Analysis of the Development Dilemma of Ethereum: A Discussion from the Supply and Demand Perspective

Recently, Ethereum seems to be facing a development bottleneck. Despite having a strong technical and developer foundation, market performance has been unsatisfactory. Let's analyze this phenomenon from the perspectives of supply and demand.

Demand Side Analysis

The demand for Ethereum can be divided into internal and external aspects.

The internal demand mainly stems from new applications brought about by advancements in Ethereum technology, such as the early ICO and DeFi waves. However, in this bull market, the anticipated L2 and Restaking have not yielded significant results. The L2 ecosystem is highly overlapping with the main chain, making it difficult to stimulate a trading frenzy. While Restaking projects have locked up ETH, they have not increased assets priced in ETH, but rather are mostly priced in USDT on exchanges. Additionally, the effects of the EIP1559 burning mechanism have been significantly weakened due to L2 diversion.

On the external demand side, the macro environment has shifted from the previous round of easing to the current tightening. Institutional investment tools have also changed from the one-way inflow of Grayscale trusts to the two-way trading of ETFs. Currently, one month after the launch of the ETF, there has been a net outflow of 140,000 ETH, primarily flowing out through Grayscale, which stands in stark contrast to the net inflow of Bitcoin ETFs.

Supply Side Analysis

After Ethereum transitioned from POW to POS, its supply structure underwent a fundamental change.

During the POW era, miners faced high fixed costs (such as investment in mining machines) and incremental costs (such as electricity and hosting fees), which were denominated in fiat currency and non-refundable. When the price of ETH falls below the cost, miners choose to hold their coins instead of selling, thus forming price support. As the industry develops, costs continue to rise, effectively raising the bottom price of ETH.

In the era of POS, validators have replaced miners. Staking ETH incurs almost no fiat currency cost, only a small amount of infrastructure fees and opportunity costs. This has led to the absence of the concept of "shutdown price," as stakers can withdraw and sell ETH at any time, lacking a mechanism to maintain a price floor.

Historical Lessons

The root of Ethereum's current predicament can be traced back to the end of the ICO era in 2018. At that time, a large number of project teams were disorderly selling ETH, leading to a sharp price drop. To prevent similar situations from happening again, the Ethereum ecosystem has gradually formed a "core circle" that concentrates a large amount of chips.

However, this approach has also brought about new problems:

1. The number of projects that can achieve significant liquidity has plummeted due to excessively low splitting rates.
2. The market Beta returns are weaker than other public chains, and the valuation of "halal" projects is excessively high.

The addition of L2 weakened the burning effect, and POS brought no-cost selling pressure, ultimately leading to the current situation.

Experience Summary

1. Dividend-type projects should establish a solid cost structure, continuously raising the cost line as asset liquidity increases to maintain a price floor.
2. The split project should be committed to transforming the parent coin into a priced asset, expanding demand and liquidity, rather than merely relying on the appreciation of the parent coin itself.