How does ETH achieve market rebirth? L2 diversion and liquidity fragmentation

This cycle has been very tough for ETH. In 2022, when BTC was at the bottom of the bear market, many were talking about how ETH would easily reach $10,000 in this cycle. Now, many seem to doubt whether ETH can reach a new high this year. Given the current market sentiment, you really can't blame them; even ETC has recently outperformed ETH.

But in my opinion, ETH's poor performance indicates that some significant changes are needed.

Why has ETH performed poorly in this cycle?

No one can know for sure, but I believe the main reasons are as follows:

• There are now too many ETH beta tokens

With almost every Ethereum L2 launching a token, many Ethereum fans have started to choose to buy L2 tokens instead of ETH, significantly reducing the amount of funds flowing into ETH.

If you are bullish on Solana without L2, then just buy SOL. But if you are bullish on ETH, there are dozens of ETH beta options available for purchase.

• Liquidity is fragmented

There are currently over 100 Ethereum L2 projects. While moving funds from one L2 to another is not a problem for advanced DeFi users, it can be a nightmare for regular retail investors.

Indeed, trading on Ethereum L2 is fast and cheap now, but until the cross-L2 user experience improves, L2 scaling won't help Ethereum achieve mass adoption.

• Other L1s have started to catch up with Ethereum

In the last cycle, Ethereum was the leading L1 blockchain by all metrics.

While I believe it still has the best DeFi ecosystem, other L1s (like Solana) are now often surpassing it in revenue and DEX trading volume.

I think this is partly due to their technological advancements.

Ethereum has made significant progress over the past few years, but some L1 competitors have progressed faster and are now able to offer a better user experience.

How can we make ETH great again?

Here are some ideas:

• Encourage Ethereum L2 to support ETH by burning a certain percentage of transaction fees
• Consolidate ETH's position as the primary asset of the Ethereum economy (Vitalik suggested supporting more dApps that use ETH as the main collateral)
• Allocate more resources to address the L2 fragmentation issue and unify liquidity among Ethereum L2s (In my opinion, this should be a top priority)
• Accelerate Ethereum's development (Ethereum's burn rate is very high, exceeding $100 million annually, yet somehow its upgrade speed is much slower than that of other L1 competitors)
• Create a sustainable revenue model for the Ethereum Foundation through transaction/staking fees without selling ETH
• Start scaling the Ethereum L1 layer --- --- While Ethereum's goal is clearly to scale primarily through L2, I am confident that there are many changes that can be made to scale the L1 layer.

I believe these could be important steps in the right direction. Over the past few years, the Ethereum Foundation and its community seem to have become a bit complacent, which could cause long-term serious damage to the project.

Ethereum is still the leading L1, but if it doesn't start adopting a winning mindset, other L1s with teams eager to win could also win the L1 war. Fortunately, we have already seen some positive developments, especially from ecosystem projects trying to improve ETH sentiment:

• MegaETH is building a high-performance Ethereum L2 aimed at competing with highly scalable L1s by supporting 100,000+ TPS
• Eclipse is developing the first Ethereum L2 powered by the Solana virtual machine to combine Solana's speed with Ethereum's high security
• Ethereum's next major upgrade Pectra is on the way, which will significantly improve the user experience of Ethereum by introducing native account abstraction
• Eric Trump is promoting ETH --- --- which raises the question: Is a national Ethereum reserve coming to the U.S.?

The first three items on the list above will certainly increase the adoption of Ethereum's second layer. But the real question is:

Will they also have a positive impact on ETH's price?

But in my opinion, the most important things to make ETH rise again are:

• Address the liquidity fragmentation issue (the cross-L2 user experience needs significant improvement)
• Improve ETH tokenomics (perhaps by encouraging L2 to burn a portion of transaction fees, as Vitalik suggested in a recent blog post)

An increase in ETH will benefit everyone holding altcoins. Historically, ETH's rise has been a catalyst for the altcoin market boom.