This episode is a transcript of a Twitter Space organized by Polysphere, a Chinese community within the Polygon ecosystem. WuBlockchain has been authorized to repost it. The panel includes Polysphere contributor Kristen, ChainFeeds co-founder Zhixiong Pan, Omniverse Labs co-founder Jason, 1inch CM Joe, Crust core developer Brian, and EthStorage investment partner Anthurine. The podcast delves into the current challenges and opportunities for Ethereum within the Web3 ecosystem. The guests discuss market sentiment’s impact on Ethereum, the technical bottlenecks, and the expansion potential of Layer 2 technologies. Despite the pressures, they believe Ethereum can continue to lead the industry through innovative applications, with a need to explore new growth areas in broader application scenarios.

The audio transcription was done by GPT and may contain errors. Please listen to the full podcast: YouTube Spotify Apple Podcasts

Introduction

Zhixiong Pan:

Hello, everyone. I’m Zhixiong Pan, currently running a newsletter called ChainFeeds. If you’re interested, feel free to follow. I first used Ethereum around seven years ago and have been closely following its progress since, especially in terms of technical advancements and the ecosystem’s development, including the DeFi ecosystem. I’m delighted to be here today to discuss with everyone. Thank you.

Anthurine:

Hi, I’m Anthurine from EthStorage. EthStorage is an infrastructure project on Ethereum, primarily focused on scaling Ethereum’s storage capabilities. We are a Layer 2 solution, but unlike others that focus on increasing TPS (transactions per second), we concentrate on expanding on-chain storage capacity. We’re not in competition with other Layer 2 solutions; instead, we complement them by addressing the shortcomings in on-chain storage.

Simply put, we can be seen as Ethereum’s IPFS layer, but unlike Filecoin or Arweave, we are not a standalone blockchain but fully integrated into the Ethereum ecosystem as a Layer 2. We store not only cold data but also dynamic and programmable data, making the storage forms more diverse. We believe EthStorage can fill this gap in the Ethereum ecosystem and support Ethereum’s future development.

Jason:

Hello everyone, I’m Jason, or you can call me 404. I’m the founder of Omniverse Labs, a full-stack development team with experience across various blockchain ecosystems including Near, Flow, Polkadot, and Polygon. Now, we’re back focusing on the Ethereum ecosystem. I’m excited to join this discussion today.

Joe:

Hi everyone, I’m Joe from 1inch. 1inch primarily serves as a decentralized exchange (DEX) aggregator. We’ve mainly focused on overseas markets, but the Asia-Pacific region actually represents the largest user base for us. So, we’ll be increasing our efforts in the Chinese market and launching new products in Q4. Stay tuned!

What’s the Sentiment Around Ethereum?

Zhixiong Pan:

I’d say Ethereum takes up more than 60% of what I’m currently paying attention to, surpassing even Bitcoin and other ecosystems. As for FUD sentiment, I’m not too concerned. Ethereum has gone through multiple ups and downs, and encountering such sentiments is normal; they come and go. While challenges and problems certainly exist, the root cause is often the market overestimating the short-term impact of technology. If we only focus on the short term, we might think Ethereum’s progress is slow, with new applications emerging at a slow pace and few breakout successes. These issues may have been overshadowed by other technologies like AI, and even some internal issues within the Ethereum Foundation are surfacing. But fundamentally, we need to take a long-term view, not just focus on short-term issues like the impact of ETFs or Ethereum’s ongoing efforts towards decentralization and technological progress.

Regarding Ethereum’s outlook, I believe we need to maintain an objective view. Although there are some pessimistic aspects, these problems aren’t necessarily inherent to Ethereum but rather reflect broader industry challenges. So, I think the situation might not be as bad as people imagine, but it certainly requires us to better summarize and communicate the issues we’re facing.

Brian:

My personal view on Ethereum is relatively neutral; I’m not pessimistic. Unlike Bitcoin, Ethereum doesn’t have such a high value consensus, but its position within the ecosystem remains solid. While there are many competitors, Ethereum is still the strongest. In the short term, I don’t see Ethereum being overthrown, although in the long term, anything is possible.

Ethereum’s current price weakness may be due to capital being diverted to competitors and because its market cap is already very high. For large-cap assets, it’s hard to achieve high returns in the short term. Additionally, new chains like Solana, which are performing well, might be attracting significant capital through financial operations, leading to a flow of funds away from Ethereum, resulting in price weakness. However, in the DeFi space, Ethereum’s innovation and dominance remain strong, and I believe it will continue to hold a central position in the coming years.

Anthurine:

As Zhixiong mentioned earlier, Ethereum does face some challenges, but these aren’t just technical issues; there are also other challenges within the ecosystem. Personally, I’m still optimistic about Ethereum; otherwise, we wouldn’t continue building projects on it. If we were completely disillusioned with Ethereum, we would have moved to another ecosystem long ago.

Currently, the criticism of Ethereum mainly focuses on two aspects. First, there hasn’t been a breakout DApp. The previous wave from DeFi summer to NFTs were considered breakout applications, but this time there isn’t one. However, this isn’t solely Ethereum’s problem; it’s an issue across the entire Web3 ecosystem. Everyone is exploring solutions, but we can’t just blame Ethereum.

Secondly, the price weakness. Although Ethereum has its own ETF, it has many competitors, and funds and attention are being spread thin. Nonetheless, Ethereum’s infrastructure innovations continue, such as ZK, AA, restaking, and other technologies. Although these innovations aren’t highly perceptible to users, they are meaningful for long-term development. Ultimately, these technological advancements will take time to be reflected in the price. The issues Ethereum currently faces aren’t just technical but also involve internal management challenges within the Ethereum Foundation. Due to poor price performance, conflicts of interest have surfaced. However, from our team’s perspective, we still believe in Ethereum’s potential as a supercomputer and are working towards that direction.

Joe:

Regarding Ethereum’s outlook, I’d like to discuss it from both the ecosystem and price perspectives. First, the Ethereum ecosystem is relatively stable, especially after several upgrades that have significantly improved network speed and gas fees. So, from an ecosystem perspective, I’m not pessimistic. However, from a price perspective, market sentiment isn’t very optimistic. For example, the general expectation is that next year will be a bear market, and even though Ethereum’s ETF has been out for some time, the market’s reaction hasn’t been significant. Therefore, I think Ethereum’s price might continue to adjust. Of course, this is just my personal view and not investment advice.

I believe market sentiment does affect Ethereum’s price, but this kind of sentiment fluctuation is also part of the market. When there is disagreement in the market, it can actually create opportunities. While I don’t focus too much on the price, I do pay attention to projects within the ecosystem and the innovations they are working on. The dispersion of market sentiment may reflect certain challenges, but I believe it’s a natural manifestation of the market.

Jason:

Regarding Ethereum, I think a lot of the so-called pessimism actually comes from our high expectations. We hold Ethereum because we have confidence in its future, and when it doesn’t meet our expectations, it’s natural to feel disappointed. But in reality, this “pessimism” is more about a sense of frustration. We focus on Ethereum because we are optimistic about its long-term prospects.

In my view, Ethereum’s problems haven’t fully surfaced yet, and the real issues might be deeply hidden. I used to be skeptical about Ethereum, mainly because I wasn’t a fan of Vitalik Buterin (V God), seeing him more as a politician than a scientist. But now, I believe Ethereum needs someone like him because it faces not only technical challenges but also historical baggage, political balance, and trends.

Ethereum’s historical issue lies in its deep social consensus and heavy historical burden, making it slow to advance technically because any change must consider compatibility. The political issue involves balancing between Layer 1 and Layer 2; while Layer 2 helps Ethereum scale, it could also potentially become too independent. The trend issue is that current hotspots are mainly centered around meme culture, and Ethereum has already gone through that phase. So, the problem now goes beyond the technical level, requiring someone like Vitalik to manage the complex situation. Overall, I remain optimistic about Ethereum’s future.

How Can Ethereum Break Through?

Zhixiong Pan:

I believe Ethereum has been actively working on its tokenomics. Although with the diminishing effect of EIP-1559 and the reduction of gas fees, Ethereum has returned to an inflationary state, the research team is still trying to find ways to generate more revenue for the protocol. For example, there’s talk of introducing a 2.0 version of EIP-1559, and also capturing MEV (maximum extractable value). Through these measures, Ethereum can increase its protocol-level revenue and enhance the deflationary effect.

As for the trend of Layer 1 evolving into a settlement layer, I think this was anticipated. Before Layer 2 was widely adopted, there was already discussion that Layer 1 might become a settlement layer. So, the weakening of Layer 1 is not surprising; most end-user applications might run on Layer 2, which can more reasonably reduce gas fees. The current challenge is how to expand more demand on Layer 2 and develop more types

of applications, especially breakout applications. When Layer 2 usage increases, it will ultimately impact Ethereum Layer 1’s value capture, bringing long-term value. Therefore, the key issue now is solving the application layer’s problems.

Anthurine:

In the past, Ethereum was a single blockchain trying to solve problems by increasing speed and storage capacity. But with the introduction of modular concepts, Ethereum has gradually shifted to having Layer 1 as a settlement layer, with Layer 2 and other intermediary layers taking on different functions. This transition is a relatively smooth and expected process.

Currently, Layer 2’s user experience has improved, and gas fees have decreased, but user influx is still limited, leading to reduced Ethereum usage. This is because users focus more on applications rather than underlying developments. We need more new applications to attract users, such as decentralized AI, on-chain games, decentralized writing platforms, and Web3 protocols like decentralized HTTP. If these new applications succeed, they could bring in more users, boosting Ethereum’s value capture.

The current issue lies in the lack of application innovation. We need more effort to drive application-layer development. If these exploratory directions can bring breakthroughs, the Ethereum ecosystem will thrive.

Joe:

Given the current trend, Ethereum gradually evolving into a settlement layer is highly likely. For example, some large traditional financial institutions often choose to perform special token transfers on the Ethereum mainnet, similar to how banks and payment systems interact in Web2. Ethereum’s primary concern is security, followed by reducing gas fees and increasing transaction speed.

Layer 2s now resemble mini-games within Alipay or WeChat Pay, carrying more user experience and application scenarios. The trend of Ethereum becoming a settlement layer is likely to continue. Whether developers continue to choose Ethereum to build applications depends not only on technical aspects but also on market and funding factors. Many teams focus more on short-term gains and hot money, so in the current market environment, relatively few teams are consistently building on Ethereum.

Brian:

I think the transition between Layer 1 and Layer 2 is positive. The reduction in transaction volume and gas fees on Layer 1 can make it more stable and secure, while also supporting applications that require higher security. The flexibility and scalability of Layer 2 can enrich the application scenarios within the Ethereum ecosystem. Ethereum’s value capture doesn’t solely rely on gas fee revenue but also on its ecosystem development and growth.

Currently, the competition between Ethereum and other chains is more about swapping existing users. If Web3 application scenarios can’t expand and reach more traditional user bases, this internal competition will continue, and the entire ecosystem will stagnate. Therefore, finding new application scenarios and user bases is key to Ethereum’s future breakthrough.

Jason:

Ethereum gradually becoming a settlement layer is actually its strategic goal. The initial push for Layer 2 was to enhance Ethereum’s performance, enabling it to handle more traffic and applications. Therefore, Ethereum becoming a settlement layer isn’t a “demotion” but rather the fulfillment of its strategic objective.

The rise of Layer 2 doesn’t mean Ethereum’s failure; on the contrary, it’s a sign of its success. Ethereum’s role is more about leading new application models and concepts, setting an example. Its strong social consensus and technological leadership are its core values. As for competing applications, Ethereum doesn’t need to compete with Layer 2 for them, as that’s not aligned with its development strategy.

Ethereum’s value doesn’t lie in short-term gas fee demand but in its role as a leader in the industry and its long-term stable social consensus. As long as it continues to play this leading role, Ethereum’s future remains bright.

Can Ethereum Still Lead Application Development?

Jason:

I believe Ethereum isn’t afraid of competition in applications with other chains. What Ethereum truly needs is to lead the innovation of applications across the entire industry, rather than repeating past concepts. Other chains can attract users by improving performance or lowering gas fees, but Ethereum’s advantage lies in its social consensus and technical leadership. Recently, Vitalik Buterin also mentioned that DeFi needs to break through the current model and seek more practical applications. This indicates that Ethereum is still committed to innovation and is trying to recapture value through new concepts and applications like restaking. In the future, we may see breakthroughs that we can’t predict right now, similar to how DeFi emerged unexpectedly.

Brian:

Ethereum has its own technical roadmap. Although its pace might not be as fast as other chains, it has clear plans and goals. Ethereum’s leadership position doesn’t just rely on technology but also on its innovation in applications. While innovation might happen on other chains, these innovations may eventually return to Ethereum, further strengthening the ecosystem. In the past, Ethereum has faced many so-called “Ethereum killers,” yet it has proven its strengths, which is what makes Ethereum so powerful.

Anthurine:

Ethereum’s ability to continually lead application innovation is closely tied to its developer community. Compared to other ecosystems, many Ethereum participants focus not just on token prices but also on the technology and applications themselves. This intrinsic motivation is the soil for innovation. Ethereum developers are focused on solving real problems rather than just chasing short-term gains. Because of this, Ethereum is more likely to achieve breakthroughs in new application directions, such as decentralized AI, on-chain games, decentralized writing platforms, and decentralized HTTP protocols. These innovative directions could lay the foundation for future application development.

Joe:

I believe Ethereum’s breakthrough still lies in the explosion of applications, especially those that can attract Web2 users. Innovation needs to start from user needs and solve problems that Web2 cannot, making these applications more likely to be widely adopted. While many projects today are chasing short-term gains, truly successful projects should be guided by long-term value, considering how to surpass Web2 in user experience and needs. Ethereum still has great potential in this regard.

Zhixiong Pan:

Indeed, applications are the key to Ethereum’s breakthrough, but we need to clarify the definition of applications. Ethereum might not directly create apps like WeChat or Taobao, but it can introduce more innovative solutions in smaller segments, such as decentralized exchanges like Uniswap. Ethereum is still centered around ledgers and transactions, but to achieve a variety of application scenarios for regular users, it might need to combine with other technologies like decentralized storage. Ethereum alone might not meet all application needs, but with other decentralized infrastructures, it could potentially achieve this goal.

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