Can ETH make a comeback? How to make ETH great again?

Author: The Decentralized Finance Investor Source: thedefinvestor Translation: Shanooba, Golden Finance

This market cycle has been quite difficult for ETH.

At the lowest point of the bear market in 2022, many people predicted that ETH would easily surpass $10,000 in this bull market. But now, there is a lot of doubt in the market about whether ETH can even hit a new high this year.

Given the current market sentiment, this suspicion is justified. **

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

Don’t get me wrong, I’ve always been a big supporter of the Ethereum ecosystem. But in my opinion, ETH’s weak performance suggests that it needs a major change. **

So, why did ETH perform poorly in this cycle?

**Why is ETH performing poorly in this cycle?

No one can give a definite answer, but I think there are a few reasons for this:

1. Too many ETH Beta tokens, funds are being diverted

In the past, most ETH supporters would directly hold ETH, but now, almost all Ethereum L2s have issued their own tokens, and many investors are starting to buy L2 tokens instead of ETH. This has led to a significant decrease in funds flowing into ETH.

For example, if you’re bullish on Solana, you can simply buy SOL because it doesn’t have L2. But if you’re bullish on ETH, you have dozens of L2 tokens to choose from.

2. Diversified Liquidity

The number of Ethereum Layer 2 projects has exceeded 100, but interoperability and liquidity between Layer 2s are still a big problem.

For experienced Decentralized Finance users, cross-chain bridging between different L2s is not a big issue, but for ordinary investors, this process is extremely complex, even a nightmare. Currently, L2 transactions are fast and low-cost, but if the cross L2 user experience (UX) does not improve significantly, L2 scalability cannot truly drive mainstream adoption of Ethereum.

3. Other L1 blockchains are catching up

In the previous cycle, Ethereum was undoubtedly the absolute king among all L1 public chains.

Although Ethereum still has the strongest Decentralized Finance ecosystem, Solana and other L1s have now surpassed Ethereum in terms of revenue and DEX trading volume.

That’s because L1s such as Solana have progressed faster, and while Ethereum has made some progress over the past few years, some of its competitors have been faster and have far surpassed Ethereum’s user experience.

How to Make ETH Great Again?

Here are some possible solutions:

• Encourage L2 to support ETH by burning a portion of transaction fees (Vitalik has suggested supporting more dApps that use ETH as the main collateral)
• Strengthen the core position of ETH in the Ethereum economy (ETH should be the cornerstone asset of the L2 ecosystem, not L2 tokens)
• Invest more resources to solve the problem of L2 fund liquidity dispersion, and unify the L2 fund pool (this is the top priority)
• Accelerate Ethereum Upgrade Iteration (Ethereum burns more than $100 million worth of ETH every year, but the upgrade speed still lags behind other L1s)
• Establish a sustainable income model for the Ethereum Foundation (such as obtaining funds from transaction fees and Staking profits to avoid selling ETH)
• Also expand Ethereum L1 (although the main direction of Ethereum’s expansion is L2, L1 can still improve performance through optimization)

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

In the past few years, the Ethereum Foundation and the community seem to be somewhat complacent, which may weaken Ethereum’s competitiveness in the long run.

Although ETH is still the leader in the L1 field, other L1s are catching up at a faster pace. If Ethereum doesn’t adjust its strategy, it may lose this L1 battle.

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

MegaETH - Building a high-performance Ethereum L2, aiming to support 100,000+ TPS, competing with highly scalable L1.

Eclipse —— The first Ethereum L2 based on Solana Virtual Machine (SVM), combining Solana’s speed with Ethereum’s security.

Pectra Upgrade – Ethereum’s next major upgrade will introduce Native Account Abstraction, which will greatly improve the user experience.

Eric Trump publicly supports ETH - This raises a question: Will the United States establish a ‘national-level Ethereum reserve’?

The first three technical upgrades will undoubtedly promote adoption (mass adoption) of Ethereum L2, but the real question is:

Can they drive up the price of ETH?

Can ETH price recover? The key depends on two points**

1. Addressing L2 liquidity dispersion (cross-L2 experience must be significantly improved)

2. Optimize the ETH tokenomics model (e.g. let L2 contribute a portion of the transaction fee to burn ETH to reduce supply)

Currently, I am not heavily invested in ETH because I prefer to bet on faster-growing Decentralized Finance tokens (such as FLUID).

But historically, ETH’s rally has tended to trigger a “copycat season”, which is good for all altcoin holders.