In-Depth Analysis of the Development Dilemma of Ethereum

Ethereum has recently shown lackluster performance, sparking much discussion about its future development. Despite maintaining advantages in terms of technology and developer base, Ethereum seems to be struggling in this round of market conditions. Let's analyze this phenomenon in depth from the perspectives of supply and demand.

Demand Side Analysis

The demand for Ethereum can be divided into two sources: endogenous and external.

Endogenous demand mainly arises from new applications brought about by advancements in Ethereum technology, such as the early ICO and DeFi waves. However, the anticipated L2 and Restaking in this market cycle have not ignited the market as expected. The L2 ecosystem is highly overlapping with the main chain, making it difficult to stimulate new trading enthusiasm. While PointFi and Restaking have locked up some ETH, they have not created new ETH-denominated assets, and even major Restaking projects are still priced in USDT. This has led to a decrease in the necessity for users to hold ETH.

In addition, the burning mechanism effect brought by EIP1559 has been significantly weakened due to L2 diversion, further reducing the demand for ETH.

In terms of external demand, the macro environment has shifted from the previous round of easing to the current round of tightening. Institutional investment tools have also changed from the one-way inflow of Grayscale trusts to the bi-directionally tradable ETFs. Since the launch of the ETF one month ago, there has been a net outflow of 140,000 Ether, primarily flowing out through Grayscale, which stands in stark contrast to the continuous net inflow into Bitcoin ETFs.

Supply Side Analysis

Ethereum is essentially a dividend-type asset, but the transition from POW to POS has greatly altered its supply structure.

In the POW era, miners face high fixed costs (mining machines) and ongoing incremental costs (electricity fees, hosting, etc.). These costs are denominated in fiat currency and are non-recoverable, establishing a price floor for ETH. As mining competition intensifies, this price floor continues to rise.

However, the era of POS has completely changed this situation. The costs for validators are almost negligible, and stakers have almost no actual expenditure other than opportunity costs. This means that there is no longer a "shutdown price", and stakers can sell ETH without restrictions. Even considering the average entry price for stakers, the continuous issuance will continuously put pressure on the price.

Historical Lessons and Future Outlook

The roots of Ethereum's current predicament can be traced back to the end of the ICO in 2018. At that time, a large number of projects indiscriminately sold ETH, causing the price to plummet. To prevent similar situations from happening again, the Ethereum community strengthened its control over the ecosystem, forming a group of core developers and investors.

However, this approach has also brought new problems:

1. The split rate is too low, and the number of projects that can obtain substantial funding has sharply decreased.
2. The "Halal" project received a high valuation, resulting in an overall yield lower than other public chains.

The addition of L2 weakened the burning effect, while POS brought about costless selling pressure, ultimately leading to the current situation.

This experience gives us the insight that:

1. Dividend-type assets should establish a solid cost structure, continuously raising the price floor as asset liquidity improves.
2. Reducing selling pressure is only a temporary measure; the key is to convert the native currency into priced assets to expand demand and liquidity.

The future development of Ethereum is still full of possibilities, but it needs to reassess its economic model and ecological strategy while maintaining innovation.