What exactly is going on with Ethereum?

Author: Pavel Paramonov

Translation: Jiahui, ChainCatcher

This article is mainly inspired by Vitalik’s recent tweets about change and the current market situation. While the entire market is declining, it’s hard to blame any one person, and I’m not here to point fingers.

As someone who has worked with many Ethereum teams, invested in multiple protocols built on Ethereum through venture capital funds, and generally is a huge fan of Ethereum and EVM-related things, I am writing these words.

Unfortunately, I can no longer say the same, because I feel Ethereum doesn’t know where it’s headed (many share this sentiment).

I don’t want to discuss ETH’s price trends, but I cannot ignore this fact: as the world’s second-largest cryptocurrency, its performance is quite unstable. Regardless of where the global market is headed, ETH’s performance feels more like a detached stablecoin.

This article aims to explore what has happened to Ethereum over the past few years, and why many people are losing hope or have already lost hope. Ethereum isn’t losing to Solana or anything else; it’s losing to itself.

A Rollup-Centered Roadmap

When Ethereum announced a rollup-centric roadmap, almost everyone was excited. Its promise was that rollups (and Validiums) would enable scalability, so user transactions would happen on rollups. Meanwhile, Ethereum would serve as a validation layer, focusing first on becoming a Layer 1 for rollups, not for users.

Developing rollups is much faster and cheaper than developing Layer 1s, so the future of thousands of rollups looks very promising and optimistic. What could possibly go wrong?

It turns out, everything can go wrong. Endless debates, putting ideology above demand, internal community conflicts, identity crises, and giving up on the rollup-centric vision too late.

All the potential pitfalls materialized. Most community members once saw Max Resnick as an utterly incompetent villain, only to find out he was right about almost everything. During his time at Consensys, Max made numerous statements about what Ethereum needs to do to move forward, but he was met with criticism and almost no support.

The stupidest peak was when the entire industry started debating whether a certain L2 is truly Ethereum, for example:

Point A: “Base is an extension of Ethereum; we’ve made huge contributions to the Ethereum ecosystem.”

Point B: “Base isn’t an extension of Ethereum; it’s an independent entity.”

What the hell are we even discussing? How can such conversations bring a better future for Ethereum and its ecosystem? Why are people seriously arguing about what is or isn’t Ethereum? Aren’t the issues we need to solve more important?

If we accept that rollups are an extension of Ethereum because they use ETH as gas, then we’re on the right track. If we believe rollups aren’t an extension but benefit from Ethereum’s applications, we’re also on the right track.

Right? Absolutely not.

This ideological debate isn’t really a discussion; it’s a confrontation between two echo chambers trying to prove who’s right. We don’t need PvP; we need PvE. We need to understand that this isn’t about fighting each other but uniting to face problems and the future. Unfortunately, many prefer mental stimulation and are even unwilling to consider that their views might be wrong.

Technological Ideology Over User Needs

Based rollups, booster rollups, native rollups, gigagas rollups, keystore rollups.

• Which one is better? What will the future look like? How will they connect?
• “This type is the future,” “No, that type is the future.”
• “There’s no reason not to develop based rollups.”
• “Native rollups will take over the ecosystem because they have Ethereum orthodoxy.”

All these discussions… the result is just Arbitrum and Base continuing to dominate.

Technical advantages can bring many benefits to participants, but only if you’re not comparing apples to oranges, or oranges to tangerines. They are too similar—so similar that users don’t care. Outside of the bubble, no one cares. Obsessing over one more or one fewer precompile feature won’t help you win this war.

“Oh, actually, we have Ethereum orthodoxy, we have an advantage, we are very close to Ethereum and reflect its core values, users will choose us.”

What values? Which users will choose you?

@0xFacet became the first second-stage (Stage 2) rollup, defining Ethereum orthodoxy. Where are they? Their users, developers, technical KOLs, and supporters of Ethereum’s ecosystem and orthodoxy—where are they?

Where are those people? How many of you have heard of Facet? How many applications are available on Facet? I personally have no opinion on Facet. I’ve spoken with the founder multiple times; I respect him, he’s a great person. But where are those who say we need more second-stage rollups? I don’t know, and you don’t either.

Economic Incentives Far Outweigh Technical Incentives

I am a huge fan of Taiko, especially their research on based rollups. Many benefits: stronger censorship resistance, neutrality, no sequencer downtime risk, L1 validators earning more. Where’s the trap?

The trap lies in the financial situation behind this model. You can’t force people to give up income just for “orthodoxy.”

Arbitrum promised a decentralized sequencer. Scroll promised a decentralized sequencer. Linea, zkSync, and Optimism all promised decentralized sequencers. Where are they? Those sequencers?

Every rollup team’s documentation has a line: “We currently have a centralized sequencer, but we are strongly committed to decentralizing it in the future.” Almost none have delivered. Metis has, but luckily or unluckily, people don’t care about Metis.

Do I think they overpromised to appease influential ETH maximalists? Yes. Do I think they really want to decentralize their sequencers? Yes, but even if they do, it’s meaningless for them.

Coinbase (Base) is legally obliged to maximize profits to create value for the company. Other teams are the same—why kill your revenue streams? That makes no sense. Only about 5% of Base’s revenue flows into Ethereum. Rollups have never been an extension of Ethereum.

Taiko once had days where it paid more in sequencer fees to Ethereum than it earned from user transaction fees. And companies like Taiko, besides paying fees to Ethereum, obviously have many other expenses.

Only when teams give up revenue can based rollups or any “Ethereum orthodoxy” vision be realized. I don’t underestimate the importance of decentralization, security, and permissionlessness. But when your only goal is ideological correctness rather than user-centricity, all of that is meaningless.

It’s no surprise that this weakness and commitment to Ethereum orthodoxy have attracted speculators to this space.

Consequences of a Rollup-Centered Roadmap

Eclipse, Movement, Blast, Gasp (Mangata), Mantra: these protocols were never built for the long term. It’s very easy to hide behind the mask of Ethereum orthodoxy, making Ethereum better, or introducing SVM into Ethereum.

They have all, to some extent, collapsed. All rollups realize their tokens are almost useless because they pay fees in ETH, and their own tokens have little utility.

Speculators realize you can generate a lot of hype around a rollup-centric narrative and profit by selling worthless tokens to retail investors.

Ethereum has never officially recognized Polygon as a true L2, even though they’ve played a significant role in locking more value into ETH. If you believe rollups are an “extension of Ethereum’s culture,” why not admit that something closely tied to Ethereum’s security and usage is also part of that?

Polygon was very important during the 2021 bull market and contributed greatly to ETH’s growth as an asset. But yes, it’s not an L2, and it doesn’t deserve the community’s praise. If Polygon were an L1, its valuation would be much higher.

Even Paradigm, arguably one of the best crypto VCs, which has contributed the most to the Ethereum ecosystem and even developed its own L2 (Ithaca), has shifted to developing an L1 (Tempo) with Stripe. I think when your most loyal supporters leave you for competitors, there’s a big problem.

Ethereum Foundation Has No Clear Direction

Although Ethereum is technically decentralized, culturally it’s centered around Vitalik. The inner circle of Ethereum is real. As people say, to succeed, you need to get the attention of those close to Vitalik and a few influential VCs.

I’m not saying you have to agree with everything Vitalik says, but his views largely define what’s good or bad for Ethereum—you can’t really oppose them.

First, it’s a super-deflationary currency. With EIP-1559 and The Merge, ETH’s economic model has become deflationary, and it will become a better store of value than Bitcoin. But in 2024, ETH’s annual inflation rate turned positive.

So the vision of ultra-sound money only lasted three years? That means it can’t be a store of value. That narrative is dead, and it was never really true because ETH was never designed as a store of value—that’s Bitcoin’s purpose. You can’t compete with that.

Then, Ethereum can’t decide whether its token is a commodity (not applicable due to dynamic supply and staking mechanisms) or more like a tech stock (not applicable because it doesn’t generate enough revenue to value Ethereum like a tech company).

Others argue ETH isn’t a currency at all. What’s going on? We need to pick a side. Ethereum can’t be multiple things at once—you either have a clear global direction or you fall behind.

Back to Economic Incentives…

I still can’t imagine a chief engineer like Péter Szilágyi earning only about $100,000 a year for his contributions to Ethereum. The person who was there from the start, helping Ethereum grow from nearly zero to a $450 billion market cap, earning just 0.0001% of that.

The most influential and successful protocol in crypto history (second only to Bitcoin) offers no incentives or equity. It’s easy to justify this by hiding behind decentralization, open source, and permissionless spirit: “We’re not here to make money; we’re here to move forward.”

But you must incentivize even your most loyal soldiers, or they’ll leave or take side jobs. Péter left, Danny Ryan left, Dankrad Feist directly went to Tempo.

Justin Drake and Dankrad took advisory roles at EigenLayer in 2024, receiving token allocations, which caused the community to start hating them for it.

Poor guys are earning a meager salary at EF (compared to FAANG companies and AI research labs), yet they’re hated for making money and helping an independent protocol that’s not Ethereum but aims to make Ethereum better.

Are you stupid? Sometimes I think if you’re an honest, hardworking person in Ethereum, you’re not allowed to make money—you’re just expected to be a slave for the sake of “recognition” from Ethereum. EF often sells ETH to fund various operations, initiatives, and research. But maybe they should just pay their researchers first?

Refusal to Adapt and Change

“Day one. Ethereum will win. The most decentralized blockchain with the highest uptime.”

We hear this every day, just like we hear endless excuses from Ethereum every day.

Yes, Ethereum is expensive and slow. But we have rollups, using rollups, rollups are Ethereum! Yes, ETH’s price lags behind everything. But Ethereum has the largest developer ecosystem, a solid foundation, and demand will follow.

Ethereum is the most decentralized blockchain! Solana is terrible; they lack client diversity. Ethereum has 100% uptime! Solana is terrible; it has crashed multiple times.

Ethereum’s network activity is lower than Solana’s. Well, that’s because Solana’s activity is spam and meme coin gamblers. We are a moral chain!

Same excuses, same answers, same reactions over the past few years. Everything else besides Ethereum and rollups is garbage. If Ethereum underperforms on any metric, we say it’s day one—we know what we’re doing, and there’s nowhere better than Ethereum.

Everyone is tired of the community’s repeated excuses. Ethereum feels like a wealthy old lady who refuses any innovation but keeps giving money to her parasitic children and grandchildren.

Late Reforms

Just as I was about to finish this article, a few hours ago, Vitalik tweeted that the rollup-centric roadmap has failed, and they need to find a different path and expand L1.

You know what? I’m glad when people realize their mistakes. It takes courage to say it loudly. But I think it might be too late. Ethereum has once again found the long-term path it needs to take, but progress remains slow.

Recently, EF has undergone some changes: new leadership, treasury transparency, R&D restructuring, and many other things. EF has started recruiting new young talent in developer relations and marketing, like Abbas Khan, Binji, Lou3e, and others.

But change needs to happen quickly. Ethereum must sprint to prove everyone wrong.

Let’s see if, after these reforms and changes at EF, we can see Ethereum become an exciting project rather than one of blind faith and disappointment.