Ethereum’s L2 paradox 🤔
Why VanEck slashed their ETH price target by 67%? Vitalik's grand vision for "The Surge." Institutions still and always love ETH? The upcoming Pectra fork and blob upgrade.
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Ethereum (ETH) is in a bit of a pickle.
And it's all thanks to its own success.
Remember when we dreamt of $10k ETH? Good times...
ETH's been on a 7-month downward spiral, dropping over 36% since March.
Meanwhile, Bitcoin's up 135% and Solana's skyrocketed 517%.
And we all a bit worried about it?
Current price: $2,600, down from a yearly high of $4,111.
What does the Layer 2 solution—one of the best inventions of the crypto humans—have to do with this?
The L2 Takeover
VanEck's Head of Digital Assets Research, Matthew Sigel, has revised Ethereum price projections based on L2 adoption:
Original projection: $22,000 by 2030
Revised projection: $7,300 by 2030 (67% decrease)
Why? two reasons
Transaction revenue split:
Original assumption: 90% Ethereum, 10% L2s
Current reality: 10% Ethereum, 90% L2s
Not even 50:50.
Ethereum supply has increased by 318,000 ETH since mid-April, turning inflationary - not good news.
The Dencun boost
Earlier this year, Ethereum's Dencun upgrade introduced "blobs," enhancing layer-2 network scalability by providing dedicated storage for transactions.
Cost Reduction: Blobs allow layer-2 networks to post transactions more efficiently, significantly lowering costs compared to the previous method of using "calldata."
Layer-2 Adoption: Networks like Coinbase’s Base and Optimism are gaining traction, attracting more users and developers.
Ethereum's Supply Dynamics: Following the Dencun upgrade, Ethereum's supply has become inflationary, with an increase of 318,000 ETH since mid-April.
Transaction Fee Trends: Prior to Dencun, transaction fees were higher than Ethereum's issuance, but the introduction of blobs has changed this dynamic.
Less transaction fee is not a great blessing for the burning mechanism that keeps Ethereum deflationary.
Read: Burning Ethereum 🔥
As a result of Dencun, the rate at which new Ether is created (through staking rewards) began to outpace the rate at which Ether is burned (through reduced fees).
Read in detail: Ethereum Turns Inflationary? 🐝
Now who enters the chat? “Surge”.
🎙️ Block That Quote
Vitalik Buterin, Ethereum co-founder
"Ethereum should feel like one ecosystem, not 34 different blockchains."
Vitalik's dreaming of a united Ethereum empire? kind of.
The next phase of Ethereum roadmap: The ‘Surge’
Goals?
Buterin's pushing for a unified Ethereum experience across L1 and all those L2s.
He’s got his sights set on over 100,000 transactions per second.
He addressed that Dencun upgrade has raised concerns about security and user retention on the mainnet.
“As we have seen, taking this path has some unique challenges of its own. And so now our task is to bring the rollup-centric roadmap to completion, and solve these problems, while preserving the robustness and decentralisation that makes the Ethereum L1 special.”
The need to scale the chain:
“If L2s become very scalable and successful but L1 remains capable of processing only a very low volume of transactions, there are many risks to Ethereum that might arise.”
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The Battle for Institutional Hearts
Ethereum continues to dominate institutional blockchain adoption.
Ethereum's Position
RWA Value: $2.9 billion in non-stablecoin Real World Assets on Ethereum.
Key Adopters:
Visa: Developing Visa Tokenised Asset Platform (VTAP) on Ethereum.
BlackRock: Launched $522 million BUIDL fund and IBIT/ETHA ETFs.
Franklin Templeton: Initiated a nine-figure onchain fund.
Growth: Ethereum's non-stablecoin RWA value increased from $800 million to over $1.5 billion in 2024.
Emerging Competitors
Stellar: $393 million in tokenised RWAs, second-highest after Ethereum.
Solana: Gaining traction with Franklin Templeton bringing FOBXX compatibility.
EVM-compatible networks (Arbitrum, Polygon, Avalanche, Mantle): Combined $190 million in RWA value.
Key Considerations
Interoperability: Critical for institutional adoption. Ethereum's EVM ecosystem offers simpler integration.
Security and Stability: Institutions prioritise proven technologies, favoring Ethereum's track record.
Scalability: Competing chains offer higher throughput, challenging Ethereum to evolve.
In The Numbers 🔢
1,090,000
That's the number of Ethereum validators now keeping the network humming.
Why it matters:
It's a 30% jump from last year.
Surpassed 1 million validators in June 2024
Total staked ETH: 34.7 million (27% increase year-over-year)
More validators = more decentralisation.
Staking revenue:
30% down since March
September 2024: $174 million
Peak in March 2024: $247 million
Only $35.5 million from transaction fees
The Blob Revolution Continues
The Ethereum blobs that were launched in March? Well, they're getting a makeover: The upcoming Pectra fork.
EIP-7742 Introduction:
Creates a mechanism for dynamically setting blob gas target and max values
Aims to increase the currently fixed blob count
Expected to improve Layer 2 transaction costs
Timeline: Pectra upgrade anticipated for late 2024 or early 2025.
The Surfer 🏄
Bitcoin exchange reserves have dropped to a two-year low of under 2.7 million BTC, signaling a shift in investor sentiment towards long-term holding strategies.
Bitcoin's market dominance has surged to 58%, its highest level since April 2021, driven by significant institutional interest and $1.6 billion in inflows into Bitcoin spot ETFs over the past four days.
The defense team of Nishad Singh, a former director of engineering at FTX, is urging the court to impose no jail time, arguing that his role in the firm's collapse was limited and highlighting his cooperation with authorities.
Kraken has launched kBTC, its own wrapped Bitcoin token, which is fully backed 1:1 by Bitcoin held in custody and compatible with Ethereum and OP Mainnet.
Polymarket's betting volume for the 2024 US presidential election has surpassed $2 billion. Donald Trump currently holds a 60.9% chance of winning, while Kamala Harris has 39.1% of favourable probability.
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It’s wild how fast L2 adoption has outpaced expectations. But I think people are underestimating the importance of interoperability. Ethereum’s EVM compatibility gives it an edge that Solana and Stellar can’t quite match yet. That’s why institutions like BlackRock and Visa are betting on Ethereum. Still, Ethereum has to keep innovating or risk being overtaken.