Author: Ignas Source: ignasdefi Translation: Shan Oppa, Golden Finance

It is easy to hold on to ETH now Pessimistic attitude. It has underperformed SOL by 6.8x since the market lows in early 2023, with ETH down 47% against BTC over the past two years.

Is it time to rebound?

A bearish case for Ethereum

The reason for ETH’s underperformance is up for debate, but In my opinion, there are several important reasons:

• Bitcoin is "digital gold" - this is a simple and easy to understand Narrative, especially for new retail investors and institutions. In comparison, Ethereum’s story is complex. The popular “digital oil” analogy is neither appealing nor accurate.

• Solana is surpassing Ethereum: Solana is catching up and sometimes surpassing Ethereum in terms of active users, transaction volume, and market share .

• Thus, BTC is a safer choice for cryptocurrency adoption, while Solana is riskier for smart contract adoption (lower market cap ) choice. Ethereum is caught between the two.

• Ethereum’s modular approach to L2s destroys liquidity and complicates the user experience.

• Degens betting on a modular approach will spread purchasing power across ETH beta tokens such as multiple L2, LRT tokens and DA tokens). In contrast, betting on Solana simply means buying SOL.

I believe ETH will outperform BTC as market participants recognize the high yield of airdrop farming rewards. In fact, my actual performance on ETH was much higher than what the spot price would indicate based on the re-staking protocol airdrop alone.

However, this failed to generate FOMO for ETH, likely due to overexposure during the bear market, as many believed ETH would not fail and bought it in large quantities.

On the contrary, few people in cryptocurrencies hold SOL. When SOL rises, more cryptocurrency-native users switch from ETH to SOL. Without significant retail inflows, the price of ETH has stagnated.

Another problem is the decline in ETH revenue and consumption rates.

After the EIP-4884 Proto-danksharding upgrade, the fees paid by L2 dropped, resulting in a lower ETH consumption rate. While ETH inflation remains below 1%, this is a setback for those who are bullish on ETH as an ultrasonic currency.

There are currently very few "ultrasonic currency" memes on Twitter.

Bear market arguments abound X, but ETH sentiment remains bullish, albeit not as strong as BTC.

Instead, let’s discuss the bullish thesis for Ethereum.

The Bullish Argument for ETH

There are many reasons to be optimistic about ETH. I asked fans on X to share their views.

Feel free to check out the comments in the thread, but below I've summarized the ten most important reasons mentioned (with the help of Kaito AI).

1. If gas prices remain around 20 gwei, Ethereum will be considered both a deflationary and scalable network, making it An attractive and efficient network. NOTE: ETH gwei has been below 20 since March.

2. Ordinary users can now stake ETH alone at home, which increases its degree of decentralization and attracts individual investors and Validators with consumer grade hardware.

3. The strong developer community and accumulated intelligence in the Ethereum ecosystem support continued innovation and network robustness.

4. Ethereum is considered the leading smart contract platform with no real competitors, maintaining reliability and decentralization.

5. Ongoing developments such as Layer 2 and interoperability improvements are key bullish factors, while work is underway to reduce fragmentation and Improve network efficiency.

6. Increased regulatory transparency, particularly in the US and EU, has increased confidence, allowing institutions such as BlackRock to adopt Ethereum.

7. Improved staking options allow all ETH holders to participate in securing the network without requiring extensive technical knowledge or resources.

8. Adoption of tokenizing real-world assets (RWA) on Ethereum is growing, according to major institutions such as Coinbase and BlackRock Increase.

9. The potential for expanded DeFi functionality and stablecoin dominance on Ethereum provides significant room for growth and market leadership.

10. The renewed enthusiasm and collective pride among Ethereum holders and users helps create a positive outlook and increase the market interest.

I also asked several well-known ETH people on X why they are optimistic about ETH. People who answered my questions included Camila Russo (founder of The Defiant) and Christine Kim (Galaxy researcher).

The following are the reasons why Camilla is optimistic about ETH:

• Mature DeFi Ecosystem: Ethereum and its layer 2 offer the most mature DeFi ecosystem among cryptocurrencies in terms of total TVL and transaction volume. This level of liquidity and dapp concentration will attract more users to the point where activity will start to reflect on the layer 1 chain again, driving up gas fees and consuming more ETH. DeFi is key because finance is one of the few cryptocurrency use cases that currently has meaningful product-market fit.

• Decentralization and security: Ethereum’s degree of decentralization and security have prompted The world's largest institutions are putting their trust in Ethereum as they join it: BlackRock has its BUIDL fund, PayPal has PYUSD, JPMorgan, Santander and other large banks are investing in Ethereum Test blockchain settlement and tokenization, etc. Large institutions that cannot risk blockchain downtime or validator/miner attacks and misconduct will continue to choose Ethereum. This will drive activity and prices.

• ETH ETF:ETH is the only two types of ETFs that U.S. institutional investors can invest in One of the cryptocurrencies, this will provide long-term support for ETH price.

Christine Kim highlights Ethereum’s network effects:

I think one of the main advantages of Ethereum compared to its competitors is its network effect. Ethereum is the oldest general purpose blockchain (first mover advantage) and has the largest developer mindshare (strong community/ecosystem), both of which I think help increase the value of the network.

Indeed, I prefer to store long-term assets on Ethereum. Solana has had multiple outages, while Ethereum has proven to be reliable over the years.

I am also very optimistic about Ethereum as a RWA chain for asset tokenization. For example, 52% of stablecoins and 73% of U.S. Treasuries are tokenized on Ethereum.

If you are bullish on memecoins, Solana may be your choice, but for tokenizing billions of dollars in RWA, Ethereum is the safest place to be.

The next big problem is the problem of layer 2.

Solana as a whole chain is fast and cheap, but it still has its limits.

Modular scaling using L2 provides a long-term solution as scaling can always be added by launching L2 for a specific use case. L2 provides greater flexibility, simplicity, and space for cultural sovereignty. Cygaar explains this well in the following post:

Hopefully the current problems of fragmented liquidity and worse user experience due to reliance on bridging are only temporary question. For example, Catalyst AMM will allow atomic swaps between different chains – eliminating the need for bridging assets. In this case, liquidity remains fragmented, but end users will still get the best price because liquidity comes from multiple chains. More solutions like Catalyst are in the pipeline.

Then L2 itself has made more efforts.

Optimism is "integrating with ERC-7683 to allow interoperability between superchains and the rest of Ethereum L2 through the application layer", which means that Optimism All L2s in the ecosystem will actlikeone whole.

Similarly, Polygon is building an AggLayer, which means "one-click transactions across chains. It will recreate the online experience, but within the protocol network." ”

In addition, there are Caldera's Metalayer, Avail Nexus and Hyperlane.

Multiple aggregation solutions are also a problem, but liquidity and user experience issues should be resolved in the future.

I think people underestimate how quickly it's going to happen. I recommend following Andy on X to stay up to date on modular extensions.

In fact, Vitalik himself said that people would be surprised that "cross-L2 interoperability issues" are no longer an issue.

I would be very optimistic if L2 fragmentation issues were resolved and RWA and tokenization adoption continued to grow on Ethereum, but these are long-term factors.

In the short term, there is a little-discussed catalyst: the Pectra upgrade.

What is Pectra upgrade?

The Pectra upgrade is the next major milestone for Ethereum and is expected to be launched in the first quarter of 2025. It merges Bragg (execution layer) and Electra (consensus layer) updates.

Previously, all major Ethereum upgrades have received much hype, but Pectra seems to have escaped attention.

I understand why. There have been major changes in Ethereum: migration from PoW to PoS, ETH burn launch, EIP-4884, and more. However the Pectra has some cool upgrades.

1.Account abstraction: ultimately improving user experience

One of the biggest changes to Pectra is the way it handles accounts.

Currently, managing a wallet involves a lot of annoying steps, from signing transactions to managing gas fees for different networks. With account abstraction, Pectra simplifies the entire process.

EIP-3074 and EIP-7702 are two proposed improvements. EIP-3074 allows traditional wallets (Externally Owned Accounts or EOAs) to interact with smart contracts, such as enabling batch transactions and sponsored transactions.

EIP-7702 goes one step further, allowing EOA to temporarily act as a smart contract wallet during transactions. Temporary means that your EOA wallet only becomes a smart contract wallet during transactions. It works by adding smart contract code to the EOA address. WTF? Anyway, I wanted to see it in action.

In practice it means:

• One ​​transaction is USDC can be approved and redeemed for UNI.

• dApp can provide users with gas fees (easier to adopt)

• Pre-approve dApps for use with this wallet and set spending limits

Note: It appears that EIP-3074 has been prioritized by EIP-7702, written by Vitalik in 22 minutes! EIP-7702 is also compatible with future implementations of AA.  

This "EOA temporarily becomes a smart contract" approach is cool because current dApps are often incompatible with smart account wallets (try Safe or Avocado Multisig used in conjunction with dApps). Hopefully AA will get more attention after the upgrade.

2.Staking improvements

For running validators For people, Pectra brings some big changes.

EIP-7251 increases the maximum stake for validators from 32 ETH to 2048 ETH. It allows large staking providers to consolidate their staking, thereby reducing the number of validators and reducing network load.

This is also a benefit for smaller stakers as it provides more flexible staking options (can stake 40 ETH or compound rewards) . Additionally, ETH staking queue times will be reduced from hours to minutes.

One ​​of the big things I'm excited about has to do with MEV mitigation, but it doesn't seem to be Pectra upgradeable.

3.Scalability improvements

Pectra via EIP -7594 Introduced Peer Data Availability Sampling (PeerDAS).

Like Proto-Danksharding in the previous Dencun upgrade, PeerDAS will bring cheaper transactions on L2. But I can't find a number on how much cheaper it would be (I'm assuming PeerDAS would be especially useful during peak usage periods). 0xBreadguy mentioned that Pectra will expand blob capacity by 2 to 3 times.

Then there are multiple technology upgrades, such as BLS12-381, which is used to shorten BLS signatures (reduce gas costs), and EIP-2935, which is used to verify transactions without All blockchain history.

These EIPs, along with the Verkle Trees Transition (EIP-6800) that will eventually replace the existing Merkle Tree structure, can make light clients more secure and enable nodes to Easier to participate in the network, thus increasing decentralization.

One ​​of the major changes is the 11 EIP changes to the EVM, which will make it easier to write and deploy smart contracts, thereby reducing costs and increasing efficiency. In other words, developing on Ethereum will become smoother.

I'm glad that single slot is finally (SSF) coming with the Pectra upgrade, but it's not yet included in the following Osaka upgrade.

Vitalik shared in December 2023 that SSF is the simplest way to solve most of the flaws in Ethereum’s PoS design.

Currently, Ethereum’s proof-of-stake consensus takes about 15 minutes to reach finality for a block, which means that without paying a huge economic cost, The block cannot be changed or deleted. SSF seeks to reduce this time to a single slot, or approximately 12 seconds, ensuring that blocks are finalized almost immediately after creation.

In practical terms, this means faster, more secure bridges, and faster CEX deposits. Disappointingly, this hasn't happened yet. Excluding it from the upgrade is pessimistic and shows that Ethereum developers are still not prioritizing L1 scaling. If there were clearer signs that the core ETH community was focusing on L1 scaling, I would become more optimistic. Currently, this does not appear to be a priority.

Anyway, Pectra is a technology upgrade, but I think the market underestimates its importance.

Now, let’s talk about ETH price.

VanEck’s base price prediction for ETH is $118,000 by 2030.

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Honestly, $118k is pretty pessimistic (I hope it trades higher in 5 years), but keep in mind that VanEck's fundamentals for Solana in 2030 The forecast is only $335.

Therefore, according to the basic forecast, the potential return of ETH is 4.4 times, while the potential return of SOL is only 2.2 times. Note that both forecasts were shared a year ago (before the ETH ETF was launched), so it would be interesting to see their updated forecasts.

However, I am more excited about the bullish prospect of ETH reaching $51,000. Regardless, VanEck’s ETH price prediction is based on:

• VanEck predicts that by 2030, Ethereum will account for 70% of smart contract platforms market share and leverage its position as the dominant open source global settlement network.

• Ethereum’s revenue is expected to grow from $2.6 billion per year to $51 billion by 2030. This growth is attributed to increased transaction fees, MEV, and the introduction of Security as a Service (SaaS) – using ETH to secure other protocols (re-staking).

• Ethereum is expected to attract more economic activities in the fields of finance, banking, payments, metaverse, social, gaming and infrastructure .

• Ethereum’s potential as a store-of-value asset is valued, and its utility is driven by smart contract programmability and cross-chain messaging technology (Smart Mortgage).

The following is a summary of the base case, bear case, and bull case scenarios.

The base case scenario of 70% smart contract dominance seems pretty fair to me, although Ethereum currently has only 58% dominance (but all L2 dominance status is approximately 65%). Despite SOL's wild rise, dominance has remained unchanged since early 2022.

TVL dominance will be a key metric to watch because agencies seem to really care about it.

Another metric that institutional and retail investors watch is ETH ETF flows.

Ethereum ETF

If someone had told me a few months ago that there was an ETF for ETH but trading Below $3,000, I would consider the cryptocurrency to be in a bear market.

It's too early to tell, but the ETH ETF seems to be getting more bullish every day. Grayscale outflows have been declining rapidly, with net flows having been positive for three days in a row. It appears that those who need to exit Grayscale have already done so.

We already know how big an impact Grayscale could have, but the upside potential will be a surprise. If the trend continues, the future looks bright for ETH!

Given everything that has happened on Ethereum, are you still bullish on it?