Talking about ETH’s current “dilemma” from the perspective of the primary market

Since @jason_chen998's "Angry at their lack of competition" ETH article fermented, there have been a lot of discussions on the Internet about the dispute between ETH and Solana. I don't intend to repeat or elaborate, I hope to provide some new perspectives (not Fud) from the perspective of innovation and financing in the primary market. After all, most of these projects have not yet been made public and are still in full swing.

In the two years of ABCDE, I talked about more than 1,000 projects. Although this cannot fully represent the current situation of the primary market, the sample size is considerable. In 2023, I felt that ETH and Solana developed independently in the primary market. In fact, due to the expectations of Eigenlayer and the entire Restaking+LRT ecosystem, ETH's momentum was once stronger.

By 2024, the market has taken a big turn - the entire market no longer favors redundant infrastructure projects, and the "ghost chain" phenomenon has caused widespread disgust. Vitalik Buterin also changed his tone in "The Next Decade of Ethereum" in August, saying "I think the tools we have or will have are enough to build the best applications in every field suitable for Ethereum."

In my opinion, the change in Vitalik's attitude in the second half of 2024, the seed round financing of nearly 100 million US dollars for an AI Infra project, and the opening of Matr1x with 2.5 million downloads and only more than 100 million FDV, these three independent but close events overlap and mark a turning point - the peak of infrastructure and the trough of application. In the next few years, Infra will gradually decline, while application will slowly increase. This process will not happen overnight.

Several major innovations in Crypto in the past: ICO in 2017, Defi Summer in 2020, Play2Earn and NFT in 2021-2022, etc., all occurred on ETH without exception, and all occurred on ETH L1. This also pushed the price of ETH to rise all the way. Today, the market sentiment is different-people are confident that Solana will break the previous high, but they are full of concerns about ETH returning to 4,000. In the secondary market, Solana's Pump Fun is in full swing, and although ETH is far ahead in TVL, the applications are still the same old faces in 2020-21. Users are gradually turning to L2, and the gas fee of L1 is always low.

The primary market is also facing similar problems. In the past six months, I have clearly felt that there are more application-oriented projects, including various prediction/gambling markets, AI applications, Depin, micro-innovation Defi, Payfi, 3A games, etc. Although it is not clear which track the next big innovation breakthrough point will be, the ecological distribution of the project can be roughly divided into:

• Prediction/Betting Markets - Ton/Solana/Monad

• AI - Solana/Base/Monad

• Depin - Solana/MegaETH/Monad

• Defi - Arbitrum/Berachain/MegaETH/Monad

• Payfi - Ton/Solana/Monad/MegaETH

• Game - Sui/Ronin/Immutable X

• RWA - ETH/Solana

Judging from the current situation, no matter where the next big innovation is, Solana seems to have the greatest opportunity, followed by Monad and MegaETH. Except for a few RWA projects, there are almost no new projects running entirely on ETH L1. Among L2, Arbitrum and Base perform best at the application layer (OP is basically on the path of launching chain Infra). Even if there are popular applications, the value that ETH L1 can capture under the existing architecture is extremely limited.

I personally think the most promising new tracks are AI and PayFi. In terms of AI, Solana and Base are far ahead. Base previously completed the first AI-to-AI payment in history, and recently launched a set of full-chain AI agents that can create an AI Agent with a crypto wallet and Twitter account in 3 minutes. Solana has also launched a new track for AI Meme. A deeper study of Goat and ACT will reveal that they are not just simple meme projects, but have the potential to open up new tracks and new paradigms.

Payfi is a competition between two "veterans" Ton+Solana and two "newcomers" Monad+MegaETH. Payment is one of the most suitable use cases for Crypto, and it is also the original intention of Satoshi Nakamoto to invent Bitcoin. It just depends on which time point and which chain can finally realize this vision. (In addition, some Payfi projects based on the Lightning Network have also emerged recently. We look forward to the performance of the Lightning Network in this round.)

Having said so much, I am not trying to follow ETH. I personally do not think Solana can really flip ETH with this round of momentum. ETH is able to maintain its second place with its current community and technology accumulation. My only worry is whether ETH is content with the status quo, willing to let innovation and value capture happen in L2, while its own L1 is content to be a data availability and settlement layer (while facing competition from projects such as Celestia). The price of ETH is therefore calm. This really makes me wonder - ETH L1 has a weak ability to capture the value of L2 at this stage, and GAS and TPS are also difficult to support large-scale applications. It seems that the old Defi and the possible new RWA track alone cannot support ETH to reach the peak of 10,000 US dollars.

If in the next few years, BTC reaches 150,000-200,000, Solana 500-1,000, and ETH is still hovering around 3,000-4,000, the confidence and status accumulated by ETH in the past decade may gradually be eroded.

How to break the deadlock? This is probably not the responsibility of VCs. We look forward to the developers and entrepreneurs of ETH giving the answer.