What's Happening with Ethereum?

Original Title: What happened to Ethereum?

Original Author: @paramonoww

Original Compilation: Peggy, BlockBeats

Editor's Note: Recently, Vitalik Buterin published a lengthy article pointing out that with the significant improvement in Ethereum L1's scaling capabilities and the long-term lag in L2's evolution towards "Stage 2," the past vision of viewing L2s as "Ethereum-branded shards" is no longer tenable. He emphasized that L1 is accelerating its return to the core focus of scaling, no longer needing L2s as a "crutch" for performance expansion.

This rewriting of the L2 positioning has sparked widespread discussion in the community. Beyond price, this article shifts the focus back to Ethereum itself: from the fading of the "ultrasound money" narrative and the wavering Rollup roadmap, to the lack of financial incentives and the loss of core talent, the problems do not stem from external competition but from unclear direction and structural internal friction.

As Vitalik reflects on the existing roadmap and the Ethereum Foundation pushes for internal reforms, Ethereum stands at the threshold of a critical pivot. Whether it can shift from ideology back to clear goals and execution efficiency will determine if it regains vitality or continues to exhaust the market's patience.

Against this backdrop, Vitalik suggests that L2s reposition their value proposition, shifting towards differentiated directions such as privacy enhancement, deep optimization for specific applications, extreme scalability, non-financial use cases, ultra-low latency architectures, or built-in oracles; if they continue to handle ETH-related assets, they should at least reach Stage 1 and strengthen interoperability with the Ethereum mainnet as much as possible.

The following is the original text:

This article was primarily inspired by Vitalik's recent tweet about change and the current state of the market. Against the backdrop of a declining overall market, it's actually difficult to blame any single individual, and I have no intention of making such accusations.

I am writing this article from the perspective of someone who has collaborated with many Ethereum teams, represented a venture capital fund in investing in multiple protocols built on Ethereum, and was once a staunch supporter and believer in Ethereum and its EVM ecosystem.

Unfortunately, I can hardly say the same anymore. Because I feel that Ethereum is losing its direction (and I'm not the only one who feels this way).

I don't want to discuss ETH's price action, but I cannot ignore the fact that as the world's second-largest cryptocurrency by market cap, ETH's performance is full of uncertainty. Regardless of which way the global market moves, ETH behaves more like a stablecoin that is "de-pegging."

This article aims to discuss: what exactly has happened to Ethereum over the past few years, and why are more and more people losing confidence, or have already completely lost it. Ethereum is not losing to Solana or any other project; Ethereum is losing to itself.

The Rollup-Centric Roadmap

When Ethereum proposed the "Rollup-centric roadmap," almost everyone was excited. The vision it painted was: Rollups (and Validiums) would handle scaling, end-user transactions would primarily occur on Rollups, and Ethereum would serve as the settlement layer—meaning, prioritizing being the L1 for Rollups rather than an L1 directly serving users.

Compared to developing a brand-new L1, building a Rollup is faster and cheaper, so a future with "thousands of coexisting Rollups" seemed both realistic and optimistic.

What could possibly go wrong?

As it turns out, everything could go wrong, and almost everything did: meaningless debates, prioritizing ideology over real needs, prolonged internal friction within the community, identity crises, and hesitant, delayed abandonment of the Rollup-centric vision.

Everything that could go wrong, did. Most people in the community once viewed Max Resnick as an incompetent and "evil" figure, only to later realize he was right on almost every key issue.

During his tenure at Consensys, Max repeatedly pointed out the changes Ethereum needed to make to move forward, but he was met almost exclusively with criticism, with little genuine support.

The most absurd moment was when the entire industry began seriously debating questions like: whether a particular L2 is considered part of Ethereum, for example:

Viewpoint A: "Base is an extension of Ethereum, we contribute greatly to the Ethereum ecosystem."

Viewpoint B: "Base is not an extension of Ethereum, it is an independent system."

What the hell are we even discussing?

How does this kind of discussion help Ethereum and its ecosystem move towards a better future? Why are people so seriously debating "what is Ethereum" and "what is not Ethereum"? Don't we have more important problems to solve?

If we decide: because Rollups use ETH for gas, they are extensions of Ethereum—that sounds plausible; if we decide: Rollups are not extensions of Ethereum but applications built on top of it, benefiting from it—that also seems plausible.

Right? Actually, completely wrong.

This so-called "ideological discussion" is not a discussion at all; it's two self-absorbed cliques shouting at each other, trying to prove they are the correct ones. We don't need PvP; we need PvE. The problem isn't "we are against each other," but "we face problems and the future together."

Unfortunately, many people prefer the psychological thrill over even slightly considering that perhaps their viewpoint isn't entirely correct.

Technical Ideology Prioritized Over User Needs

Based Rollup, Booster Rollup, Native Rollup, Gigagas Rollup, Keystore Rollup.

Which one is better? Which one is the future? How should they connect?

"This one is the future." "No, that one is the future." "There's no reason not to build a Based Rollup." "Native Rollups are more Ethereum-aligned; they will replace the entire ecosystem."

All these debates... and the end result is that Arbitrum and Base keep winning.

Technical superiority does bring advantages, but not when you're over-differentiating between apples and pears, or oranges and oranges. These solutions are similar enough that users simply don't care. Outside the bubble, nobody cares about these minutiae. One more precompile, one less precompile—it doesn't decide the winner.

"Oh, we are the truly Ethereum-aligned ones, we are closer to Ethereum, we embody its core values, users will definitely choose us."

Let me ask: which values exactly? And which users will choose you because of that?

@0xFacet became the first Stage 2 Rollup, a paragon of "Ethereum alignment."

But where is it now? Where are its users? Its developers? The tech KOLs? Those supporters who championed the Ethereum ecosystem and alignment narrative? How many people have even heard of Facet? How many applications are on Facet?

I personally have nothing against Facet. I've spoken with its founder multiple times, respect him greatly, he's a great person. But where are all those people who once shouted "We need more Stage 2 Rollups"? I don't know, and you don't either.

Financial incentives are far stronger than technical incentives. I was once a strong supporter of Taiko, especially admiring their research around Based Rollups: stronger censorship resistance, neutrality, no sequencer downtime risk, L1 validators could even earn more money.

So what's the problem?

The problem is that the economics behind this model don't work. You can't force people to give up their revenue for the sake of so-called "alignment."

Arbitrum promised decentralized sequencers; Scroll promised; Linea, zkSync, Optimism all promised. Where are they now? Where are those sequencers?

Almost every Rollup's documentation has this line: "We currently use a centralized sequencer, but have strong intentions to decentralize in the future." Yet almost none have delivered. Metis did, but whether fortunately or unfortunately, hardly anyone cares about Metis.

Do I think they over-promised to please influential ETH maximalists? Yes.

Do I think they genuinely want to decentralize the sequencer? Also yes. But it doesn't make economic sense.

Coinbase (Base) has a legal obligation to generate as much profit as possible for the company, and so do other teams. Why would you actively cut off your own revenue stream? It makes no sense.

Only about 5% of Base's revenue flows to Ethereum. Rollups were never extensions of Ethereum.

Taiko once had days where it paid more in sequencing fees to Ethereum than it collected in transaction fees from users. And companies like Taiko have many other operational costs besides paying Ethereum.

The vision of Based Rollups or "Ethereum-aligned" Rollups only holds if teams are willing to forgo their own revenue.

I'm not denying the importance of decentralization, security, and permissionlessness. But if your sole goal is to be "ideologically correct" rather than user-centric, then it's all meaningless.

And precisely because of this, this fragility and the promise of "Ethereum alignment" have attracted a large number of speculators and scammers into the space.

The Consequences of the Rollup-Centric Roadmap

Eclipse, Movement, Blast, Gasp (Mangata), Mantra: these protocols were not designed for the long-term future from the start. They easily cloaked themselves in mantras like "Ethereum-aligned," "making Ethereum better," "bringing SVM to Ethereum."

Without exception, they all "rugged" in different forms. All Rollups eventually realized: their tokens are almost useless because fees are paid in ETH, and their tokens have little practical utility. Speculators also realized that by generating enough hype around the Rollup-centric narrative, they could dump nearly worthless tokens on retail at high prices.

Ethereum never truly acknowledged Polygon as an L2, despite its significant role in locking and carrying value for ETH. If you believe Rollups are "cultural extensions" of Ethereum, why not acknowledge a project so tightly bound to Ethereum in terms of security and usage?

Polygon was crucial to Ethereum during the 2021 bull run, contributing greatly to ETH's growth as an asset. But because it "doesn't count as an L2," it didn't deserve recognition from the Ethereum community. If Polygon were an L1, its valuation would likely be much higher.

Rishi reviewed the long-standing controversy within the Ethereum ecosystem regarding Polygon: in its early days, Polygon was criticized by parts of the Ethereum community as not being a "proper" L2 because it was seen as a "sidechain," but Polygon chose to prioritize solving scalability issues over conforming to L2 semantics or community ideology. Looking back seven years later, Rishi believes the facts prove "Polygon was right from the start": the pragmatic, scaling-first approach has stood the test of time.

Rishi reviewed the long-standing controversy within the Ethereum ecosystem regarding Polygon: in its early days, Polygon was criticized by parts of the Ethereum community as not being a "proper" L2 because it was seen as a "sidechain," but Polygon chose to prioritize solving scalability issues over conforming to L2 semantics or community ideology.

Looking back seven years later, Rishi believes the facts prove "Polygon was right from the start": the pragmatic, scaling-first approach has stood the test of time.

First, the "ultrasound money" narrative: after EIP-1559 and The Merge, ETH's economic model was shaped into a deflationary asset, touted to become a better store of value than Bitcoin. But by 2024, ETH's annual inflation rate turned positive again.

So, the "ultrasound money" vision only lasted three years? It cannot become a store of value this way. This narrative is dead—and more importantly, it was never valid to begin with. Because ETH was never designed to be a "store of value"; that's Bitcoin's mission, and you can't compete with it on that dimension.

Next, Ethereum couldn't decide what its token even is:

Is it a commodity? Doesn't hold—because supply is dynamic, and there's staking;

More like a tech stock? Also doesn't hold—because Ethereum doesn't have sufficient revenue to be valued like a tech company.

Some simply believe ETH isn't "money" at all. So what's happening now? We have to pick a side.

Ethereum cannot be everything at once—either you have a globally clear, unified direction, or you fall behind.

Financial Incentives... Again

I still can't understand how a lead engineer like Péter Szilágyi earns only about $100,000 per year. He has been involved since the earliest days of the project, helping Ethereum grow from almost zero to a $450 billion market cap, yet received a return equivalent to 0.0001% of that market cap.

The most influential, most successful protocol in crypto history after Bitcoin, offering neither incentives nor equity. It's easy to defend this with the ideals of "decentralization, open-source, permissionlessness": "We're not here to make money; we're here to advance progress."

But the problem is, even the most loyal soldiers must be given incentives, otherwise they either leave or take on other projects privately. Péter left, Danny Ryan left, Dankrad Feist went straight to Tempo.

In 2024, Justin Drake and Dankrad accepted advisory roles at EigenLayer and received token allocations, and the community immediately attacked them.

These people at the Ethereum Foundation with "pitiful salaries" (compared to FAANG companies and AI research labs) were met with collective hatred simply for wanting to earn some money while also helping an independent protocol that "isn't Ethereum itself but aims to make Ethereum better."

Isn't this absurd? Sometimes I truly feel: if you are an honest, hardworking person in Ethereum, you seem not allowed to make money, destined to be a laborer for life, working only for "recognition" from the Ethereum community.

The Ethereum Foundation has been selling ETH to fund various operations, projects, and research. But perhaps, researchers' salaries should be paid first?

Zero Tolerance for Adaptability

"Day 1. Ethereum will definitely win. It's the most decentralized blockchain with the highest uptime."

We hear this rhetoric every day, just like we hear Ethereum defending itself every day.

Yes, Ethereum is expensive and slow. But we have Rollups, just use Rollups, Rollups are Ethereum!

Yes, ETH's price underperforms everything. But Ethereum has the largest developer ecosystem, a strong foundation, demand will catch up eventually.

Ethereum is the most decentralized blockchain! Solana sucks, it has no client diversity.

Ethereum has 100% uptime! Solana sucks, it has gone down several times.

Ethereum's network activity is lower than Solana's? That's because Solana is full of spam transactions and meme-gambling degens, we are the "ethical chain"!

Over the years, it's always the same excuses, the same answers, the same self-reassurance. Everything except Ethereum and Rollups is trash; if Ethereum underperforms on any metric, we say "it's still Day 1," we know what we're doing, there's no better place in the world than Ethereum.

Everyone is already tired of these excuses repeated over and over by the community.

Ethereum is increasingly like an old, wealthy grandmother who can barely walk, refuses any innovation, and just keeps handing out money to her children and grandchildren, letting them parasitize her.

Reform

Just hours before I finished this article, Vitalik tweeted acknowledging that the Rollup-centric roadmap has failed, and a new path needs to be found, shifting towards scaling L1.

You know what? I'm actually happy when people can recognize their mistakes. It takes courage to admit mistakes publicly. But I'm afraid it might be a bit late. Ethereum has once again found a long-term direction it must take, but overall progress remains slow.

The Ethereum Foundation has indeed seen some changes recently: new leadership, treasury transparency, R&D restructuring, etc. Simultaneously, the foundation has started bringing in some fresh, younger faces from developer relations and marketing directions, such as Abbas Khan, Binji, Lou3e, and others.

But change must be fast enough. Ethereum must sprint at full speed to prove everyone wrong.

Let's wait and see: after these reforms and changes, can Ethereum become an exciting prospect again, rather than an entity defined solely by blind faith and disappointment.

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