{"id":185516,"date":"2024-11-30T08:17:58","date_gmt":"2024-11-30T08:17:58","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/11\/30\/cryptos-middle-child-ethereum-flounders-as-rivals-gain-ground\/"},"modified":"2024-11-30T08:17:58","modified_gmt":"2024-11-30T08:17:58","slug":"cryptos-middle-child-ethereum-flounders-as-rivals-gain-ground","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/11\/30\/cryptos-middle-child-ethereum-flounders-as-rivals-gain-ground\/","title":{"rendered":"Crypto\u2019s \u2018Middle Child\u2019 Ethereum Flounders as Rivals Gain Ground"},"content":{"rendered":"
\"Crypto\u2019s<\/div>


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Ethereum faces pressing questions over its direction as a rejigged user experience saps activity and fees, stoking uncertainty about whether the blockchain will continue to underpin commerce in crypto. Critics point to a growing reliance on so-called Layer-2 blockchains, built on top of Ethereum to improve otherwise clunky and costly transactions. Layer-2 operators like Arbitrum and Optimism have reaped the rewards. Since March, Layer-2 transactions are up 430%, while fees collected by Ethereum have fallen 87% in the same period, data compiled by Bloomberg show.<\/p>\n

The performance of Ethereum’s token, Ether, underscores the muddy outlook. It’s up about 75% in the past year, a period when Bitcoin more than doubled. Bitcoin lately also scaled record highs atop president-elect Donald Trump’s embrace of digital assets, whereas Ether remains far from all-time peaks.<\/p>\n

\u201cThe layer-2 road map shipped without careful examination of the economics,\u201d said Max Resnick, head of research at Special Mechanisms Group, which is owned by Ethereum developer Consensys Systems. \u201cIt’s clearly a concern.\u201d<\/p>\n

\u2018World Computer’<\/strong><\/p>\n

Founded over a decade ago with the aim of creating a \u201cworld computer,\u201d Ethereum made it easier to build blockchain-based applications, turbo-charging the decentralized finance \u2014 or DeFi \u2014 ecosystem where people trade, lend and borrow digital assets peer-to-peer using automated software.<\/p>\n

The network supports over $72 billion in tokens locked in DeFi apps, as well as over $100 billion of the nearly $190 billion stablecoin market, according to data from DefiLlama. But what has long been considered a dominant position is perhaps for the first time under threat.<\/p>\n

While the blockchain has \u201cceded some pricing power\u201d in the short term, it has done so to allow \u201call the Layer-2s to establish themselves and grow and flourish,\u201d said Consensys Chief Executive Officer Joseph Lubin.<\/p>\n

In the US exchange-traded fund sector, Ether products have received a tepid reception, recording a net inflow of $242 million compared with a $31 billion flood into Bitcoin ETFs in 2024, according to data compiled by Bloomberg.<\/p>\n

Growing Supply<\/strong><\/p>\n

Since the blockchain’s \u201cDencun\u201d upgrade in March, Ether supply has turned inflationary: the number of tokens in circulation is rising. An earlier upgrade, \u201cThe Merge\u201d in 2022, was supposed to prevent that and lure investors.<\/p>\n

The loss of fees to Layer-2 platforms has exacerbated the situation, because the supply of Ether is kept in check through the permanent removal of tokens representing a portion of transaction fees.<\/p>\n

There is now a live debate about whether bringing Layer-2s into the fold was the right path for Ethereum.<\/p>\n

\u201cNobody understands the road map except for like a cabal of people and they’re not really doing a great job of telegraphing the view in a simplistic manner,\u201d said Zaheer Ebtikar, co-founder of crypto hedge fund Split Capital.<\/p>\n

Proponents had hoped Layer-2s would be a net positive for Ethereum, but the overall benefit to the network \u201cis now less clear than it was initially,\u201d Strahinja Savic, head of data and analytics at FRNT Financial, wrote in a note.<\/p>\n

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Ethereum is dying. All the major projects are moving to their own blockchains. Uniswap, Polymarket, and now ENS \u2014 they all use the EVM technology, but not Ethereum itself. There’s no need for Ethereum anymore. Not scaling L1 was a fatal mistake. https:\/\/t.co\/I2NxfqcUi1<\/a><\/p>\n

\u2014 Nikita Zhavoronkov (@nikzh) November 11, 2024<\/a><\/p><\/blockquote>\n<\/div>\n

Rival Networks<\/strong><\/p>\n

Ether suffers from middle-child syndrome, in that it’s under-performing Bitcoin, but is still large enough that only a notable uptick in institutional inflows would move the needle on price, Split Capital’s Ebtikar said. Ether currently has a market capitalization of about $400 billion.<\/p>\n

Capital is flowing to rival networks like Solana, which after Ethereum supports the most assets locked on DeFi applications, DefiLlama data shows. Solana’s token is up 300% in the past 12 months.<\/p>\n

More affordable networks such as Solana appear to be catching up to Ethereum in terms of their appeal for users, said Eliezer Ndinga, VP-Head of Strategy and Business Development at 21.co.<\/p>\n

One key figure whose conviction is unshaken is Ethereum co-creator Vitalik Buterin. In an interview with Bloomberg News, Buterin said many Layer-2 teams have expressed an interest \u201cin finding ways to be more collaborative and supportive of the Ethereum ecosystem.\u201d Those ancillary networks are deeply integrated with Ethereum’s community, he added.<\/p>\n

Resnick at Special Mechanisms Group struck a different tone, arguing that for the first time in its history, Ethereum is in \u201cthe danger zone\u201d in that it faces a genuine rival in Solana. Ethereum must focus on scaling \u201cin order to preserve its users and moat in the short-term,\u201d Resnick said.<\/p>\n

\u00a9 2024 Bloomberg L.P.<\/em><\/p>\n<\/div>\n