Jessy,
The sentiment towards Ethereum has shifted after the approval of the Ethereum spot ETF. Following reports of a high probability of approval for the Ethereum spot ETF this month, Ethereum rose by 20% in a single day. After the approval, its price briefly exceeded $3800.
During this bull market, Ethereum’s performance has not been as strong as Bitcoin’s, and the rise of some public chains, including Solana, has posed a threat to Ethereum. It seems reasonable that Ethereum is being viewed with skepticism. However, beneath the surface, it is worth noting that Ethereum still holds 60% of the TVL in the public chain market, while the second and third positions have only a single-digit percentage. Furthermore, Ethereum has not stopped its technical innovations to address the criticized issues.
Is Ethereum really running out of steam, or is it just lying dormant?
The exchange rate of Ethereum to Bitcoin has continuously declined over the past year due to the strength of Bitcoin. The majority of altcoins have experienced low growth, and some are even lower in price than during the bear market. There have even been comments suggesting that this bull market may not favor altcoins.
In previous bull markets, Bitcoin first rose, followed by Ethereum, which then led to the surge of altcoins. In the previous bull market, most altcoins also experienced tenfold increases. When there is sufficient capital in the market, it overflows from mainstream coins to altcoins.
The logic behind the surge of altcoins driven by the rise of Ethereum lies in the fact that most projects were built on Ethereum. The sharp increase in the price of Ethereum indeed brings prosperity to the entire on-chain ecosystem.
However, this bull market is different from previous ones. It has started six months earlier than expected, driven by the approval of the spot ETF and later combined with Bitcoin’s halving.
Nevertheless, due to the impact of the economic cycle, there is still a lack of high-risk investment capital in the market. From this perspective, the price of Ethereum has not seen much growth, mainly due to the insufficient liquidity in the market.
Additionally, Ethereum’s narrative this year has not been strong enough. In the public chain sector, Solana has undoubtedly performed the best during this bull market, with a rising price and a relatively prosperous on-chain ecosystem. The main reason is the support from Wall Street capital. TON, which has also entered the top ten in market value, tells a story of traffic conversion backed by 9 billion Web2 users, attracting numerous VCs to support it.
Ethereum also has an attractive narrative within the industry—Layer2. In the bear market, many have focused on this area. However, the growth of Layer2 tokens has been unsatisfactory, leading to criticism due to their high market value and the diversification of attention from Ethereum to Layer2, which has absorbed investments that were originally intended for Ethereum.
From a technical perspective, Ethereum is continuously innovating, but the most attractive concept, Layer2, has not been able to bring in a large amount of funds to Ethereum.
In this bull market, another exciting narrative for Ethereum is the approval of the Ethereum spot ETF in the United States. The recent price surge is due to reports suggesting that the Ethereum spot ETF is likely to be approved on May 23rd.
The perennial public chain, Ethereum
Ethereum still has the highest TVL share in the public chain. According to DefiLIama data, Ethereum’s TVL share is 59.93%, while TRON is in second place with only 8.61%. The reason TRON is in second place is because Tether issues USDT on it. BSC holds 5.31% of the market share, while Solana, which has been highly vocal in this bull market, is ranked fourth, with a share of 4.69%. It is evident that Ethereum is still dominant, and it is challenging for other public chains to surpass it.
Why is Ethereum able to maintain its dominance?
Established in 2013 and officially launched in 2015, Ethereum is the first blockchain to achieve Turing completeness. It was created for smart contracts and to carry various applications, thereby bringing more possibilities to the blockchain industry.
During the previous bull market, the DeFi ecosystem on Ethereum flourished, leading to a surge in the number of users and network congestion, resulting in longer block times, slower transactions, and high fees. For retail users, Ethereum has become a public chain with low cost-effectiveness.
In this context, new public chains have emerged to address the problems on Ethereum and have attempted to replace it. Some public chains have labeled themselves as “Ethereum killers” and have aimed to capture market share.
The “Ethereum killers” that emerged in the previous bull market include Cardano (ADA), Avalanche (AVAX), BNB Chain (BNB), Solana (SOL), and Polkadot (DOT). These “killers” all claim to have high throughput and low transaction fees. They each have their strengths; for instance, BNB Chain is backed by Binance, and Avalanche has achieved significant optimization in transaction speed, making it a favorite public chain for Gamefi. Polkadot’s greatest advantage lies in its multi-chain structure and an active developer community.
These public chains aim to elevate the industry’s technological level from the perspectives of development languages, code complexity, and operational mechanisms. While they each have their strengths, none of them can compete with Ethereum, as their combined TVL is not even one-tenth of Ethereum’s.
Furthermore, public chains that have emerged during the bear market, such as Aptos, although favored by VCs, have performed poorly.
Despite the continuous emergence of public chains, none have been able to truly challenge Ethereum’s position. Even their combined efforts have not been enough to surpass Ethereum. The reasons are twofold: Ethereum’s deep experience and the solutions to its criticized issues, such as scaling, congestion, high gas fees, and limitations like EOA addresses.
Scaling issues have evolved into multiple solutions like Rollup, Plasma, and Validium. The limitation of EOA addresses has been resolved by the ERC4337 Account Abstraction upgrade, which has developed into an account abstraction trajectory. Solutions such as Eigenlayer, which addresses potential limitations of block capacity, have been introduced, and DA capabilities have been expanded through modular combinations of third-party DA solutions like Celestia and optional replacements for VM execution layers.
Layer2 has become an essential narrative for Ethereum and has become an independent track in the industry. It is designed to address Ethereum’s scalability issues by building an additional network layer on top of the Ethereum main chain, allowing for more transactions while maintaining the security and decentralization of the main chain.
Moreover, Ethereum’s mainnet has a clear development path, which includes five stages—Merge, Surge, Verge, Purge, and Splurge—planned by Vitalik to enhance performance.
Ethereum’s future changes
Ethereum is also facing challenges related to privacy, consensus, smart contract security, and scalability, which have been ongoing since its inception. These challenges have detailed variations at different stages of development.
For example, the ERC-4337 protocol, which abstracts Ethereum accounts, is a proposed solution for protecting user asset security. The Ethereum community has been researching this protocol for a long time and has determined it to be the best solution to address the issue. The protocol achieves Ethereum’s standard of account abstraction on the protocol without requiring any changes to the consensus layer.
However, as Vitalik mentioned in a speech, advancing broader account abstraction also requires consideration of how to handle MEV issues to ensure fairness, security, and healthy development of the system. This requires collaborative efforts from the entire ecosystem, with the overall goal of aligning the on-chain and centralized service experiences.
This shows that a single technical innovation and promotion involves specific, multi-party coordinated, and detailed work.
Vitalik also pointed out that the security and decentralization of the proof system for L2 to L1 transaction bundling and submission is crucial. Most of the transaction sorters in L2’s technical components are centralized, posing potential risks. L2 has different technical choices and development directions, and there are detailed technical issues, such as how to build wallets and addresses across L2s and provide users with a better experience. Issues related to the storage of transaction-related data and data availability also need to be resolved.
An easier-to-understand problem is the centralization of Ethereum’s current staking after the transition to PoS. The industry has long criticized Ethereum for this, and some have even expressed concerns that such Ethereum could easily be controlled by governments. How can this be resolved?
The current problems facing Ethereum are actually technological advancements that the entire industry needs to collectively achieve.
These issues being raised, widely discussed, and practiced are a crucial reason why Ethereum is trustworthy. It is evident that Ethereum does not evade problems and is actively working to solve them.
In conclusion, Ethereum remains a highly innovative public chain within the industry, and it is challenging to surpass it at the moment.
