I think in hindsight $ETH went wrong in a few places:
1. Focusing on 'sound money' principles too much and messing around with tokenomics. Way more time and effort should have been placed on scaling the L1, making txns faster and cheap - the rise of Solana literally proves this. Focusing on this caused two problems:
Firstly $BTC maxis now attack you relentlessly, because you're messing with their hard money USP.
Secondly, it ignored what the market wanted, which was cheaper and faster txns. I think you honestly could have just made hardware requirements higher and raised gas. It would have incurred minor centralising forces.
2. Ethereum Foundation clearly don't value DeFi, so DeFi probably didn't get as much support as it should have.
3. Market speculators who continually look for ETH beta chose to buy tokens like Ethena, L2 governance tokens or Lido. This inevitably drew attention away from $ETH and buying pressure that normally would have been funnelled into ETH ended up chasing ETH beta which ended up being VC paychecks.
4. L2's are great, but, there's no way to regulate how many get launched. This meant projects that actually could easily just exist as a token (SWELL) now feel the need to launch a whole L2. It's really kinda senseless, it adds complexity to an already confusing space and it does, to be honest, fragment liquidity.
This got so much worse after blobs.
5. Blobs are awesome, they made L2's so cheap, they can now process txns under 1 cent. OK great, but, wasn't Ethereum's entire sound money theory predicated on the idea that economic activity would reduce inflation from PoS rewards and even make it deflationary with a shrinking supply?
Well blobs made all txns really, really cheap - and then we made loads and loads of L2's. But why is loads of L2's important? Well L2's, like ETH, use an auction based system for txns. Essentially as it gets busy, people bid higher gas in an attempt to get their txns through first. At busy times, this pushes prices up really high.
But now there's never any congestion, so there's no auction bidding war - because users are split across infinite amounts of L2s. It's dilution and eradication of the auction bidding system upon which Ethereum's sound money thesis was built on. There's just SO much blockspace with not enough demand or users.
So how does that effect ETH's sound money? Well it means ETH L1 fees are cheap because L2's aren't securing so much back to the L1 via sequencers, which is great, right?
Well, actually no, because even at 5-10 GWEI, it's still $5-10 for a simple L1 swap. That's just way too much.
But even with ETH GWEI below 10, there's not enough burning from EIP1559 to counteract inflation rewards for PoS.
This means ETH inflation is increasing. Which destroys the sound money thesis.
It's a no win scenario. The L1 isn't actually cheap, but it also isn't in demand enough to cause deflation. It sucks.
6. Ethereum Foundation. ETH is now so massive it needs large investments for grants + salaries. They need $100m in fiat currency which they get by selling on Kraken.
That's a very large entity creating sell pressure. We can argue whether it's a lot or not, that's fine. But what I am driving at is, what happens when ETH has a market capitalisation of 1 trillion? Would the Ethereum Foundation need 200m for salaries + grants? Is this now a linearly increasing and consistent selling pressure?
Just doesn't seem good.
7. Hubris. All the giga smart talking heads left to circle jerk on Farcaster and let all the KOL's shill Solana to the masses - and they ate it up because although $SOL is technically inferior, to a regular person it looks great. Phantom and backpack are great, newbie friendly wallets, SOL leadership rave about how good Solana is, txns are cheap and quick and everything sits on the L1.
I think ETH has some work to do.
1. Focusing on 'sound money' principles too much and messing around with tokenomics. Way more time and effort should have been placed on scaling the L1, making txns faster and cheap - the rise of Solana literally proves this. Focusing on this caused two problems:
Firstly $BTC maxis now attack you relentlessly, because you're messing with their hard money USP.
Secondly, it ignored what the market wanted, which was cheaper and faster txns. I think you honestly could have just made hardware requirements higher and raised gas. It would have incurred minor centralising forces.
2. Ethereum Foundation clearly don't value DeFi, so DeFi probably didn't get as much support as it should have.
3. Market speculators who continually look for ETH beta chose to buy tokens like Ethena, L2 governance tokens or Lido. This inevitably drew attention away from $ETH and buying pressure that normally would have been funnelled into ETH ended up chasing ETH beta which ended up being VC paychecks.
4. L2's are great, but, there's no way to regulate how many get launched. This meant projects that actually could easily just exist as a token (SWELL) now feel the need to launch a whole L2. It's really kinda senseless, it adds complexity to an already confusing space and it does, to be honest, fragment liquidity.
This got so much worse after blobs.
5. Blobs are awesome, they made L2's so cheap, they can now process txns under 1 cent. OK great, but, wasn't Ethereum's entire sound money theory predicated on the idea that economic activity would reduce inflation from PoS rewards and even make it deflationary with a shrinking supply?
Well blobs made all txns really, really cheap - and then we made loads and loads of L2's. But why is loads of L2's important? Well L2's, like ETH, use an auction based system for txns. Essentially as it gets busy, people bid higher gas in an attempt to get their txns through first. At busy times, this pushes prices up really high.
But now there's never any congestion, so there's no auction bidding war - because users are split across infinite amounts of L2s. It's dilution and eradication of the auction bidding system upon which Ethereum's sound money thesis was built on. There's just SO much blockspace with not enough demand or users.
So how does that effect ETH's sound money? Well it means ETH L1 fees are cheap because L2's aren't securing so much back to the L1 via sequencers, which is great, right?
Well, actually no, because even at 5-10 GWEI, it's still $5-10 for a simple L1 swap. That's just way too much.
But even with ETH GWEI below 10, there's not enough burning from EIP1559 to counteract inflation rewards for PoS.
This means ETH inflation is increasing. Which destroys the sound money thesis.
It's a no win scenario. The L1 isn't actually cheap, but it also isn't in demand enough to cause deflation. It sucks.
6. Ethereum Foundation. ETH is now so massive it needs large investments for grants + salaries. They need $100m in fiat currency which they get by selling on Kraken.
That's a very large entity creating sell pressure. We can argue whether it's a lot or not, that's fine. But what I am driving at is, what happens when ETH has a market capitalisation of 1 trillion? Would the Ethereum Foundation need 200m for salaries + grants? Is this now a linearly increasing and consistent selling pressure?
Just doesn't seem good.
7. Hubris. All the giga smart talking heads left to circle jerk on Farcaster and let all the KOL's shill Solana to the masses - and they ate it up because although $SOL is technically inferior, to a regular person it looks great. Phantom and backpack are great, newbie friendly wallets, SOL leadership rave about how good Solana is, txns are cheap and quick and everything sits on the L1.
I think ETH has some work to do.
Ethereum Foundation allocation of funds for Q2 2024.
Can't see a single DeFi orientated allocation.
Can't see a single DeFi orientated allocation.
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