Ethereum’sadoptionoflayer-2networkscouldcostETHtrillionsofdollarsinpotentialmarketcapitalizationoverthenextfewyearsifitsassociateddynamicsremainunbalanced,accordingtoVanEckHeadofDigitalAssetsResearchMatthewSigel.
InaTwitter(akaX)post,theanalystpositedThursdaythatEthereum’s“changingfundamentalssuggestamodelupdateisinorder.”Insteadofclimbingto$22,000by2030,Ethereum’spriceprojectionwouldplummet67%to$7,300if“thecurrentreality”wasreflected,Sigelwrote.
VanEck’smodelfactorsinEthereum’sexpectedgrowthintotalvaluelocked,reflectingthevalueofassetsusedindecentralizedfinance(DeFi)applications.ItalsoconsiderstheamountofEthereumconsumedbythenetwork—andburned,orremovedfromcirculation—asaresultoftransactionfees.
Datagatheredoverthepastfourmonthsindicatesthatlayer-2networksare“takingmorevaluefromEthereum”thanpreviouslythought,Sigelsaid.InsteadofEthereumbenefitingfromthebulkofuseractivitycomparedtolayer-2networks,thetrendhasbeenvastlyreversed.
“Ouroriginalmodelassumed[a]90:10splitontransactionrevenuebetweenEthereumandL2s,”Sigelexplained.“Theactualsarecurrently10:90infavorofL2s.”
Earlierthisyear,layer-2networkshelpingEthereumscalegotaboostthroughDencun.TheEthereumupgradeintroducedso-calledblobs,providinglayer-2networkswithdedicatedstoragespaceforpostingtransactions,whichloweredcostsforscalingnetworks.Before,layer-2networkswereforcedtopostbundledtransactionsintheformcomparativelycostlyof“calldata.”
AsnetworkslikeCoinbase’sBaseandOptimismcontinuetoattractusersanddevelopers,Ethereum’ssupplyhasturnedinflationary.TransactionfeeshadoutweighedEthereum’sissuanceintheyearpriortoDencun,buttheasset’ssupplyhasincreasedby318,000ETHsincemid-April,accordingtoultrasound.money.
WhileSigel’sprojectionshowedajarringdropinEthereum’sprojectedprice,helaterclarifiedtoDecryptthathispostwas“simplyasensitivityanalysistoshowtheimpactonprice,allelseequal,ifETHdoesn\'ttakebacksomemarginfromitsL2s.”
“WeexpecttheunderperformingtokenpricetocatalyzethecommunitytotweakETH’sroadmapinanattempttoreversesomeofthedecliningprofitability,”headded.“Wearealreadyseeingsomeevidencethisishappening.”
SigelpointedtopotentialfeesharingmodelsbetweenEthereummainnetandlayer-2networks,whichEthereumco-founderVitalikButerinrecentlyadvocatedfor,asanexample.
“WeneedtomaintainanecosystemwhereEthereumpeoplefeeltheyareonthesameteam,\"Buterintweeted,\"andthishasatechinteroperabilitypart,avalues/culturepart,andaneconomicsparttoo.”
Idothinkthatthestatusquohasaproblemofvariance:12monthsagotheconversationwasL1\"extractingrent\"fromL2s,nowit\'stheotherwayaround.Whatwedon\'twantisamixedeconomywherethetaxratejumpsfrom5%to95%dependingonweather.Ifwecandesign…
—vitalik.eth(@VitalikButerin)October11,2024
ButerinpublishedablogpostThursdayoutlininghisvisionforlayer-2networks.StandingbyEthereum’srollup-centricroadmap,hewrotethataflawwiththecurrentecosystemisthat“itisdifficultforuserstonavigate.”
Criticshavearguedthathavingmanylayer-2networksfragmentsusersandliquidity,siloingactivityandassets.Highlightingtheneedfor“maximuminteroperability,”Buterinwrotethat“Ethereumshouldfeellikeoneecosystem,not34differentblockchains.”
Amongmajorcryptocurrencies,Ethereum’sperformancehaslaggedpeersoverthepastyear.Theasset’spricehasclimbed65%duringthattimeto$2,591,underperformingagainstBitcoin’s135%riseto$67,000andSolana’s517%leapto$148,accordingtoCoinGecko.
Ethereum’srelationshipwithlayer-2networksisn’ttheonlythinghurtingtheasset’sprice.Thecrypto’srecentstrugglescanbepartlyexplainedbytheperformanceofspotEthereumETFs,KrakenHeadofInstitutionalTimOgilvietoldDecrypt.AsidefromalackofstakingyieldforETFinvestors,OgilviesaidthethesisaroundEthereumisn’tasclearasBitcoinfromaninstitutionalinvestmentperspective.
TheconceptofEthereumbeinga“programmablecomputer”poweredbysmartcontractsor“ultrasoundmoney”basedonburntfeesisn’taspalatableasdigitalgold,heexplained.Sofar,sincelaunchinginJuly,spotEthereumETFshavecollectivelyseen$160,000incumulativeoutflows,accordingtoCoinGlass.
“ETHisinafunkyspotrightnow,that’sforsure,”Ogilviesaid.“Ifyou\'reconstructingaportfolioforapensionfund,areyoureallyinvestinginthefutureofblockchainasathing?Maybesomepeople,butit’saweirdlegtoaddtothings.”
EditedbyAndrewHayward
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