it more popular. The efficiency of capturing hotspots and launching relevant measures is also higher, which is why the Memecoin summer appeared on Solana.

Key Opinion Leaders and Vested Interests in the Ethereum Ecosystem are Becoming Aristocratic, Forming a Monopolistic Interest Class, and the Developer Ecosystem Lacks Sufficient Incentives, Making Innovation Appear Weak

In the Ethereum ecosystem, there is a phenomenon: the lack of active opinion leaders like those in Solana, AVAX, or even the former Luna ecosystem. Although these leaders are sometimes seen as driving forces behind FOMO (fear of missing out), it is undeniable that they play an important role in community cohesion and the confidence of entrepreneurial teams.

However, in the Ethereum ecosystem, apart from Vitalik, it is hard to think of other influential leaders. This phenomenon partly stems from the division of the original founding team, but it is also related to the solidification of internal hierarchies within the ecosystem. Many of the benefits of ecosystem growth are monopolized by early participants. Imagine if you had participated in a fundraising of 31,000 BTC (worth over 2 billion USD at current market value); even if you did nothing, you would already be very wealthy, not to mention that the wealth in the Ethereum ecosystem has long surpassed this figure.

As a result, many early participants have begun to adopt conservative strategies; maintaining the status quo has become more attractive than expansion. To avoid risks, they have become more cautious, which also explains why they tend to adopt conservative strategies when promoting ecosystem development. A simple example is that early participants only need to ensure the status of existing projects like AAVE and lend out their large amounts of ETH to leverage seekers to earn stable returns, so why would they need to vigorously promote the development of new projects?

However, in the end, I believe the long-term trend of ETH is not problematic, as there are in fact no direct competitors in the market. In the narrative of Ethereum, the positioning of a "decentralized execution environment" emphasizes "decentralization" rather than "execution environment." This fundamental aspect has not changed. Therefore, as long as resource integration can be completed and application development is promoted, the future of Ethereum is still bright.