Commenting on Multicoin's interview "Why is ETH Down so bad?": From Ethereum's vision, development path to current problems

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

Abstract: Last Sunday I read an exclusive interview between Bankless and Multicoin titled "Why is ETH Down so bad?". I thought it was very exciting and profound. I recommend that everyone read it. Ryan fully demonstrated the difference between Web3 pragmatism and fundamentalism in the interview, but I have discussed this in detail in my previous article. In addition, the views in it also aroused a lot of excitement and thinking in me. Indeed, in recent times, Ethereum has begun to suffer a certain degree of FUD. The direct reason I think is because the passage of the ETH ETF failed to trigger the A similar trend occurred when the BTC ETF was passed, which caused some people to rethink the vision and development direction of Ethereum. I also have some thoughts on these issues, which I hope to share with you. In general, I agree with Ethereum as a social experiment, hoping to create a decentralized, deauthorized and even trustless "cyber immigration country" vision, as well as its L2 expansion direction based on Rollup. The real problems facing Ethereum are two. One is that the competition between Restaking for the L2 expansion plan dilutes the resources for ecological development and reduces the value capture ability of ETH. The second is that the key opinion leaders of the Ethereum system are becoming aristocratic. Because they cherish their feathers, they lack enthusiasm for ecological construction.

Evaluating the success or failure of Ethereum solely from the perspective of market value is one-sided

First of all, I would like to talk about the difference in vision between Ethereum and Solana in terms of values, and comment on why it is one-sided to evaluate Ethereum solely from the perspective of market value. I don’t know how many friends know the background of the birth of Ethereum and Solana. Here is a brief review first. In fact, when Ethereum was first born, it did not have such fundamentalism as it does today. In 2013, Vitalik, one of the core contributors to the Bitcoin ecosystem, released the Ethereum white paper, which also marked the birth of Ethereum. The main narrative of the industry at that time was "Blockchain 2.0". I don't know how many friends still remember this concept. In fact, it specifically refers to the establishment of a programmable execution environment based on the decentralized features provided by the blockchain to expand Potential application scenarios. In addition to Vitalik, the Ethereum core team at that time had five other core members:

• Mihai Alisie: He co-founded "Bitcoin Magazine" with Vitalik.

• Anthony Di Iorio: Early Bitcoin investor and advocate, assisting 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), designed the Ethereum programming language Solidity, and later founded Polkadot ).

• Joseph Lubin: He provided important financial support for Ethereum and later founded ConsenSys, a well-known company in the Ethereum ecosystem.

Ethereum conducted public financing through ICO in mid-2014. The fundraising campaign raised approximately 31,000 Bitcoins in 42 days and was valued at approximately $18 million at the time. It was one of the largest crowdfunding campaigns at the time, and the core vision of Ethereum at the time was to create a decentralized global computer platform that could run smart contracts and decentralized applications (DApps) of any complexity. The platform aims to provide developers with a universal, borderless programming environment that is not controlled by a single entity or government. However, in the subsequent development, the core team had differences in values ​​on how to build Ethereum:

• Differences in governance model: There are different opinions within the team on Ethereum’s governance model. Vitalik Buterin preferred a decentralized governance structure, while members such as Charles Hoskinson (who later founded Cardano) advocated a more commercial and centralized governance model. They hope that Ethereum can introduce more enterprise management experience and business models, rather than just relying on the self-governance of the open source community.

• Differences in technical direction: Team members also have differences in the direction of technical development. For example, during the development of Ethereum, Gavin Wood put forward his own ideas on the technical architecture and programming language, and wrote the Ethereum Yellow Paper (technical white paper). But over time, Gavin had different views on the technical development direction of Ethereum, and eventually he chose to leave Ethereum and founded Polkadot, a blockchain project that focuses more on interoperability and on-chain governance.

• Differences in commercialization paths: Team members also have differences on how to commercialize Ethereum. Some members believe that Ethereum should focus more on enterprise-grade applications and partnerships, while others insist that Ethereum should remain an open, borderless and decentralized developer platform.

After a political struggle, the cryptocurrency fundamentalist side represented by Vitalik won, while other pragmatists who focused more on utilizing the technical characteristics of blockchain to promote the integration and commercialization of traditional industries. They left Ethereum and built their own products respectively. The difference at that time was actually the difference in values ​​between Ethereum and Solana reflected in this interview, except that the protagonist of the story was replaced by Solana, which was better integrated with traditional finance.

Since then, Vitalik has become a de facto leader in the Ethereum industry. The so-called fundamentalism refers to creating a censorship-resistant "cyber immigration society" by providing a decentralized online execution environment as a distributed "cyber parliament". Users can build it on Ethereum Various DAPPs in the ecosystem meet all online life needs, thereby getting rid of dependence on authoritative organizations, including oligarch technology companies and even sovereign states.

With this vision, we can see that Vitalik’s subsequent efforts will mainly focus on two aspects:

1. Application aspects: Think about and encourage more non-financial usage scenarios, so that this decentralized system can accumulate more dimensions of user data, thereby promoting richer The creation of highly sticky products aims to increase the penetration rate of Ethereum into ordinary people's online life. Among them, it is not difficult to find some well-known topics, such as DAO aiming at distributed collaboration, NFT with cultural value, SBT aiming to accumulate more diverse non-financial user data, the so-called social recognition in the real world. prediction market of knowledge tools, etc.

2. Technical aspects: On the premise of ensuring decentralization and trustlessness, using cryptography and other means to improve the execution efficiency of the network as much as possible . This is the expansion direction from Sharding to Rollup-L2 that Vitalik technically advocates. By offloading the "heavy calculation" execution process to L2 or even L3, L1 is only responsible for processing important consensus tasks, thereby reducing user costs and improving execution efficiency.

For projects such as Solana that pay more attention to the practicality of blockchain to expand traditional financial services, what needs to be thought about is simple and focused, that is, as a listed company with the purpose of profit, how to improve its own P/E ratio. As for whether to adhere to values ​​such as trust, it depends on the potential profit behind this narrative. Therefore, Solana will not have too much baggage and resistance in promoting the integration with CeFi products, and will have a more open and inclusive attitude. With the entry of Wall Street capital, the influence of traditional finance on the crypto world has increased dramatically, and Solana is one of the core beneficiaries of this trend, or it is not an exaggeration to say that Solana is the evangelist behind it. As a profitable company, it naturally needs to have a customer-oriented thinking, which is why Solana pays more attention to user experience.

After clarifying these contexts, let’s think about an interesting question, whether Ethereum and Solana are competing products. In some ways, the answer is yes, specifically the provision of region-free, 24/7 cryptocurrency-based financial services. At this point, Ethereum's security and system robustness are better than Solana, at least there will be no frequent downtime, but user experience has indeed become a problem at this stage, and the numerous L2 side chains have made many new users touch It's mindless, and at the same time, you face a lot of financial risks and psychological pressure when using Capital Bridge.

However, Ethereum is unique in terms of its cultural attributes as a "cyber immigrant society". For such a non-profit, public welfare, and humanistic public good, it seems a bit one-sided to evaluate its value purely from the perspective of market value. This process can be understood as a subcultural community enriching its governance functions through certain technical means, and then forming a sovereign country that relies on the existence of the Internet. The core of the entire construction process is to firmly establish a universal value, which is to bring censorship resistance by ensuring decentralization. This is a concept, a belief. This is why Ryan said that the Ethereum community has a "human advantage". It is precisely because as a cultural product with the highest added value in human history, it can fully mobilize people's enthusiasm and not just do things from a utilitarian perspective. The success of the launch is consistent with the process of any political revolution. Just imagine if you evaluate the United States at the beginning of independence only by its production value, it would be ridiculous. The establishment of a country obviously takes much longer than that of a company, and the difficulties encountered are much greater, but the benefits after completion cannot be measured by a company.

L2 and L1 are not a competitive relationship but a master-slave relationship, which will not dilute Ethereum’s value capture capability because the legitimacy of L2 comes from L1

The second point I want to criticize is that the core point of Ryan’s doubts about Ethereum is that he believes that L2 is an execution outsourcing strategy that will dilute the value capture ability of Ethereum L1. At the same time, when L2 develops to a certain extent It will form a competitive relationship with L1 and lead to the breakdown of cooperation.

Regarding this point, on the contrary, I think the current development path of Ethereum based on Roll-Up L2 is completely the right choice. As a low-cost and high-execution efficiency technical solution, L2 can not only effectively expand the potential application scenarios of the Ethereum ecosystem , and can reduce data redundancy in the network without sacrificing decentralization. To a certain extent, this is also a more environmentally friendly technical solution. It can also help Ethereum actively explore some boundary scenarios in an environment that reduces single-point risks. For example, cooperation with CeFi or innovation of anonymity projects can be operated with the help of L2, which also has the effect of risk isolation.

First of all, I think the description of L2 as execution outsourcing is not very appropriate. In traditional business training, we have easily understood the pros and cons of execution outsourcing. By separating some low-margin businesses from the main business and letting third-party companies take over through outsourcing, the company can focus more on High value-added business and reduce corporate management costs. However, the disadvantage is that the ability to iterate on related technologies is lost, and outsourcing costs will be increased in an uncontrolled way. The relative development history of TSMC's semiconductor industry between the United States and Japan can well illustrate this point.

However, L2 cannot be understood so simply. In fact, I think it is more reasonable to compare L2 to the "colonial system" of Ethereum L1. The biggest difference between the two lies in the content of the contractual relationship between the two parties and the binding force of the contract, that is, the different sources of legitimacy behind it. First of all, we know that L2 does not undertake the consensus task of transactions, but relies on L1 to provide finality through technical means such as "optimistic plan" or "ZK plan". L2 acts more as the executor or agent of L1 in certain subdivisions. It was a subordination similar to the colonial system.

You can understand it as the British Indian system established by the British Empire in the Indian subcontinent. It was responsible for the taxation and management of colonial areas through the appointment of governors and other bureaucracies and the support of local indigenous people as full agents. We know that there are two ways for the metropolitan country to obtain profits from the colonies. The first is to control the international trade of the colonies and influence its economic structure through exclusive trade laws. For example, the promotion of tobacco and other raw material industries in the North American colonies, and exclusive cooperation between the colonies and the metropolitan country is allowed. trade between. In this way, profits can be obtained through the difference in added value with the help of industrial capabilities. The second is relatively simple, by establishing a tax system in the colonies, directly collecting taxes and transferring part to the metropolitan country, which usually relies on the strong garrison of the metropolitan country to maintain the stability of rule.

L2 acts as Ethereum’s value capture agent in various fields. There are two ways for Ethereum to benefit from this system. One is that in order to obtain security, L2 needs to conduct final confirmation on L1, and This process requires ETH as the payment object, which creates a usage scenario for ETH. This is similar to a "final" tax collected by L1 from L2, or it can also be understood as a sum of money that L1 brings security guarantee to L2. reward. The second is that due to the master-slave relationship between the two parties, ETH is more likely to be used as a value store by users in L2 than other assets, thereby achieving an effect similar to seigniorage. Just imagine that in the lending agreement in L2, you will find that the collateral with the highest value must be ETH.

The reason why this master-slave relationship is not easily broken, that is, the reason why L2 will not form a competitive relationship with L1 and lead to the breakdown of cooperation, is that the source of legitimacy of L2 and the finality provided by L1 are just like The legitimacy of the colonial system came from the military support of the metropolitan state. Breaking away from this cooperative relationship will make L2 lose its legitimacy, which will lead to the collapse of the overall business logic, because the reason why most of your users use you is because you are provided by L1.

Ethereum currently encounters two problems: ReStaking’s vampire attack on the L2 development route and the gentrification of key opinion leaders in the Ethereum system

After discussing the above two arguments, I hope to talk about the real problems encountered by the current development of Ethereum. I think there are two cores:

• ReStaking’s vampire attack on the L2 development route;

• Key opinion leaders in the Ethereum system are being aristocratic;

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In my previous article, I have introduced the vision and development direction of EigenLayer in more detail. I have a high opinion of EigenLayer, but when I look at this project from the perspective of the Ethereum ecosystem, I will find that it is simply It was a "vampire attack" that diverted a large amount of resources that should have been directed to L2 construction and diluted it to the ReStaking track. However, at the same time, ReStaking fundamentally caused ETH to lose its value capture ability.

 

How to understand it? I have just talked about how Ethereum obtains benefits from L2. You will find that the same logic will not be reused on the Restaking track. As another expansion solution, ReStaking and L2 are in a competitive relationship in principle. However, ReStaking simply reuses the consensus capabilities of Ethereum, but it cannot establish a sufficient incentive model to stimulate ReStaking builders to actively explore more usage scenarios. . The core reason is that there is a cost for L2 operators to use L1 consensus, and this cost is a fixed cost and does not affect the activity level of L2. Since ETH needs to be used as the final payment target, this requires L2 operators to actively build and explore in order to maintain a balance of payments and ultimately seek higher profits. However, for ReStaking, there is no cost to reuse the L1 consensus, because they only need to pay a simple bribe for the Staker on L1. This bribe can even be a future expectation. Think back to the Point farce. This has also been analyzed in detail in my previous article. In addition, ReStaking can capitalize consensus capabilities, that is, you can flexibly and dynamically choose the cost of purchasing consensus services based on current needs. This allows potential buyers to use Ethereum's consensus services in a targeted manner, which is beneficial to buyers. This is a good thing, but for Ethereum, it has also lost the compulsion for L2.

 

As ReStaking and its derivative tracks attract a large amount of capital and resources, the development of L2 has come to a standstill. This wastes resources in the ecosystem in reinventing the wheel or making square wheels. No one thinks about how to create richer applications and capture more revenue, but just indulges in the benefits of storytelling. in the capital game. This is really a mistake. Of course, from the perspective of EigenLayer, the mentality will take a 180-degree turn. I still admire the team's clever capture of the value of the commons!

 

In addition, another issue that worries me more is that the key opinion leaders of the Ethereum system are becoming aristocratic. You can find a phenomenon that the Ethereum ecosystem lacks people like Solana, AVAX, and even the Luna ecosystem at that time. A kind of positive opinion leader, even if they seem to be the creators of FOMO, there is no doubt that this is a good thing for community cohesion and the confidence of the entrepreneurial team. I don’t agree with Ryan’s view of history, but I do admit that the opportunity to advance history cannot be separated from the efforts of individual geniuses. However, in the Ethereum ecosystem, except for Vitalik, it is basically difficult to think of other opinion leaders. This is naturally related to the split of the original founding team. But it is also related to the lack of liquidity of the ecological class. A large amount of ecological growth income is monopolized by early participants. Yes, imagine that after you complete a fund-raising of 31,000 BTC, which is worth more than 2 billion US dollars according to the current market value, even if It’s OK if you don’t do anything, not to mention the wealth created by success on Ethereum has already exceeded this number. Therefore, for those early participants who should most become opinion leaders, they begin to transform into a conservative strategy. Maintaining the status quo is more attractive than expansion. In order to avoid risks, they have begun to cherish their feathers, and it is understandable that they tend to adopt conservative strategies in promoting ecological construction. The simplest thing is that as long as you can ensure the status of AAVE and then lend a large amount of ETH you hold to leverage demanders, you can earn a lot of stable income. So why do you need to incentivize other new products.

 

The reason why we are in the current situation has a lot to do with Vitalik's style. As for Vitalik, I think he is better at being a religious leader, and he will have very constructive designs on some metaphysical issues such as the design of values. But as a manager, he doesn't seem keen on it. This is also why Ethereum’s development efficiency is so slow. It’s a funny joke. When the Ethereum community first started designing Sharding’s technical solution, all domestic public chains had been divided. This is naturally related to Vitalik’s management style. You may say that this is a problem that must be faced due to the pursuit of decentralization and non-profitability. But I think for this ecosystem, Vitalik has the obligation to actively solve this problem.

 

But no matter what, I am confident in the development of Ethereum because I recognize the public welfare and revolutionary vision behind this group of people. It was Ethereum and the group of people behind it that allowed me to enter this industry. , established its own industry recognition, and even had its current values. Even if I encounter some resistance now, as an older young man, I feel that pursuing some ideals other than money doesn’t seem so bad!