Author: Ignas Source: ignasdefi Translation: Shan Oppa, Bitchain Vision

It’s easy to be pessimistic about ETH now.It has performed 6.8 times lower than SOL since the market low in early 2023, with ETH down 47% against BTC over the past two years.

Is it time to rebound?

Ethereum’s bearish reason

The reasons for the poor performance of ETH are still controversial, but in my opinion, there are several important reasons:

• Bitcoin is “digital gold” – it’s a simple and easy-to-understand narrative, especially for new retail investors and institutions.By contrast, the story of Ethereum is complicated.The popular “digital oil” analogy is neither attractive nor accurate.

• Solana is surpassing Ethereum: Solana is catching up and sometimes surpassing Ethereum in terms of active users, transaction volume and market share.

• Therefore, BTC is a safer option for cryptocurrency adoption, while Solana is the riskier (lower market cap) option for smart contract adoption.Ethereum is sandwiched between the two.

• Ethereum adopts L2s’ modular approach to disrupt liquidity and complicates the user experience.

• Degens, which bet on a modular approach, spreads purchasing power into ETH beta tokens such as multiple L2, LRT tokens and DA tokens.By contrast, betting on Solana simply means buying SOL.

I believe ETH will outperform BTC because market participants recognize the high returns of airdrop farming rewards.In fact, my actual performance on ETH is much higher than the spot price shows by the airdrop of the restake agreement.

However, this failed to generate FOMO for ETH, probably because of overexposure during the bear market, as many believe ETH will not fail and buy it in large quantities.

On the contrary, few people in cryptocurrencies hold SOL.As SOL rose, more cryptocurrency native users moved from ETH to SOL.The price of ETH has stalled due to the lack of large inflows of retail investors.

Another problem is the decline in ETH revenue and consumption rates.

After the EIP-4884 Proto-danksharding upgrade, L2 paid a decrease, resulting in a decrease in ETH consumption rate.Although ETH inflation remains below 1%, it is a setback for those who are optimistic about ETH as an ultrasonic currency.

There are few emoticons on Twitter currently that have “ultrasonic currency”.

Bear market arguments are flooded with X, but ETH sentiment remains bullish, although not as strong as BTC.

Instead, let’s discuss Ethereum’s bullish argument.

Bullish arguments for ETH

There are many reasons to be optimistic about ETH.I asked fans on X to share their views.

Feel free to check out the comments in the topic, but below I summarize the top 10 most important reasons mentioned (with the help of Kaito AI).

1. If gas prices remain around 20 gwei, Ethereum will be seen as a network that is both deflationary and scalable, making it an attractive and efficient network.Note: ETH gwei has been below 20 since March.

2. Regular users can now stake ETH separately at home, which increases its decentralization and attracts individual investors and validators with consumer-grade hardware.

3. The strong developer community and accumulated intelligence in the Ethereum ecosystem support continuous innovation and network robustness.

4. Ethereum is considered to be the leading smart contract platform with no real competitors, maintaining reliability and decentralization.

5. Continuing developments such as Tier 2 and interoperability improvements are key bullish factors, while work is being carried out to reduce fragmentation and improve network efficiency.

6. Increased regulatory transparency, especially in the United States and the European Union, has enhanced confidence, allowing institutions such as BlackRock to adopt Ethereum.

7. Improved staking options allow all ETH holders to participate in protecting the network without the need for a lot of technical knowledge or resources.

8. Major agencies such as Coinbase and BlackRock say the adoption of tokenization of real-world assets (RWA) on Ethereum is increasing.

9. The potential to expand DeFi capabilities and stablecoin dominance on Ethereum provides huge room for growth and market leadership.

10. The renewed enthusiasm and collective pride of Ethereum holders and users helps to form a positive outlook and increase market interest.

I also asked several famous ETH people on X why they are optimistic about ETH.Those who answered my questions include Camila Russo (founder of The Defiant) and Christine Kim (Galaxy Researcher).

Here are the reasons why Camilla is optimistic about ETH:

• Mature DeFi ecosystem:In terms of total TVL and transaction volume, Ethereum and its Tier 2 provide the most mature DeFi ecosystem in cryptocurrencies.This level of liquidity and dapp concentration will attract so much more users that activity will start to be reflected on the tier 1 chain again, pushing up gas fees and consuming more ETH.DeFi is key, because finance is one of the few cryptocurrency use cases that have meaningful product market fit.

• Decentralization and security:Ethereum’s decentralization and security have prompted the world’s largest institutions to trust Ethereum when they join it: BlackRock owns its BUIDL fund, PayPal owns PYUSD, JPmorgan, SantanSantander and other large banks are testing blockchain settlement and tokenization on Ethereum.Large institutions that cannot risk blockchain downtime or validator/miner attacks and misconduct will continue to choose Ethereum.This will drive activity and prices.

• ETH ETF:ETH is one of only two cryptocurrencies that institutional investors in the United States can invest through ETFs, which will provide long-term support for ETH prices.

Christine Kim highlights the network effects of Ethereum:

I think one of the main advantages of Ethereum over its competitors is its network effect.Ethereum is the oldest general blockchain (first mover advantage) and has the largest developer mind share (strong community/ecosystem), and I think both of these help to enhance the value of the network.

Indeed, I prefer to store long-term assets on Ethereum.Solana has failed several times, and Ethereum has proven reliable over the years.

I am also very optimistic about Ethereum as an RWA chain for asset tokenization.For example, 52% of stablecoins and 73% of U.S. Treasury bonds are tokenized on Ethereum.

If you are optimistic about memecoins, Solana may be your choice, but Ethereum is the safest place to tokenize billions of dollars in RWA.

Next, one big problem is the problem at level 2.

As an overall chain, Solana is fast and inexpensive, but it still has its limits.

Modular scaling with L2 provides a long-term solution because scaling can always be added by launching L2 for a specific use case.L2 offers greater flexibility, simplicity and cultural sovereignty space.Cygaar elaborates on this in the following post:

Hopefully, the current problems of dispersed liquidity and worse user experience due to dependence on bridging are only temporary issues.For example, Catalyst AMM will allow atomic exchange between different chains—eliminating the need for bridge assets.In this case, liquidity remains dispersed, but the end user will still get the best price because liquidity comes from multiple chains.More solutions like Catalyst are in the works.

Then L2 itself made more efforts.

Optimism is “integrating with ERC-7683 to allow hyperchain to achieve interoperability with the rest of Ethereum L2 through the application layer”, which means that all L2s in the Optimism ecosystem willpictureA whole.

Similarly, Polygon is building an AggLayer, which means “cross-chain one-click transaction. It will re-exist on the online experience, but in the protocol network.”

There are also Caldera’s Metalayer, Avail Nexus and Hyperlane.

Multiple aggregation solutions are also a problem, but liquidity and user experience issues should be solved in the future.

I think people underestimate how quickly it happens.I recommend following Andy on X for the latest updates on modular extensions.

In fact, Vitalik himself also said that people would be surprised that the “cross-L2 interoperability problem” is no longer a problem.

I would be very optimistic if the L2 fragmentation problem is solved and RWA and tokenization adoption continues to grow on Ethereum, but these are long-term factors.

In the short term, there is a catalyst that few people discuss: the Pectra upgrade.

What is a Pectra upgrade?

The Pectra upgrade is the next major milestone for Ethereum and is expected to be launched in the first quarter of 2025.It combines Prague (execution layer) and Electra (consensus layer) updates.

Previously, all major Ethereum upgrades were hyped, but Pectra did not seem to have attracted people’s attention.

I understand the reason.Ethereum has undergone major changes: migration from PoW to PoS, ETH destruction startup, EIP-4884, etc.However, Pectra has some cool upgrades.

1.Account Abstraction: Ultimately Improve User Experience

One of the biggest changes to Pectra is the way it handles accounts.

Currently, managing a wallet involves many annoying steps, from signing a transaction to managing gas fees for different networks.With the aid of account abstraction, Pectra simplifies the process.

EIP-3074 and EIP-7702 are two proposed improvements.EIP-3074 allows traditional wallets (external owned accounts or EOA) to interact with smart contracts, such as enabling bulk transactions and sponsored transactions.

EIP-7702 Going a step further, allowing EOA to be during transactionsTemporarily act as a smart contract wallet.Temporary means your EOA wallet becomes a smart contract wallet only during transactions.It works by adding smart contract code to the EOA address.WTF?Anyway, I want to see what it actually does.

In practice it means:

• USDC can be approved and redeemed for UNI in one transaction.

• dApp can provide users with gas fees (easier to adopt)

• Pre-approve dApps to be used with this wallet and set expenditure limits

Note: It seems that EIP-3074 has been prioritized by Vitalik’s EIP-7702 written in 22 minutes!EIP-7702 is also compatible with the future implementation of AA.

This “EOA is a smart contract for the time being” is cool because current dApps are often incompatible with smart account wallets (try to use Safe or Avocado multi-signature with dApps).Hopefully AA will get more attention after upgrading.

2.Improvement of equity pledge

For those running validators, Pectra brings some significant changes.

EIP-7251 increases the maximum stake of the verifier from 32 ETH to 2048 ETH.It allows large staking providers to consolidate their staking, thereby reducing the number of validators and reducing network load.

This is also a benefit for smaller stakeholders, as it offers more flexible staking options (can be staked for 40 ETH or compound rewards).In addition, the queue time for ETH staking will be reduced from hours to minutes.

One big thing that excites me has something to do with MEV mitigation, but it doesn’t seem to be able to upgrade Pectra.

3.Scalability improvements

Pectra introduces peer-to-peer data availability sampling (PeerDAS) through EIP-7594.

Like Proto-Danksharding in previous Dencun upgrades, PeerDAS will bring cheaper deals on L2.But I can’t find a number that it can be cheaper (I’m assuming that PeerDAS will be particularly useful during peak usage).0xBreadguy mentioned that Pectra will expand the blob capacity by 2 to 3 times.

Then there are multiple technological upgrades, such as BLS12-381, for shortening BLS signatures (reducing gas costs), and EIP-2935, for validating transactions without requiring all blockchain history.

Together with Verkle Trees Transition (EIP-6800), which will eventually replace the existing Merkle Tree structure, these EIPs can make light clients more secure and make nodes easier to participate in the network, thereby increasing decentralization.

One of the major changes is the 11 EIP changes in EVM, which will make writing and deploying smart contracts easier, reducing costs and increasing efficiency.In other words, development on Ethereum will be smoother.

I’m glad that Single Slot finally (SSF) is launched with the Pectra upgrade, but it’s not included in the following Osaka upgrades.

Vitalik shared in December 2023 that SSF is the easiest way to solve most of the flaws in Ethereum PoS design.

Currently, Ethereum’s proof-of-stake consensus takes about 15 minutes to get a block to final certainty, meaning that the block cannot be changed or deleted without a huge economic cost.SSF seeks to reduce this time to one time slot, i.e. about 12 seconds, ensuring that the block is finalized almost immediately after creation.

In fact, this means faster, safer bridges, and faster CEX deposits.Disappointingly, this hasn’t happened yet.It is pessimistic to exclude it from the upgrade, suggesting that Ethereum developers still don’t prioritize L1 expansion.I would be more optimistic if there were more obvious signs that the core ETH community was focusing on L1 expansion.For the moment, this doesn’t seem to be a priority.

Anyway, Pectra is a technological upgrade, but I think the market underestimates its importance.

Now let’s talk about ETH prices.

VanEck’s basic price forecast for ETH is $118,000 by 2030.

Honestly, $118,000 is pretty pessimistic (I hope it trades higher in 5 years), but remember that VanEck’s basic forecast for Solana for 2030 is only $335.

Therefore, according to the basic forecast, the potential return of ETH is 4.4 times, while the potential return of SOL is only 2.2 times.Note that both forecasts were shared a year ago (before the launch of the ETH ETF), so I would love to see their updated forecasts.

However, I’m even more excited about the bullish outlook for ETH reaching $51,000.In any case, VanEck’s ETH price forecast is based on:

• VanEck expects Ethereum to occupy 70% of the market share of the smart contract platform by 2030 and leverage its position as the dominant open source global settlement network.

• Ethereum’s revenue is expected to increase from $2.6 billion to $51 billion per year by 2030.This increase is attributed to the increase in transaction fees, the introduction of MEV and the introduction of “SaaS” (SaaS)—using ETH to protect other protocols (re-staking).

• Ethereum is expected to attract more economic activity in finance, banking, payments, metaverse, social, gaming and infrastructure.

• Ethereum’s potential as a store of value asset is valued, and its usefulness is enhanced by smart contract programmability and cross-chain messaging technology (smart staking).

The following is a summary of the basic scenario, bear market scenario and bull market scenario.

In my opinion, the basic scenario of 70% smart contract dominance seems fair, although Ethereum currently dominance is only 58% (but all L2 dominance is about 65%).Despite the crazy rise of SOL, dominance has remained unchanged since the beginning of 2022.

TVL dominance will be a key indicator of concern because institutions seem to really care about it.

Another indicator that institutions and retail investors are concerned about is ETH ETF traffic.

Ethereum ETF

If someone told me a few months ago that ETH had ETFs but traded below $3,000, I would think crypto is in a bear market.

It’s too early to draw conclusions, but the ETH ETF seems to be getting more bullish every day.The rate of grayscale outflow has been decreasing rapidly, and the net flow has been positive for three consecutive days.It seems that those who need to quit Grayscale have done this.

We already know how much impact grayscale may have, but the upside potential will be a surprise.If the trend continues, the prospects for ETH will be bright!

Given what’s going on on Ethereum, are you still optimistic about it?