What happened to Ethereum?

Author: Pavel Paramonov

Compiled by: Jiahua, ChainCatcher

This article is mainly inspired by Vitalik's recent tweets about transformation and the state of the market. While the entire market is in decline, it's hard to blame any specific person, and I'm not here to point fingers.

As someone who has worked with many Ethereum teams, invested in multiple protocols built on Ethereum on behalf of venture capital funds, and is overall a super fan of Ethereum and EVM-related matters, I write these words.

Unfortunately, I can no longer say the same, as I feel that Ethereum does not know where it is headed (many people feel the same way).

I don't want to discuss the price trends of ETH, but I cannot ignore the fact that as the second-largest cryptocurrency in the world, its performance has been quite unstable. Regardless of where the global market is headed, ETH's performance resembles that of an unpegged stablecoin.

This article aims to explore what has happened to Ethereum over the past few years and why many people are losing hope or have already lost hope. Ethereum is not losing to Solana or anything else; Ethereum is losing to itself.

Rollup-Centric Roadmap

When Ethereum launched its Rollup-centric roadmap, almost everyone was excited. The promise was that Rollups (and Validium) would achieve scalability, allowing end-user transactions to occur on Rollups. Ethereum would serve as a verification layer, focusing first on being the L1 for Rollups rather than the L1 for users.

Developing Rollups is much faster and cheaper than developing L1s, so the future of thousands of Rollups looks very likely and optimistic. What could go wrong?

It turns out that everything could go wrong. Endless debates, placing ideology above demand, constant infighting within the community, identity crises, and giving up on the Rollup-centric vision too late.

Everything that could go wrong has gone wrong. Most community members once viewed Max Resnick as an utterly incompetent villain, only to find out he was right about almost everything. During Max's time at Consensys, he made numerous statements about what Ethereum needed to do to move forward, but he faced criticism with almost no support.

The peak of absurdity was when the entire industry began discussing whether a certain L2 was actually Ethereum, such as:

View A: "Base is an extension of Ethereum, and we have made significant contributions to the Ethereum ecosystem."

View B: "Base is not an extension of Ethereum; it is an independent entity."

What the hell are we even discussing? How can this dialogue lead to a better future for Ethereum and its ecosystem? Why are people seriously debating what is Ethereum and what is not? Aren't the problems we need to solve more important?

If we define Rollups as extensions of Ethereum because they use ETH as gas fees, then we are on the right track. If we define Rollups as applications benefiting from Ethereum, we are also on the right track.

Right? Absolutely not.

This ideological discussion is not a discussion at all; it is a confrontation between two self-satisfied circles trying to prove who is right. We don't need PvP; we need PvE. We need to understand that this is not about us being against each other, but about us uniting against the problems and the future. Unfortunately, many prefer the mental stimulation and are even unwilling to consider that their views might be incorrect.

Technical Ideology Over User Needs

Based rollups, booster rollups, native rollups, gigagas rollups, keystore rollups.

• Which one is better, what will the future look like, and how will they connect?
• "This type is the future," "No, that type is the future."
• "There is no reason not to develop based rollups."
• "Native rollups will take over the ecosystem because they have Ethereum orthodoxy."

All these discussions… result in Arbitrum and Base continuing to win big.

Technical advantages can bring many benefits to participants, but the premise is not to compare apples to oranges or oranges to tangerines. They are too similar, similar enough that users don't care at all. Outside the bubble, no one cares about this. Getting hung up on one more or one less precompiled feature won't help you win this war.

"Oh, actually we have Ethereum orthodoxy, we have the advantage, we are very close to Ethereum and reflect its core values, users will choose us."

What values are those? Which users will choose you?

@0xFacet became the first Stage 2 Rollup, defining Ethereum orthodoxy. Where are they? Where are their users, developers, tech KOLs, and supporters of the Ethereum ecosystem and orthodoxy?

Where are those people? How many of you have heard of Facet? How many applications are available on Facet? Personally, I have no opinion on Facet. I have spoken with the founder multiple times, and I respect him; he is a great person. But where are those who say we need more Stage 2 Rollups? I don't know, and you don't either.

Economic Incentives Far Stronger Than Technical Incentives

I am a super fan of Taiko, especially their research on based rollups. There are many benefits: stronger censorship resistance, neutrality, no sequencer downtime risk, and L1 validators earning more funds. Where's the trap?

The trap lies in the financial situation behind the model. You cannot force people to give up income just for "orthodoxy."

Arbitrum promised decentralized sequencers. Scroll promised decentralized sequencers. Linea, zkSync, and Optimism all promised decentralized sequencers. Where are they? Where are those sequencers?

Every Rollup team's documentation has a line: "We currently have centralized sequencers, but we have a strong desire to decentralize them in the future." Almost no one has delivered. Metis delivered, but fortunately or unfortunately, people don't care about Metis.

Do I think they overcommitted to please influential ETH maximalists? Yes. Do I think they genuinely want to decentralize their sequencers? Yes, but even if they did, it wouldn't make sense for them.

Coinbase (Base) is legally obligated to make as much money as possible to provide value to the company. Other teams are the same; why would you stifle your revenue source? It makes no sense. About 5% of Base's revenue flows to Ethereum. Rollups have never been extensions of Ethereum.

Taiko once had days when the fees it paid to Ethereum for sequencing were more than the revenue it earned from user transaction fees. And companies like Taiko clearly have many other expenses besides paying fees to Ethereum.

Only when teams give up revenue can the vision of Based rollups or any "Ethereum orthodoxy" Rollup become possible. I do not underestimate the importance of decentralization, security, and permissionlessness. But when your only goal is to be ideologically correct rather than user-centric, all of this is meaningless.

It is not surprising that this weakness and commitment to Ethereum orthodoxy have brought speculators into the field.

Consequences of the Rollup-Centric Roadmap

Eclipse, Movement, Blast, Gasp (Mangata), Mantra: these protocols were never intended to be built for the long-term future. It's really easy to hide behind the masks of Ethereum orthodoxy, making Ethereum better, and bringing SVM to Ethereum.

They have all collapsed to some extent. All Rollups realize that their tokens are almost useless because they pay fees in ETH, and their own tokens have almost no utility.

Speculators realize that you can create a lot of hype around a Rollup-centric narrative and profit by selling worthless tokens to retail investors.

Ethereum has never acknowledged Polygon as a true L2, even though they have played a significant role in locking more value for ETH. If you believe Rollups are a "cultural" extension of Ethereum, why not acknowledge something closely related to Ethereum's security and usage?

Polygon was very important to Ethereum during the 2021 bull market and made significant contributions to the growth of ETH as an asset. But yes, it is not an L2; it does not deserve the appreciation of the Ethereum community. If Polygon were an L1, its valuation would be much higher.

Even Paradigm, arguably one of the best venture capital firms in the crypto space and the biggest contributor to the Ethereum ecosystem, even developing its own L2 (Ithaca), has turned to develop L1 (Tempo) with Stripe. I think when your most loyal supporters leave you for the competition, you must have a serious problem.

Ethereum Foundation Lacks Direction

Although Ethereum is technically decentralized, it is culturally centralized around Vitalik. The inner circle of Ethereum is real. As people say, to succeed, all you need to do is gain the attention of those close to Vitalik and a few influential VCs.

I'm not saying you have to agree with everything Vitalik says, but his views essentially define what is good for Ethereum and what is not, and you cannot compete with that.

First, it is a hyper-deflationary currency; with EIP-1559 and the merge, the economic model of ETH has become deflationary, making it a better store of value than Bitcoin. But in 2024, the annual inflation rate of ETH turned positive.

So the vision of ultrasound money lasted only 3 years? This makes it impossible to be a store of value. This narrative is dead, and it never was true because ETH was not designed to be a store of value; that is Bitcoin's purpose, and you cannot compete with it.

Then Ethereum cannot decide whether its token is a commodity (not applicable due to dynamic supply changes and staking mechanisms) or more like a tech stock (not applicable because there is not enough revenue to value Ethereum like a tech company).

Others argue that ETH is not a currency at all. What is going on? We need to pick a side. Ethereum cannot be multiple things at once—you either have a globally determined direction, or you fall behind.

Economic Incentives Again…

I still cannot imagine a chief engineer like Péter Szilágyi receiving only about $100,000 a year for his contributions to Ethereum. This person, who has been there from the beginning and helped Ethereum grow from almost zero to a $450 billion market cap, only receives 0.0001% of that market cap.

The most influential and successful protocol in crypto history (after Bitcoin) has not provided any incentives or equity. This can easily be defended by hiding behind the spirit of decentralization, open-source, and permissionlessness: "We are not here to make money; we are here to move forward."

But you must incentivize even your most loyal soldiers; otherwise, they will leave or take side jobs. Péter left, Danny Ryan left, and Dankrad Feist went directly to Tempo.

Justin Drake and Dankrad accepted advisory positions at EigenLayer in 2024 and received token allocations there, resulting in the community beginning to hate them for it.

Poor guys are taking meager salaries at EF (compared to FAANG companies and AI research labs) but are hated for making money and helping an independent protocol that is not Ethereum but wants to make Ethereum better.

Are you all stupid? Sometimes I feel that if you are an honest and hard-working person in Ethereum, you are not allowed to make money; you are just expected to be a slave for "recognition" from Ethereum. EF often sells ETH to fund various operations, initiatives, and research. But maybe pay your researchers first?

Refusal to Adapt and Change

"Day one. Ethereum will win. The most decentralized blockchain with the highest uptime."

We hear this every day, just like we hear excuses from Ethereum every day.

Yes, Ethereum is both expensive and slow. But we have Rollups; use Rollups; Rollups are Ethereum! Yes, the price of ETH lags behind everything. But Ethereum has the largest developer ecosystem; we have a solid foundation, and demand will follow.

Ethereum is the most decentralized blockchain! Solana is terrible; they have no client diversity. Ethereum has 100% uptime! Solana is terrible; it has gone down several times.

Ethereum's network activity is lower than Solana's. Well, that's because Solana's activity is spam and meme coin gamblers. We are a moral chain!

The same excuses, the same responses, the same reactions over the past few years. Everything other than Ethereum and Rollups is garbage. If Ethereum performs poorly on any metric, we say it's day one; we know what we are doing; there is no better place than Ethereum.

Everyone is tired of the excuses the community keeps making over and over. Ethereum feels like a wealthy old lady who refuses any innovation even while stumbling, yet distributes money to the children and grandchildren who are parasitizing on her.

Late Reforms

As I was about to finish this article, just a few hours ago, Vitalik tweeted that the Rollup-centric roadmap has failed, and they need to look for a different path and expand L1.

You know, I am glad when people realize their mistakes; it takes courage to say this out loud. But I think it might be too late. Ethereum has once again found the long-needed path it should take, but progress remains slow.

There have been some recent changes at EF: new leadership, treasury transparency, R&D restructuring, and many other things. EF has started hiring new young talent from developer relations and marketing, such as Abbas Khan, Binji, Lou3e, and others.

But changes need to happen quickly. Ethereum must sprint to prove everyone wrong.

Let's see if we can see Ethereum become an exciting entity after these reforms and changes at EF, rather than a blind delusion of faith and disappointment.