- Ethereum also faces rising competition from alt-L1s, which have surpassed it on numerous YTD growth measures.
- This is despite the fact that a year has been filled with significant milestones, such as the Dencun upgrade and many more.
The slow progress that Ethereum has made across key metrics compared to the larger market, including ETH dominance nearing its 2021 lows, has put it at the focus of a value discussion as mentioned in the latest Binance Research report titled ‘The ETH Value Debate’. This is despite the fact that a year has been filled with significant milestones, such as the Dencun upgrade, the introduction of Spot Ethereum (“ETH”) exchange-traded funds (ETF), and a favorable macro environment.
Via blobs, the Dencun upgrade, which was an important milestone in Ethereum’s rollup-centric roadmap, decreased fees for Layer 2 (“L2”) transactions. This was beneficial for L2 users, but it also reshaped the dynamics of Layer 1 (“L1”) fees. Due to the fact that execution activity has shifted to L2s, Ethereum’s dependence on smaller data availability (“DA”) fees has increased. This has had an effect on fee collections, burn rates, and the ultrasound money narrative, while also bringing it in direct conflict with alt-DA layers.
Ethereum also faces rising competition from alt-L1s, which have surpassed it on numerous year-to-date (“YTD”) growth measures, and app-chains, the most notable of which is Uniswap’s imminent move to Unichain, which has the potential to shift value distribution even more.
Due to the accumulation of market dynamics, Ethereum has been put in a number of different competitive arenas, ranging from L2s and alt-DAs to L1s and alt-L1s. Despite this, it is still necessary to concentrate on the value accumulation of ETH. Because of this, Ethereum is confronted with a prioritizing conundrum that has a direct impact on its value.
Some people are focused on competing in the decentralized application (DA) area, but arguably the greater bet is viewed with the demand for ETH as non-sovereign money inside the L2 economy. Many people trust in the scalability and expansion of L2s, and they consider fee accrual losses as a secondary worry. Others, on the other hand, place a higher priority on the fee economy, which allows them to keep high-value decentralized apps (also known as “dApps”) and, as a result, maximize value at the L1 level.
The most important issue to ask from a value point of view is whether or not the cash flows that are created from transaction fees and MEV, as opposed to the monetary premium that is earned by Ethereum operating as a gas token, medium of exchange, and collateral asset, will result in higher value capture over the course of the long run.
In any case, it will be essential to make a firm commitment to a certain course of action, even if this necessitates striking a balance between scaling via L2s and ensuring that Ethereum continues to be appealing as an L1; this is because any strategic ambiguity will have an effect on the accumulation of value.
One can download the full report here.
