Author: The DeFi Investor Source: thedefinvestor Translation: Shan Oppa, Golden Finance

This round of market cycle It's quite tough for ETH.

At the lowest point of the 2022 bear market, many people had predicted ETH to easily break through $10,000 in this bull market. But now, the market is full of doubts about whether ETH can even hit a new high this year.

This suspicion is reasonable considering the current market sentiment.

As Ignas recently mentioned in his post, even ETC (Ethereum Classic) has surpassed ETH recently.

Don't get me wrong, I have always been a loyal supporter of the Ethereum ecosystem. But in my opinion, the weak performance of ETH shows that it needs major change.

So, why does ETH perform poorly in this cycle?

No one can give a definite answer, but I think there are mainly the following reasons:

1. There are too many ETH Beta tokens and funds are diverted

In the past, most ETH supporters would hold ETH directly, but now, almost all Ethereum L2 After issuing their own tokens, many investors began to switch to L2 tokens instead of ETH. This has resulted in a significant reduction in funds flowing into ETH.

For example, if you are optimistic about Solana, you just need to buy SOL because it doesn't have L2. But if you are optimistic about ETH, you have dozens of L2 tokens to choose from.

2. Diversified capital liquidity

The number of Ethereum L2 projects has exceeded 100. But the interoperability and liquidity between L2 are stillA big problem.

For veteran DeFi users, cross-chain bridge funds between different L2s is not a big problem, but for ordinary investors, this process is extremely complicated , even a nightmare. Currently, L2 transactions are fast and low in cost, but if cross-L2 user experience (UX) does not significantly improve, L2 expansion cannot truly promote Ethereum's mainstream adoption (massive adoption).

3. Other L1 blockchains are catching up

In the previous cycle, Ether Fang is undoubtedly the absolute king among all L1 public chains.

Although Ethereum still has the strongest DeFi ecosystem, L1 such as Solana has now surpassed Ethereum in indicators such as revenue and DEX trading volume.

This is because the technology of L1 such as Solana is progressing faster, while Ethereum has made some progress in the past few years, but some competitors are faster , user experience has far surpassed Ethereum.

The following are a few possible solutions:

Encourage L2 to support ETH by destroying some transaction fees ( Vitalik once suggested supporting more dApps using ETH as the main collateral)

Enhance the core position of ETH in the Ethereum economy (ETH should become the cornerstone of the L2 ecosystem Assets, not L2 tokens)

Invest more resources to solve the problem of liquidity dispersion of L2 funds and unify the L2 fund pool (this is the most priority thing)

Accelerate the upgrade iteration of Ethereum (Ethereum destroys more than $100 million in ETH every year, but the upgrade speed is still lagging behind other L1s)

Let the Ethereum Foundation establish a sustainable income model (such as obtaining funds from transaction fees and staking income, avoiding selling ETH)

Simultaneously expand Ethereum L1 (Although Ethereum's main expansion direction is L2, L1 can still further improve performance through optimization)

If these changes can be promoted, ETH may usher in a wave Strong rebound.

The Ethereum Foundation and the community have seemed somewhat complacent over the past few years, and this may weaken Ethereum's competitiveness in the long run.

While ETH is still the leader in the L1 field, other L1s are catching up at a faster rate, and if Ethereum does not adjust its strategy, it may lose this Battle of L1.

However, we have seen some positive progress, especially from projects within the ecosystem, which are working to improve market sentiment towards ETH:

MegaETH ——Build high-performance Ethereum L2 with the goal of supporting 100,000+ TPS, competing with high-scalability L1.

Eclipse - The first Ethereum L2 based on Solana virtual machine (SVM), combining Solana's speed and Ethereum's security.

Pectra Upgrade - The next important upgrade of Ethereum will introduce Native Account Abstraction to greatly improve the user experience.

Eric Trump publicly supports ETH — this raises a question: Will the United States establish "level Ethereum reserves"?

The first three technological upgrades will undoubtedly promote the adoption of Ethereum L2 (large-scale adoption), but the real problem is:

Can they drive ETH prices to rise?

Can ETH prices recover? Key depends on two points

1. Solve the problem of liquidity dispersion in L2 (the cross-L2 experience must be significantly improved)

2. Optimization ETH token economic model (such as letting L2 contribute part of the transaction fee to destroy ETH to reduce the supply)

At present, I do not have a heavy position in ETH because I prefer Bets on faster-growing DeFi tokens (such as FLUID).

But historically, the rise in ETH often triggers a "copy season", which is good for all investors holding altcoins.