The prevailing sentiment of consistent pessimism towards Ethereum underwent a significant shift following the approval of its spot ETF.
After news emerged that the spot ETF for Ethereum was highly likely to be approved this month, Ethereum's price surged by 20% in a single day. Post-approval, its price briefly climbed above $3,800.
In this bull market, Ethereum's performance has lagged behind Bitcoin's, and the rise of competing chains like Solana has posed challenges. Given these factors, the skepticism seemed justified. However, beneath the surface, it's easy to overlook that Ethereum still commands about 60% of the total value locked (TVL) in the public blockchain market, while the second and third-place chains hold only single-digit percentages. Moreover, Ethereum has continuously pursued technological innovations to address its widely criticized issues.
Has Ethereum truly run out of steam? Or is it merely in a phase of quiet consolidation?
Periodic Trends: Ethereum's Declining Exchange Rate Against Bitcoin
Over the past year, Ethereum's exchange rate against Bitcoin has indeed been on a downward trend. The root cause lies in Bitcoin's strong performance. It's not just Ethereum; when Bitcoin enters a correction phase, most alternative cryptocurrencies see minimal gains, with some even falling below their bear market prices.
Some industry experts, like Shenyu, have even suggested that this bull cycle might not feature a "altcoin season."
In previous cycles, the pattern typically involved Bitcoin rising first, followed by Ethereum, which then triggered a surge in altcoins. During the last bull market, many altcoins achieved tenfold increases. When market liquidity is abundant, funds naturally overflow from major cryptocurrencies into altcoins.
The logic behind Ethereum's rise fueling altcoin booms is that, historically, most projects were built on Ethereum. A sharp increase in Ethereum's price often leads to prosperity across its ecosystem.
This cycle, however, differs from past ones. It started earlier—typically, bull markets begin after Bitcoin halving events, but this one kicked off half a year in advance. The reason is simple: this rally was driven by the approval of spot ETFs, later compounded by Bitcoin's halving.
Yet, influenced by broader economic cycles, the amount of liquidity available for high-risk investments remains relatively low. From this perspective, Ethereum's stagnant price growth can be attributed to insufficient market liquidity.
Additionally, Ethereum's narrative this year hasn't been particularly novel or compelling. In the public blockchain sector, Solana has undoubtedly been the standout performer this cycle, with its price steadily climbing and a thriving on-chain ecosystem, largely due to support from Wall Street capital. Similarly, TON, which ranks in the top ten by market cap, has attracted venture capital by promoting its potential to convert 900 million Web2 users.
Ethereum, on the other hand, has its own compelling narrative—Layer 2 solutions. During the bear market, heavy investments were made in this area. However, most Layer 2 tokens have underperformed, criticized for their high valuations and massive unlock schedules. The proliferation of Layer 2 solutions has also diverted attention away from Ethereum itself, siphoning off funds that might have otherwise been invested directly in Ethereum.
From a technological standpoint, Ethereum has indeed continued to innovate. Yet, its most attractive concept, Layer 2, hasn't managed to draw substantial capital into Ethereum.
Of course, this bull cycle has another exciting narrative for Ethereum—the approval of spot ETFs in the United States. The recent price surge was driven by news suggesting a high likelihood of approval by May 23.
On the surface, the primary driver for Ethereum's rise appears to be the ETF approval. However, it's crucial not to overlook the fact that Ethereum's inherent ecosystem development forms the foundation of its value.
The Unshakable Dominance of Ethereum
Ethereum remains the public blockchain with the highest total value locked (TVL).
According to DefiLlama data, Ethereum currently holds a 59.93% share of TVL. Tron ranks second with only 8.61%, primarily because Tether issues USDT on its network. BSC holds third place with 5.31%, while Solana, which has garnered significant attention this bull cycle, ranks fourth with 4.69%. This clearly shows Ethereum's dominant position; surpassing it remains a formidable challenge for other chains.
Why does Ethereum maintain such dominance?
Launched in 2015 after being conceived in 2013, Ethereum was built for smart contracts. As the first Turing-complete blockchain, it was designed from the ground up to support a wide range of applications. Ethereum's introduction expanded the possibilities of blockchain technology immensely.
However, during the last bull market, Ethereum's booming DeFi ecosystem and surging user base led to network congestion. This resulted in longer block times, sluggish transaction speeds, and soaring fees.
For everyday users, Ethereum became a less cost-effective option.
In this context, a wave of new blockchains emerged, aiming to address these shortcomings or even replace Ethereum altogether. Some branded themselves as "Ethereum killers," seeking to capture market share.
Notable "Ethereum killers" that rose during the last bull market include Cardano (ADA), Avalanche (AVAX), BNB Chain (BNB), Solana (SOL), and Polkadot (DOT).
These competitors share a common claim: high throughput and low transaction fees. Each also has unique strengths. BNB Chain benefits from its association with Binance, boasting large user traffic and a well-utilized native token, BNB. Avalanche introduced an innovative consensus protocol and three specialized subnets, significantly optimizing transaction speed and making it a preferred chain for GameFi due to low latency and costs. Polkadot's key advantage lies in its multi-chain structure and active developer community.
These chains aimed to enhance technical capabilities from the ground up—addressing programming languages, code complexity, and operational mechanisms—to overcome Ethereum's limitations. While each has merits, none have come close to surpassing Ethereum; their TVL figures are less than a tenth of Ethereum's.
This is even more evident with chains like Aptos, born during the bear market. Despite strong backing from venture capital, their performance has been mediocre at best.
Although new blockchains continue to emerge, none have truly challenged Ethereum's position. Even collectively, they haven't made a significant dent. The reasons are twofold: First, Ethereum's long history has allowed it to accumulate a vast user base and project ecosystem. Second, solutions are actively being developed for its criticized issues, such as scalability, congestion, high gas fees, and even limitations like EOA addresses.
For instance, scalability challenges are being addressed through various solutions like Rollup, Plasma, and Validium. The limitations of EOA addresses are being overcome via upgrades relying on ERC-4337 Account Abstraction, evolving into a distinct narrative around account abstraction. Potential constraints related to block capacity are being tackled with data availability (DA) solutions like Eigenlayer, with further optimizations possible through modular combinations with third-party DA solutions like Celestia and alternative VM execution layers.
Layer 2 has now become a crucial narrative for Ethereum and a standalone sector within the industry. Designed as a key solution for Ethereum's scalability, these networks built on top of the mainnet allow for more transactions while preserving the security and decentralization of the primary chain.
Furthermore, Ethereum's mainnet has a clear development roadmap. To enhance performance, Vitalik Buterin has outlined five key stages: Merge, Surge, Verge, Purge, and Splurge.
This demonstrates that Ethereum has never stagnated; in most cases, it has been driving technological progress across the entire industry.
What Changes Does Ethereum Need to Make in the Future?
Ethereum still faces significant challenges. Privacy, consensus mechanisms, smart contract security, and scalability have been persistent issues since its inception. At different stages of development, these challenges manifest as distinct, detailed problems.
For example, regarding user asset security, Ethereum Account Abstraction (ERC-4337) was proposed. This standard implements account abstraction at the protocol level without requiring changes to the consensus layer, representing a community-vetted optimal solution.
However, as Vitalik Buterin has noted in speeches, advancing broader account abstraction must also address the problem of Maximal Extractable Value (MEV) to ensure system fairness, security, and healthy development. This requires coordinated effort across the ecosystem, with the overarching goal of making on-chain experiences comparable to centralized services.
This illustrates how a single technological innovation and its implementation involve intricate, multi-party coordination and detailed work.
Similarly, Vitalik has pointed out that for Layer 2 scaling, ensuring the security and decentralization of the proof system when L2s bundle and submit transaction proofs to L1 is a critical issue. In L2 technical components, the sequencer that orders most transactions is often centralized, posing potential risks. With L2s pursuing different technical choices and development directions, questions arise about building wallets and addresses across L2s and improving the user experience. Solving data availability—storing and preserving transaction data—is another practical technical challenge that the Ethereum ecosystem must address step by step.
A more straightforward concern is the criticism surrounding centralization in Ethereum's Proof-of-Stake (PoS) system post-Merge. Some even worry that this makes Ethereum susceptible to government control. How can this be resolved?
It's important to recognize that many challenges currently facing Ethereum are, in fact, broader industry-wide technological hurdles that require collective effort.
For users and the industry, the fact that these issues are openly discussed and actively worked on is a key reason to trust Ethereum. It demonstrates a commitment to confronting problems head-on and continuously seeking solutions.
In conclusion, Ethereum remains a highly resilient and innovative blockchain within the industry, and for now, it appears exceptionally difficult to surpass. To explore deeper technical frameworks and their evolving solutions, you can dive into advanced scaling strategies here.
Frequently Asked Questions
What is Ethereum's biggest advantage over other blockchains?
Ethereum's primary advantage is its massive established ecosystem, including the highest total value locked (TVL), a vast developer community, and a long history of security and decentralization. Its first-mover advantage in smart contracts has created a powerful network effect that is difficult to replicate.
How do Layer 2 solutions improve Ethereum?
Layer 2 solutions process transactions off the main Ethereum chain (Layer 1) and then post proof of these transactions back to it. This significantly increases transaction throughput, reduces fees, and improves speed, all while leveraging the robust security of the mainnet.
Will other blockchains eventually overtake Ethereum?
While other blockchains offer innovations in speed and cost, overtaking Ethereum is challenging due to its immense ecosystem, ongoing development (like the rollout of Layer 2s and core protocol upgrades), and deep liquidity. They often complement the landscape rather than directly replace Ethereum.
What does account abstraction (ERC-4337) mean for users?
Account abstraction allows smart contracts to act as primary wallets, eliminating the need for users to manage complex seed phrases. It enables features like social recovery, batch transactions, and paying fees in tokens other than ETH, vastly improving usability and security.
Why did Ethereum's price surge after the ETF news?
The approval of spot ETFs signals greater institutional legitimacy and accessibility for traditional investors. It opens the door for significant inflows of capital from investment funds and individuals who prefer familiar, regulated financial products, increasing demand.
What are the main challenges Ethereum still needs to solve?
Key challenges include further enhancing scalability through full Layer 2 integration, mitigating MEV to ensure fair trading, reducing stake centralization in its PoS system, and continuously improving smart contract security and user privacy.