The current DeFi ecosystem has proven the feasibility of on-chain financial systems, despite its cyclical nature.

Author: The Daily Bolt by Revelo Intel

Translator: DeepFlow Tech

In this issue, we will explore Vitalik Buterin's recent comments on DeFi, the current performance of $ETH compared to $BTC and other competitors, and the question of whether $ETH is facing an identity crisis, such as being a "ultrasound money" or being eroded by certain L2 solutions. As of now, $ETH has fallen by 5% since the beginning of the year, highlighting this issue. There is often semantic disagreement among supporters of ETH and other individuals in the crypto space when discussing what constitutes Ethereum, regardless of whether L2 is considered part of Ethereum. The development of L2 solutions such as Arbitrum and Base has not brought significant benefits to $ETH as an asset. In the cryptocurrency space, people often validate narratives through prices, as it directly relates to their profit potential.

Vitalik's Waning Interest in DeFi

Vitalik Buterin's recent comments on DeFi have sparked heated discussions in the cryptocurrency and Ethereum communities. Vitalik believes that the current form of DeFi is unsustainable, likening it to an "Ouroboros," a state of self-devouring. This situation highlights leadership issues in the Ethereum ecosystem. Unlike other competitors with clear leaders, Ethereum faces unique challenges due to its decentralized nature. When competing with other blockchains, it lacks a clear market advocate. While Vitalik is a thought leader with a real identity, he is not as active in advocating, as Do Kwon was in the Terra community, or as dominant as Anatoli in Solana (Solana's performance is superior to $ETH and has attracted a large number of retail investors).

Some community members believe that DeFi is an important part of Ethereum's value, and they are concerned about the lack of support from key figures such as Vitalik and the Ethereum Foundation (most members only held or sold $ETH during the DeFi summer, etc.). Overall, those closer to Ethereum's development roadmap and technical implementation seem to prioritize other use cases, such as public goods, encrypted information transmission, and quadratic voting, which are fundamentally different from the 24/7 "infinite casino."

Despite Vitalik Buterin's skepticism about DeFi, it is worth noting that the current DeFi ecosystem has proven the feasibility of on-chain financial systems, despite its cyclical nature. The infrastructure built for payments, exchanges, lending, and derivatives demonstrates the potential to reduce counterparty risk, increase transparency, and lower transaction costs. Even though early applications were mostly speculative, their achievements in market efficiency and financial infrastructure should not be overlooked.

At the same time, the current on-chain DeFi seems to have reached a state of stagnation. Since Bancor and Uniswap, the core functionality of exchanges has hardly changed. The user experience has not become simpler but more complex. Users now need to deal with new blockchains and Layer 2 technologies, understand the complexity of cross-chain assets, manage different gas tokens, and handle various token representations. True innovation may lie in the introduction of intent and solvers, which effectively centralize order flow into a few mature market makers—contrary to the original vision of allowing anyone to become a market maker in a permissionless manner, although relying on professionals does provide users with better prices.

However, Ethereum's identity crisis extends beyond Vitalik's comments on DeFi and touches on core issues of value accumulation and network economics. Over the past few months, Ethereum's gas fees have remained at low levels, approximately between 2-4 gwei—no longer showing the deflationary scenario of $ETH seen on ultrasound.money. This situation has led to an increase in Ethereum's supply, challenging the "ultrasound money" theory that was popular in the previous bull market cycle. EIP-1559 was introduced in August 2021 to make Ethereum deflationary by burning transaction fees. However, in the current low fee environment, coupled with the emergence of a large (possibly excessive and growing) number of Layer 2 solutions, its effect has not been as expected, resulting in net inflation instead of the anticipated deflation.

The attention of Ethereum to Layer-2 solutions and the upcoming EIP-4844 upgrade make the situation more complex. Venture capitalist and Solana supporter Kyle Samani believes that this strategy has issues. He points out that Layer 2 solutions may parasitically siphon value from the Ethereum mainnet. Samani believes that Ethereum's decision to outsource transactions and smart contract execution to these Layer-2 networks is "extremely bad." He notes that the primary value of blockchain networks comes from MEV (Miner Extractable Value, the profit validators make by reordering transactions), and Ethereum may have abandoned this due to its Layer 2-centric roadmap. This view was initially proposed by his Multicoin partner Tushar Jain, who presented an asset ledger valuation framework based on MEV about two years ago. Multiple Layer 2 solutions have led to the decentralization of liquidity and user activity, resulting in a poor user experience, in stark contrast to a single-layer chain like Solana. Samani believes that this decentralization is a significant reason for Ethereum's recent underperformance and poses a challenge to its future growth and adoption.

The disclosure of the Ethereum Foundation's annual budget of approximately $100 million has intensified this debate. This has sparked controversy over resource allocation and transparency within the ecosystem. Supporters argue that Ethereum's scale and influence justify such funding, but some question whether it is an efficient use of resources. The Foundation's decision to sell a large amount of $ETH on exchanges like Kraken has attracted attention, as selling $ETH even in a bear market exacerbates selling pressure.

Here is the English translation of the provided markdown:

Here are the Ethereum Foundation's expenditure costs categorized for 2023:

In a recent Steady Lads podcast, Justin Bram mentioned that decision-making power within the Ethereum Foundation is primarily concentrated in the hands of three individuals, including Vitalik Buterin, a core member, and a hired regulatory expert. This organizational structure has raised concerns about transparency and accountability. As the crypto industry continues to mature, there is an increasing desire for foundations and other centralized institutions to clearly explain the allocation of their financial resources. This demand for transparency also extends to governance structures, decision-making processes, and how these align with the overall goals of the platform.

Despite the challenges facing Ethereum and the entire DeFi ecosystem, a potential development direction is emerging. The key question now is: What will drive the next wave of cryptocurrency adoption, potentially leading to 10 to 100 times growth? While Vitalik's concerns about the sustainability of DeFi are valid, this does not negate the potential of blockchain technology in the financial sector. The answer may not lie in improving the existing DeFi model or continuing the current speculative cycle, but in a more fundamental shift: the tokenization of traditional financial assets or RWAs. This is the largest market that cryptocurrency has yet to tap into, with the potential to bring trillions of dollars of capital into the blockchain. This transformation, by introducing a large number of "real-world" assets, may partially alleviate Vitalik's concerns about the cyclical nature of DeFi.

Considering the massive scale of traditional financial markets: The assets managed by BlackRock alone are almost five times the entire market capitalization of the crypto market. By tokenizing assets such as bank deposits, commercial paper, government bonds, mutual funds, money market funds, stocks, and derivatives, we can bring unprecedented capital inflows into the crypto ecosystem. These funds can integrate into the DeFi infrastructure, which has already demonstrated utility in creating more transparent, accessible, and liquid markets. This potential for tokenization aligns with Larry Fink's views on Ethereum and may create an exciting future for the platform.

As Ethereum continues to mature, the platform is at a critical juncture for innovation and widespread adoption. The discussion around the future direction of Ethereum—whether to continue focusing on DeFi or expand into other application areas—will determine its technological development, market position, and regulatory strategy. While Vitalik is skeptical of the current DeFi model, this may drive the ecosystem towards more sustainable and innovative solutions. At the same time, the potential for tokenizing traditional assets could position Ethereum as a leader in the on-chain financial market.

While focusing on the future, maintaining a balance with the present is crucial. The emergence of financial derivatives is to manage risk and speculate on real assets, such as commodities, commodity contracts, and corporate shares. However, cryptocurrencies have almost directly entered the derivative stage without sufficient underlying assets. This is not the fault of the industry itself, as regulatory issues have hindered the tokenization of many important real-world assets (RWAs). Many top crypto assets actually represent a platform for trading and speculation, and these assets themselves are highly speculative.

Cryptocurrencies are not unique: How many of the most valuable companies in the US pay dividends? Dividends used to be a core attraction of going public for companies, but now they are mostly replaced by strategies similar to the "greater fool theory." Even gold, fundamentally, is highly speculative, as its actual utility in semiconductors and other devices is minimal compared to its market value. Therefore, the role of speculation in the market, especially in a fiat system with inflation, cannot be underestimated. Regardless, the recent price performance of $ETH is disappointing. This is not only the case in the cryptocurrency space, but in recent years, the performance of several major US stocks has also surpassed Ethereum.

Furthermore, some critics point out that more and more protocols like DePIN are choosing to build on Solana and other blockchains instead of Ethereum. As mentioned earlier, BlackRock has explicitly stated its intent to use Ethereum; however, whether other traditional financial institutions will also choose Ethereum over other blockchains, and whether this value can truly and effectively accumulate in $ETH, remains to be seen.

Criticism is sometimes the motivation that protocols, companies, communities, or foundations need. With the regulatory environment possibly gradually relaxing, coupled with some interesting new developments in the RWA and DePIN fields, those hoping for a more "real" DeFi ecosystem may eventually see their wishes fulfilled, and hopefully, that day will come soon.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。