Ethereum’s Crossroads: Strategic Breakthrough for Reconstructing L2 Ecosystem and Value Capture System

Original author: Momir

原始來源：IOSG Ventures

長話短說

The enthusiasm for the Web3 vision in 2021 has faded, and Ethereum is facing severe challenges. Not only has the markets perception of Web3.0 changed, but Ethereum is also facing fierce competition from emerging platforms such as Solana for the remaining market share. Key issues such as Layer 2 fragmentation, erosion of value ownership, dilution of ecological control, and lack of leadership have further weakened Ethereums user experience and economic value, and as the second-layer networks voice has increased, Ethereums influence has been shaken. These factors ultimately led to one of the most dramatic price corrections in ETHs history.

However, there is hope: Ethereum still has a chance to regain its glory days by promoting L2 interoperability, prioritizing the improvement of ETH-core infrastructure, and taking a decisive, performance-oriented leadership approach. Ethereums solid underlying architecture and vibrant developer ecosystem remain its enduring advantages, but strategic action must be taken quickly to restore ETHs pre-eminence.

The cognitive shift from Web3.0 utopia to harsh reality has forced the market to re-examine Ethereums core value proposition. The once highly anticipated ideal of user-autonomous decentralized Internet has now been replaced by a more ironic narrative: the 加密貨幣currency field is either a Bitcoin store of value game or a digital casino. This reversal of sentiment has had a particularly significant impact on Ethereum: it claims to be the cornerstone of the new Internet paradigm, but has to face growing doubts.

What鈥檚 more serious is that Ethereum is no longer the only representative of the Web 3.0 vision. Whether optimistic or pessimistic about the future of the industry, it is not difficult to see that platforms such as Solana are becoming the new center of crypto consumer activity. Against this background, this article aims to analyze Ethereum鈥檚 most pressing strategic challenges and propose practical solutions to help it regain its advantage in the evolving landscape.

Core Challenges

Ethereum faces many challenges, but this analysis focuses on the four most pressing issues: L2 network fragmentation, declining value capture capabilities, dilution of ecosystem control, and lack of strategic leadership.

L2 network fragmentation and fragmented user experience

The most significant crisis is the fragmentation of the Layer 2 network. The introduction of multiple competing execution layers has severed the user experience and on-chain liquidity, eroding the composability advantage that the Ethereum mainnet once boasted of, which is still clearly visible in monolithic blockchains such as Solana.

For users, they have to deal with inconsistencies in various protocols, standards, and cross-chain bridges, making it difficult to achieve the seamless interaction that Ethereum originally promised. Developers have to bear the burden of maintaining multiple versions of protocols on multiple L2s, and entrepreneurial teams also face complex market entry strategies due to the allocation of limited resources in a decentralized ecosystem. Therefore, many consumer-oriented applications choose to switch to Solana, where users and entrepreneurs can focus on entertainment and innovation without having to worry about fragmented infrastructure.

Dilution of ecological control: a growing threat

More seriously, Ethereum outsourced its expansion roadmap to L2, and this decision is constantly weakening its control over its own ecosystem. General-purpose L2 Rollups will generate strong network effects when building their respective ecosystems, and gradually evolve into insurmountable moats. As time goes by, these execution layers have more and more say relative to the Ethereum settlement layer, and the community may gradually ignore the importance of the mainnet settlement layer. Once assets begin to exist natively in the execution layer, Ethereums potential for value capture and influence will be greatly weakened, and the settlement layer will eventually become a commoditized service.

Erosion of value attribution: a structural challenge

The rise of L2 has significantly affected the value capture of ETH. These platforms increasingly occupy MEV and transaction fee income, which greatly reduces the value flowing back to the Ethereum mainnet. This shift directs economic benefits from ETH holders to L2 token holders, weakening the intrinsic motivation to hold ETH as an investment asset. Although this trend is an inevitable challenge for any Layer 1 token: whether it is modular Ethereum or a monolithic integrated chain, Ethereum has experienced this phenomenon earlier and more obviously because it was the first to practice the L2 centralized route.

It is foreseeable that when the application layer dominates MEV capture and becomes the norm, not only will the single blockchain face similar difficulties, but even L2 itself will encounter a value capture crisis. Although this is not a dilemma unique to Ethereum, how to formulate a precise strategy to deal with this structural challenge is still a core proposition that needs to be solved urgently.

The leadership crisis: the dilemma of idealism

In responding to the above challenges, Ethereum also exposed deep-seated strategic leadership 去中心化金融ciencies. The community has long been trapped in the repeated trade-offs between efficiency goals and egalitarian values, which has delayed key progress. At the same time, the adherence to the trusted neutrality governance commitment, although originally intended to reduce the risk of regulation and state crackdowns, often becomes a hindrance to strategic decision-making. In addition, ETH holders lack a mechanism to directly influence major strategic decisions, and their only way to express dissatisfaction is often to sell tokens.

In hindsight, these problems, while easy to define, may have stemmed in part from considerations of regulatory pressure and country-level risks rather than a lack of insight into governance and leadership.

Strategic Response: Challenges and Solutions

L2 Network Fragmentation: Self-Correction Mechanisms

Two paths to resolve the L2 fragmentation crisis:

First, rely on market mechanisms (natural selection) to achieve organic integration of the ecosystem, and eventually form 2-3 general-purpose L2-dominated markets with absolute activity. The remaining projects will either withdraw from the competition or transform into Rollup service providers for vertical scenarios;

Second, by establishing strongly binding interoperability standards, we can eliminate internal friction in the Rollup ecosystem and prevent a single execution layer from building a monopoly moat.

Ethereum should seize the window of time when it still has influence on L2 and promote the implementation of the second solution. It is necessary to be aware that this dominance is being lost day by day. The slower the action, the weaker the strategic effectiveness. By building a unified L2 ecosystem, Ethereum is expected to regain the composability advantage of the mainnet era and compete head-on with single chains such as Solana at the user experience level.

However, relying solely on market-driven integration will make ETHs future prospects bleak. Once a power-law distribution around 2-3 dominant execution layers emerges, Ethereums influence on these execution layers may be significantly weakened; in this case, each execution layer will tend to prioritize the value of its own tokens, thereby marginalizing ETH and weakening Ethereums economic model. To avoid this situation, Ethereum must act decisively to shape its own L2 ecosystem to ensure that value and control are always bound to the mainnet and ETH.

Value recapture mechanism

Relying solely on the productive assets narrative is not a sustainable long-term strategy for ETH (or even all Layer 1 tokens). The time window for Layer 1 to dominate MEV capture lasts for a maximum of five years, and it has become an established trend as the value capture layer continues to migrate upstream in the application stack. At the same time, Bitcoin has firmly occupied the value storage narrative, so if ETH attempts to compete with BTC in this field, it may be regarded by the market as poor mans Bitcoin, just like the historical positioning of silver relative to gold. Even if ETH can demonstrate a clear advantage in value storage in the future, this change may take at least ten years, and Ethereum cannot afford to wait for such a long period. Therefore, during this period, Ethereum must open up a unique narrative path to maintain its market relevance.

Positioning ETH as the native currency of the Internet and the highest-quality on-chain collateral is the most promising direction for the next decade. Although stablecoins dominate as a payment medium in on-chain finance, they still rely on off-chain ledgers; the role of a truly Internet-native and unstoppable currency has not yet been substantially occupied, and ETH has this first-mover advantage. However, to achieve this goal, Ethereum must regain control of the general execution layer in the ecosystem and put the promotion of ETH adoption first, rather than allowing the proliferation of the Wrapped ETH standard.

Regaining control of the ecosystem

Re-establishing ecological ownership can be achieved through two key paths: first, by improving the performance of Ethereum L1 to a level comparable to that of centralized chains, ensuring that consumer applications and decentralized financial experiences are latency-free; second, launching Ethereum-native Rollup and focusing all business development and adoption efforts on it. By focusing ecological activities on the infrastructure controlled by ETH, Ethereum can strengthen ETHs core position in the ecosystem. This requires Ethereum to shift from the outdated ETH compatible paradigm to an ETH-dominated ecological model, prioritizing direct control of core resources and maximizing ETHs value capture.

However, both regaining control of the ecosystem and strengthening ETH adoption are tricky decisions that could alienate key contributors such as Rollup and liquidity staking providers. Ethereum needs to carefully balance the need for strengthened control with the risk of community division to ensure that ETH can successfully establish its new narrative as the cornerstone of the ecosystem.

Leadership Innovation

Ultimately, Ethereum leadership must innovate to meet governance and strategic challenges. Ethereum leaders need to adopt a performance-oriented mindset, a stronger sense of urgency, and a pragmatic attitude to promote ecological development. This shift requires abandoning the previous excessive insistence on trusted neutrality, especially when deciding on product roadmaps and ETH asset positioning, which requires more decisive decision-making.

At the same time, the market has expressed dissatisfaction with Ethereums outsourcing of key infrastructure, from Rollups to staking, to decentralized entities. To reverse this situation, Ethereum must bid farewell to the old model of aligning with ETH and move to a new model of led by ETH, ensuring that core infrastructure is unified under a single token system ($ETH). This move will further consolidate ETHs core position and restore market confidence in Ethereums strategic direction.

市場ing challenges and narrative potential

Despite its challenges, Ethereum still has deep strengths that support its position in the crypto space鈥攕trengths that are often downplayed by its leadership, causing negative criticism to obscure its core narrative. Systematically sorting out these strengths helps to establish an objective cognitive framework for Ethereums potential.

Proven infrastructure

Ethereum stands alongside Bitcoin, offering unparalleled decentralized security that meets the stringent requirements of sovereign institutions and large financial institutions. The security provided by the consensus mechanism far exceeds that of other smart contract platforms, ensuring true censorship resistance – essential for infrastructure that carries hundreds of billions of dollars in value. The Ethereum DeFi ecosystem has cumulatively secured approximately $76.32 trillion in value (TVL 脳 days), with very few major security incidents, and its security moat, verified over time, continues to deepen.

Currently, the scale of stablecoins hosted on Ethereum has exceeded $120 billion, which was accumulated mainly in an era when the regulatory framework was not clear and institutional adoption had not yet taken shape. As the regulatory environment gradually becomes clearer and institutional demand drives further growth in stablecoins, it is expected that the scale of stablecoins hosted on Ethereum will exceed $1 trillion in the next decade. This growth comes not only from the demand for new issuance, but also from the markets trust in its security and composability, which may consolidate its platform status as the cornerstone of global finance.

Future-proof design

Ethereums architecture is remarkably forward-looking. Compared to Bitcoin, it provides a more complete transition solution to resist quantum attacks, and its continuously evolving technical culture drives innovation. Unlike the security budget constraints that $BTC may face in the future, Ethereums flexible monetary policy enables it to adapt to the market environment while maintaining strong security incentives and ensuring long-term resilience.

Unparalleled developer ecosystem

Ethereum has the largest and most diverse developer community in the blockchain field, with nearly a decade of accumulated knowledge and best practices. This intellectual capital and social capital build another layer of moat for the EVM ecosystem, allowing it to continue to lead in innovation speed and application scale.

The modular path: the only solution for scalable decentralized systems

Ethereums modular design has made important progress in balancing decentralization, scalability and security. As time goes by, it is becoming increasingly clear that a single chain must sacrifice decentralization to achieve global financial scale; Ethereums modular strategy is the only viable solution to achieve sustainable expansion while maintaining trust minimization and decentralization, and the correctness of this strategic choice will become more prominent over time.

The most customizable technology stack

Ethereums L2 ecosystem provides unparalleled customizability, making it the preferred platform for vertical scenario applications and institutional adoption. Institutions can build their own L2 based on Ethereum L1, using technologies such as fully homomorphic encryption (FHE) to achieve privacy protection; companies such as Robinhood can replicate the order flow payment mechanism of traditional finance on their own L2 through the sequencing right payment model. These L2s are anchored to Ethereum L1 – the worlds most secure public ledger – to form a unique security redundancy: even if an L2 fails, users can still return to L1 for trustless settlement. This ultimate safety net is the unique value proposition of the Ethereum ecosystem.

Market Signal: ETH Enters Historical Oversold Range

ETH鈥檚 recent price action has made it an unpopular asset in the eyes of investors, and ETH holders have expressed their lack of confidence in the near future through their selling behavior. This sharp drop has only occurred six times in ETH鈥檚 ten-year history, and five of them occurred in the early stages. For Ethereum, which is entering its tenth year of development, this magnitude of revaluation in its mature stage is undoubtedly a warning signal to the entire ecosystem that cannot be ignored. Historical data shows that the previous five similar pullbacks have all rebounded strongly within six months, which injects a glimmer of hope into the current predicament. However, whether ETH can repeat its historical pattern or continue its current steep downward trajectory will directly depend on the strategic signals released by Ethereum鈥檚 leadership in the short term and the execution of the strategy in the next twelve months. Despite the challenges, the current situation is not irreversible, and a strong recovery is still expected if a practical strategy is formulated and implemented.

In order to reshape its industry leadership and restore market confidence in ETH, Ethereum must immediately address the following core challenges: First, it needs to enforce robust L2 interoperability standards to mitigate fragmentation and retain the seamless composability once defined by the mainnet; second, it must shift from the old model of aligning with ETH to an ETH-led ecosystem model, prioritizing L1 expansion and Ethereum native Rollup to re-establish control and maximize ETHs value capture; finally, the leadership must evolve to a performance-driven decision-making method, abandon trusted neutrality, and unify key infrastructure under the $ETH token system. If it fails to act decisively, Ethereum will face the risk of being cannibalized by competitors such as Solana and becoming a commoditized settlement layer.

This article is sourced from the internet: Ethereum’s Crossroads: Strategic Breakthrough for Reconstructing L2 Ecosystem and Value Capture System

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