Can ETH return to its peak?

Author: The Decentralized Finance Investor

Compiled by DeepTech TechFlow

ETH has performed quite poorly in this market cycle.

Back in 2022 when BTC hit the bottom of the bear market, many predicted that ETH would easily break $10,000 during this cycle.

However, many people are now beginning to doubt whether ETH can still hit a new all-time high this year.

Given the current market sentiment, it is understandable to have such doubts, as even ETC has outperformed ETH.

Of course, I am still a loyal supporter of the Ethereum ecosystem, but in my opinion, the poor performance of ETH reflects the need for some profound changes in the Ethereum ecosystem.

Next, I will try to answer a key question:

Why is ETH performing poorly in this cycle?

Although the reasons are difficult to determine completely, 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 invest in these L2 tokens instead of ETH itself.

This significantly reduces the amount of capital flowing into ETH.

For example, if you are bullish on Solana (without L2 projects), you only need to buy SOL; but if you are bullish on ETH, you may face dozens of token choices related to ETH, such as tokens of L2 projects.

Liquidity Diversification

Currently, there are over 100 L2 projects in the Ethereum ecosystem.

For experienced Decentralized Finance users, moving from one L2 to another is not difficult, but for ordinary investors, this process can be very complex and daunting.

Although the transaction speed and cost of Ethereum L2 are fast and low, if the user experience across L2 cannot be improved, this scalability will be difficult to promote the widespread adoption of Ethereum.

The technology of other L1 is catching up

In the last market cycle, Ethereum was undoubtedly the leading L1 blockchain in various indicators.

Despite Ethereum still having the strongest Decentralized Finance ecosystem, other L1 (such as Solana) has repeatedly surpassed Ethereum in metrics such as revenue and decentralized exchange (DEX) trading volume.

This is partly due to their technological advancement. Although Ethereum has made some important progress in recent years, some L1 competitors are developing 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:

Encourage Ethereum's L2 projects to incorporate ETH into the ecosystem, reduce token supply through the mechanism of burning a portion of transaction fees, thereby increasing the scarcity and value of ETH.

Strengthen the core position of ETH in the Ethereum economy (Vitalik has suggested that decentralized applications that use ETH as the primary collateral asset should be further supported (dApp))

Allocating more resources to solve the L2 fragmentation problem and unify liquidity should be the top priority for Ethereum development.

Accelerate the technological upgrade of Ethereum (although Ethereum reduces the token supply by more than $100 million annually through the destruction mechanism, its technological upgrade is significantly lagging behind other L1 blockchains.)

Establish a sustainable revenue model for the Ethereum Foundation. By obtaining stable income from transaction fees or staking rewards, the Ethereum Foundation can reduce its reliance on selling ETH and avoid 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 huge potential for performance improvement in L1. By optimizing the scalability of L1, the overall user experience and competitiveness of Ethereum can be further enhanced.

These measures may be an important step in driving Ethereum to new heights.

However, in the past few years, the Ethereum Foundation and its community seem to have been somewhat complacent, which in the long run may weaken the competitiveness of the project.

Ethereum is still the leading L1 blockchain, but without adopting a more proactive strategy, other L1 projects with ambitious and innovative teams may gain an advantage in this competition.

Now is the time for the Ethereum community to rekindle the 'winner's mindset' and ensure its leadership position in the blockchain field.

The good news is that we are already seeing some positive changes, especially efforts from Ethereum ecosystem projects that are trying to improve market confidence in ETH:

MegaETH: Developing a high-performance Ethereum L2, aiming to support over 100,000 transactions per second ((TPS) of transaction processing capability, thus competing with highly scalable L1 blockchains.

Eclipse: committed to building the first Ethereum L2 supported by the )Solana Virtual Machine( Solana Virtual Machine, aiming to combine Solana's high performance with Ethereum's high security.

Pectra Upgrade: Ethereum's upcoming major upgrade Pectra significantly enhances user experience )UX( by introducing native account abstraction )Account Abstraction( functionality, making blockchain interactions more concise and efficient.

Eric Trump's promotion: Eric Trump recently publicly endorsed ETH, which inevitably led to speculation about whether the United States might establish a national reserve of Ethereum.

The above three technological advancements will undoubtedly further drive the adoption of Ethereum L2. But the more important question is:

Will these developments really push up the price of ETH? This remains to be seen.

In my opinion, the following two points are key to driving the ETH upswing again:

Addressing the issue of fragmented liquidity (needs to optimize the user experience across L2).

Improving the token economics of ETH (Recently, Vitalik proposed in his blog that by encouraging L2 projects to burn a portion of transaction fees, the supply of ETH can be reduced, thereby increasing its value).

Personally, I currently do not hold a large amount of ETH, as I prefer to invest in tokens of Decentralized Finance projects that grow rapidly.

However, the rise in the price of ETH is good news for all holders of altcoins.

From historical data, the rise of ETH is often an important trigger for the Altseason.

The future development of the ETH ecosystem not only concerns Ethereum itself, but will also have a profound impact on the entire crypto market.