Why Has ETH Performed Poorly in This Market Cycle?

Almost all Ethereum L2 projects have issued their own tokens, which has led many Ethereum supporters to put their funds into these L2 tokens rather than ETH itself.

The recent performance of ETH in this market cycle has been lackluster, leading many to question whether it will still be able to set new all-time highs this year. This skepticism is understandable given the current low market sentiment, which has even seen ETC outperforming ETH.

Of course, I remain a staunch supporter of the Ethereum ecosystem, but in my opinion, ETH's poor performance reflects that the Ethereum ecosystem needs some profound changes.

Next, I will try to answer a key question:

Why has ETH performed poorly in this cycle?

Although the reasons are difficult to pin down, I believe the following points are the main factors.

Too many ETH Beta Tokens

Almost all Ethereum L2 projects have issued their own tokens, which has led many Ethereum supporters to put their funds into these L2 tokens rather than ETH itself. This significantly reduced the amount of capital flowing into ETH.

For example, if you are bullish on Solana (without L2 projects), you only need to buy SOL; but if you are bullish on ETH, you may be faced with dozens of ETH-related token choices, such as tokens of L2 projects.

Liquidity dispersion

There are currently more than 100 L2 projects in the Ethereum ecosystem. For skilled DeFi users, crossing from one L2 chain to another is not difficult, but for ordinary investors, the process can be very complicated and headache-inducing.

Although Ethereum L2 has fast transaction speed and low cost, if the user experience across L2 cannot be improved, this scalability will make it difficult to promote the large-scale adoption of Ethereum.

Other L1 technology catch-up

In the last market cycle, Ethereum was undoubtedly the leading L1 blockchain in various indicators.

While Ethereum still has the strongest DeFi ecosystem, other L1s such as Solana have surpassed Ethereum multiple times in metrics such as revenue and decentralized exchange (DEX) trading volume. This is partly due to their technological progress. Although Ethereum has made some important progress in recent years, some L1 competitors have developed their technology faster and are now able to provide a better user experience (UX).

How to make ETH return to its peak?

Here are some directions worth trying:

Ethereum's L2 projects are encouraged to incorporate ETH into the ecosystem , and by reducing the supply of tokens through a mechanism that burns part of the transaction fees, the scarcity and value of ETH will be increased.

Strengthening the core position of ETH in the Ethereum economy ( Vitalik once suggested that more support should be given to decentralized applications (dApps) that use ETH as the main collateral asset)

Allocating more resources to solve the L2 fragmentation problem and unify liquidity should be the top priority for Ethereum's development.

Accelerate Ethereum’s technical upgrades ( although Ethereum reduces its token supply by more than $100 million per year through the destruction mechanism, its technical upgrade rate lags significantly behind other L1 blockchains.)

Establish a sustainable revenue model for the Ethereum Foundation. By obtaining stable income from transaction fees or staking income, the Ethereum Foundation can reduce its reliance on selling ETH, thereby avoiding negative impacts on market prices.

Promote the expansion of Ethereum L1. Although Ethereum's long-term goal is to achieve expansion through L2, there is still great potential for L1 performance improvement. By optimizing the expansion capabilities of L1, the overall user experience and competitiveness of Ethereum can be further improved.

These measures could be a major step in pushing Ethereum to new heights.

However, the Ethereum Foundation and its community appear to have fallen into a degree of complacency over the past few years, an attitude that could undermine the project’s competitiveness in the long run.

Ethereum remains the leading L1 blockchain, but other L1 projects with motivated and innovative teams may gain the upper hand in the competition if a more aggressive strategy is not adopted.

Now is the time for the Ethereum community to rekindle its “winner mentality” and secure its leadership in the blockchain space.

The good news is that we can already see some positive changes, especially from the efforts of Ethereum ecosystem projects, which are trying to improve market confidence in ETH:

MegaETH : A high-performance Ethereum L2 is being developed with the goal of supporting over 100,000 transactions per second (TPS) to compete with highly scalable L1 blockchains.

Eclipse : Committed to building the first Ethereum L2 powered by the Solana Virtual Machine, aiming to combine Solana's high-speed performance with Ethereum's high security.

Pectra Upgrade : Pectra, a major upgrade of Ethereum that is about to be launched, will significantly improve the user experience (UX) by introducing native account abstraction functions, making blockchain interactions simpler and more efficient.

Eric Trump ’s promotion : Eric Trump recently publicly supported ETH, which makes people wonder whether it is possible for the United States to establish a national Ethereum reserve?

The above three technical advances will undoubtedly further promote the adoption rate of Ethereum L