Summary: Last Sunday, I read a fascinating and insightful interview between Bankless and Multicoin titled “Why is ETH Down so bad?” I highly recommend everyone give it a read. In the interview, Ryan clearly illustrates the difference between Web3 pragmatism and fundamentalism, something I’ve previously discussed in my earlier articles. The points raised also sparked a lot of reflection for me. Recently, Ethereum has been facing some FUD (Fear, Uncertainty, and Doubt). I think this is largely because the approval of the ETH ETF failed to trigger the same market excitement as the BTC ETF approval, leading some to reassess Ethereum’s vision and direction. I’d like to share my own thoughts on these issues. Overall, I support the idea of Ethereum as a social experiment aiming to build a decentralized, authority-free, and even trustless “cyber-nation,” as well as its Rollup-based L2 scaling approach. However, Ethereum currently faces two main challenges. First, Restaking competes with L2 scaling solutions, which diverts resources from ecosystem development and diminishes ETH’s ability to capture value. Second, Ethereum’s key opinion leaders are becoming more elitist, and because they are protective of their reputations, they lack the motivation to actively contribute to the growth of the ecosystem.

Judging Ethereum’s Success Based Purely on Its Market Cap is Shortsighted

First, I want to explore the differences in vision between Ethereum and Solana from a values perspective and explain why using market capitalization alone to evaluate Ethereum is incomplete. Some of you might already know the background behind the creation of both Ethereum and Solana, but let’s start with a quick recap. In fact, Ethereum did not have its current fundamentalist stance at its inception. In 2013, Vitalik, one of the key contributors to the Bitcoin ecosystem, published the Ethereum whitepaper, officially marking Ethereum’s birth. Back then, the industry’s main narrative was “Blockchain 2.0.” How many of you still remember that term? It referred to the idea of using blockchain’s decentralized nature to create a programmable execution environment and expand its application potential. Besides Vitalik, the core Ethereum team also included five other key figures:

• Mihai Alisie: Co-founded Bitcoin Magazine with Vitalik.
• Anthony Di Iorio: An early Bitcoin investor and supporter who helped with Ethereum’s early marketing and fundraising.
• Charles Hoskinson: One of the early core developers who later founded Cardano.
• Gavin Wood: Wrote Ethereum’s yellow paper (technical document), created the Solidity programming language, and later founded Polkadot.
• Joseph Lubin: Played a crucial role in financially supporting Ethereum and later founded ConsenSys, a major company in the Ethereum ecosystem.

In mid-2014, Ethereum raised funds through an ICO, collecting around 31,000 bitcoins in just 42 days, which was worth about $18 million at the time. This made it one of the largest crowdfunding events of its time. The core vision for Ethereum back then was to create a decentralized global computer capable of running smart contracts and decentralized applications (DApps) of any complexity. The platform aimed to give developers a universal, borderless programming environment, free from control by any single entity or government. However, as Ethereum evolved, the core team started to diverge in their values regarding its development:

• Disagreements on governance: The team had differing opinions on how Ethereum should be governed. Vitalik Buterin favored a decentralized governance model, while Charles Hoskinson (who later founded Cardano) and others pushed for a more commercialized and centralized approach. They wanted Ethereum to incorporate more corporate management practices and business models, instead of solely relying on the self-governance of the open-source community.
• Differences in technical direction: There were also disagreements about the technical development of Ethereum. For example, Gavin Wood, during the early development of Ethereum, introduced his own vision for its technical architecture and programming language, writing the Ethereum Yellow Paper (technical white paper). Over time, however, Gavin disagreed with Ethereum’s technical direction and eventually left to found Polkadot, a blockchain project focused on interoperability and on-chain governance.
• Conflicts over commercialization: The team was also divided on how to commercialize Ethereum. Some members believed Ethereum should prioritize enterprise-level applications and partnerships, while others were committed to keeping Ethereum an open, borderless, and decentralized platform for developers.

After a period of political struggle, the faction represented by Vitalik, which advocated for cryptocurrency fundamentalism, won the victory. Meanwhile, the other side, which focused more on utilizing blockchain’s technical features to promote integration with traditional industries and commercialization, left Ethereum and created their own products. The disagreements at that time are essentially the same as the values-based differences reflected in the interview between Ethereum and Solana, except now the protagonist has changed to Solana, which has a better combination with traditional finance.

Since then, Vitalik has become the de facto leader of the Ethereum industry. The so-called fundamentalism refers to providing a decentralized online execution environment, which acts as a distributed “cyber parliament,” and thus creates a censorship-resistant “cyber immigrant society.” Users can fulfill all their online life needs through various DApps built on the Ethereum ecosystem, thereby freeing themselves from dependence on authoritative organizations, including tech oligarchs and even sovereign states.

In line with this vision, Vitalik’s ongoing efforts have primarily focused on two key areas:

• Applications: Vitalik has been exploring and promoting more non-financial use cases to encourage the decentralized system to gather more diverse user data. This, in turn, helps create richer, highly engaging products that increase Ethereum’s penetration into everyday online life. Some well-known examples of these efforts include DAOs (Decentralized Autonomous Organizations) for distributed collaboration, NFTs (Non-Fungible Tokens) with cultural value, SBTs (Soulbound Tokens) designed to collect a broader range of non-financial user data, and prediction markets that act as social cognition tools in the real world.
• Technology: On the technical front, Vitalik’s aim has been to boost network execution efficiency through cryptographic methods, all while ensuring decentralization and trustlessness. This is reflected in the scaling direction he champions, from Sharding to Rollup-L2 solutions. By offloading the “computationally heavy” execution processes to L2 or even L3 layers, while leaving L1 to handle crucial consensus tasks, Ethereum can lower user costs and improve execution efficiency.

For projects like Solana, which focus on leveraging blockchain’s utility to expand traditional financial services, their approach is much simpler and more focused. As a publicly traded company with a profit-driven goal, the main concern is how to improve its P/E ratio. Whether or not to stick to principles like trustlessness depends on the potential profits tied to that narrative. Thus, Solana faces little resistance when integrating with CeFi (Centralized Finance) products, maintaining a more open and flexible stance. As Wall Street capital flows into the crypto space, traditional finance’s influence has grown significantly, and Solana is one of the key beneficiaries of this trend—one could even call Solana one of its evangelists. Naturally, as a profit-seeking company, Solana needs to adopt a customer-first approach, which explains its strong focus on user experience.

With this context in mind, let’s consider an interesting question: Are Ethereum and Solana competitors? In some ways, the answer is yes—especially when it comes to providing unrestricted, 24/7 crypto-based financial services. In this area, Ethereum has the upper hand in terms of security and system robustness, as it doesn’t suffer from frequent outages like Solana does. However, Ethereum’s user experience has become an issue at this stage. The abundance of L2 sidechains leaves many new users confused, and the process of using bridges to transfer funds presents significant financial risks and mental stress.

However, when viewed through the lens of its cultural attributes as a “cyber immigrant society,” Ethereum stands out for its uniqueness. For a nonprofit, public, and humanistic entity like this, evaluating its value solely based on market capitalization is somewhat narrow. You could think of it as a subculture community enriching its governance capabilities through technology, eventually forming a sovereign state that exists on the internet. The core of this process is the unwavering commitment to a universal value: ensuring decentralization, which guarantees censorship resistance. This is not just an idea, but a belief system.

This is also why Ryan describes the Ethereum community as having a “human capital advantage.” As one of the most value-rich cultural products in human history, it has the ability to fully harness human enthusiasm. By not focusing purely on utilitarian objectives, Ethereum achieved its cold start success—a process that mirrors any political revolution. Think of how absurd it would be to evaluate the early United States solely based on its economic output. The creation of a nation takes far longer than building a company, with significantly greater challenges. However, once established, the rewards far surpass anything measurable by corporate standards.

L2 and L1 are Not Competitors But Have a Master-subordinate Relationship. L2 Does Not Dilute Ethereum’s Value Capture Ability Because its Legitimacy is Derived from L1

The second point I’d like to address is Ryan’s central argument, where he claims that L2 acts as an outsourced execution layer, which will diminish Ethereum L1’s ability to capture value. He also suggests that, as L2 develops further, it will eventually compete with L1, leading to a breakdown in cooperation.

I disagree with this view. In fact, I believe that Ethereum’s current Roll-Up L2 development path is the right choice. L2, as a low-cost, high-efficiency solution, not only expands Ethereum’s potential use cases but also reduces network data redundancy without sacrificing decentralization. It is also a more environmentally friendly solution to some extent. Moreover, L2 helps Ethereum safely explore boundary scenarios, such as collaborations with CeFi or innovations in privacy-focused projects, while also providing risk isolation.

As for the notion that L2 is merely “outsourced execution,” I find this comparison inadequate. In traditional business models, outsourcing refers to offloading low-margin tasks to third-party companies, allowing the company to focus on high-value activities and reduce management costs. The downside is that companies may lose the ability to innovate in those outsourced areas, and costs could spiral out of control. TSMC’s development versus the U.S. and Japanese semiconductor industries illustrates this well.

However, L2 is not as simple as traditional outsourcing. In fact, it’s more fitting to liken L2 to a “colonial system” under Ethereum L1. The key difference between these models is the nature of the contract and the source of legitimacy. L2 doesn’t handle transaction consensus; instead, it relies on L1 to provide finality through methods like Optimistic Rollups or ZK Rollups. L2 essentially serves as an executor or agent for L1 in specific areas, operating in a subordinate role similar to that of a colony in relation to a sovereign power.

You can think of it like the British Empire’s colonial system in British India. By appointing governors and setting up a bureaucratic structure, alongside supporting local elites as full agents, the British handled taxation and governance in the colonies. The suzerain (mother country) had two ways of profiting from the colonies. The first was through exclusive trade laws, controlling the colony’s international trade and shaping its economic structure. For example, in the North American colonies, industries like tobacco were promoted, with exclusive trade allowed only between the colony and the mother country. This way, the mother country profited from the added value created by industrializing raw materials. The second, simpler method was through a taxation system, directly taxing the colonies and transferring a portion back to the mother country, which relied on strong military presence to maintain stability.

In a similar fashion, L2 acts as Ethereum’s value-capturing agent across different sectors. Ethereum benefits from this system in two ways. First, L2 needs to ensure security by confirming finality on L1, and this requires using ETH for payment, creating more use cases for ETH. This can be compared to a “finality tax” that L1 collects from L2 or compensation for the security that L1 provides. The second way is that the master-subordinate relationship allows ETH to become the preferred store of value within L2, much like how seigniorage works. For example, in L2 lending protocols, ETH is often the most valuable collateral.

This master-subordinate relationship is difficult to disrupt, and this is why L2 will not compete with L1, causing cooperation to break down. L2’s legitimacy stems from the finality provided by L1, much like the legitimacy of a colonial system was based on the military backing of the suzerain. Breaking away from this relationship would strip L2 of its legitimacy, leading to the collapse of its entire business model, since most users are drawn to the system because of the legitimacy provided by L1.

Ethereum is Currently Facing Two Major Challenges: ReStaking’s “Vampire Attack” on the L2 Development Path and the Growing Aristocratization of Ethereum’s Key Opinion Leaders

After addressing the earlier points, I’d like to focus on the real issues Ethereum is grappling with today. In my view, there are two main problems:

1. ReStaking is siphoning resources away from L2 development;
2. Ethereum’s key opinion leaders are becoming more elitist.

In previous articles, I’ve outlined the vision and direction of EigenLayer, a project I hold in high regard. However, when viewed from the perspective of Ethereum’s ecosystem, EigenLayer seems like a “vampire attack,” diverting resources that should have been invested in L2 development. These resources are being spread thin across the ReStaking track, and at the same time, ReStaking fundamentally erodes ETH’s ability to capture value.

Why is this the case? As I previously explained, Ethereum benefits from L2 in clear ways, but the same logic cannot be applied to the ReStaking track. As an alternative scaling solution, ReStaking and L2 are inherently in competition. ReStaking merely repurposes Ethereum’s consensus capabilities but lacks a robust incentive model to drive builders to explore new use cases. The key issue is that L2 operators must pay to use L1’s consensus, and this cost remains fixed regardless of L2’s activity level. Since ETH is required for finality payments, L2 operators are incentivized to actively develop and explore in order to balance costs and profits.

In contrast, for ReStaking, reusing L1’s consensus comes at no real cost; they only need to offer a small bribe to L1 stakers, which can even be a future promise — similar to what happened with the Point debacle, which I’ve previously analyzed. Additionally, ReStaking turns consensus power into a commodity, allowing buyers to flexibly purchase consensus services based on current demand. While this is beneficial for buyers, it weakens Ethereum’s control over the ecosystem compared to the L2 model, where the relationship is more structured.

As ReStaking and its associated tracks attract more capital and resources, L2 development has stagnated. Instead of building more diverse applications and capturing greater value, the ecosystem’s resources are wasted on redundant projects — essentially reinventing the wheel, or worse, building inefficient versions of it. This shift has led many to focus more on playing the capital-driven narrative game rather than driving meaningful innovation. Clearly, this is a mistake. That said, from EigenLayer’s perspective, the situation looks very different, and I still respect the team’s clever strategy for capturing public value!

Apart from this, another concern I have is the growing aristocratization of Ethereum’s key opinion leaders. There’s a noticeable lack of active, vocal leaders in the Ethereum ecosystem compared to Solana, AVAX, or even the former Luna ecosystem. While these leaders might create FOMO (fear of missing out), they undoubtedly help strengthen community cohesion and boost the confidence of new startups. Though I don’t agree with Ryan’s historical perspective, I do recognize that the progress of history often hinges on the efforts of individual visionaries.

In Ethereum, however, beyond Vitalik, it’s hard to name other prominent opinion leaders. This, of course, is tied to the split in the original founding team but also reflects a lack of mobility within the ecosystem. Much of the ecosystem’s growth benefits have been monopolized by early participants. Think about it: after raising 31,000 BTC (worth over $2 billion today), even if you did nothing else, you’d still be set for life. And the wealth created by Ethereum’s success far surpasses that. As a result, those early participants who should have become opinion leaders have shifted toward more conservative strategies. For them, preserving their gains is more appealing than pursuing expansion. To minimize risk, they’ve become cautious and are leaning towards conservative approaches in ecosystem development, which makes sense. If you can maintain AAVE’s dominance and lend out your substantial ETH holdings to leverage users, earning reliable returns, why would you feel motivated to push new products?

The current state of affairs, in my opinion, is largely due to Vitalik’s leadership style. Vitalik is more suited to being a spiritual leader, particularly when it comes to designing values and other abstract concepts, where he excels. However, as a manager, he seems less interested. This explains why Ethereum’s development has been relatively slow. There’s even a joke that while Ethereum was still working on Sharding, Chinese public blockchains had already finished their sharding. This is related to Vitalik’s management approach. You might argue that this is an inherent challenge when pursuing decentralization and nonprofit goals, but I believe that Vitalik has a responsibility to address these issues head-on for the sake of the ecosystem.

Despite all this, I remain optimistic about Ethereum’s future. I believe in the public and revolutionary vision behind the project. Ethereum and the community behind it are what brought me into this industry, shaped my understanding, and even influenced my values today. Even though there are obstacles, as someone who’s a little older now, pursuing ideals beyond just financial gain doesn’t seem like such a bad thing!

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