Has Ethereum’s long-term downturn reached the best buying point?

In fact, the development direction of blockchain has always been to continuously reduce costs and increase efficiency while achieving decentralization as much as possible. The prosperity of the Layer2 ecosystem has enabled Ethereum to significantly improve its processing capacity and efficiency while maintaining security and decentralization, promoting the diversification of applications and meeting the needs of more users. This is completely in line with the core values ​​of blockchain and is also an inevitable trend of continuous optimization and development.

First, although some Ethereum businesses have been transferred to Layer2, most Layer2 still rely on Layer1 as a data availability layer. As the activity of Layer2 transactions continues to increase, the frequency and scale of data sent back to Layer1 also increase, resulting in an increase in Ethereum GAS consumption.

Secondly, the growth of Layer2 networks has significantly increased the demand for Layer1 bridging and staking. For example, in the cross-chain process, asset locking (smart contracts) requires the consumption of Ethereum GAS. At the same time, ETH, as the most important value medium in the network, is also widely used as an economic guarantee for cross-chain mainnet verification. In addition, some bridge protocols will also record transaction data on Ethereum to ensure that the amount and status of asset transfers are in line with expectations, which will also consume Ethereum GAS.

Even if some Layer2 networks use third-party data availability layers such as Celestia to reduce costs, or change the GAS of the Layer2 network from ETH to governance tokens to increase the demand for the use of governance tokens, all transactions still need to be settled on the Ethereum mainnet. As long as it involves issues of asset and transaction security, Ethereum cannot be avoided in the end.

In the Layer2 era, Ethereum plays a more decentralized role as a "central clearing bank", responsible for the security and effectiveness of all transactions in the ecosystem. As the scale of the Layer2 ecosystem continues to grow, Ethereum's network effect will be unprecedentedly enhanced, and the demand for Ethereum collateral and Ethereum GAS will explode. The current low price of the currency is still the low demand for the network. As long as a new application breakthrough is found, all difficulties can be solved.

Although the rise of high-performance public chains such as Solana and SUI has indeed eroded some of ETH's market share, Ethereum is still an unshakable overlord in the POS field. This is mainly reflected in two aspects: First, thanks to the developed Layer2 ecosystem, Ethereum has achieved expansion while maintaining a high degree of decentralization. In contrast, other public chains basically improve their expansion capabilities by sacrificing decentralization, which also leads to the security of their networks far from the level of Ethereum; second, in terms of ecological development, Ethereum's advantages are still far ahead. According to the latest data from Deflama, the current TVL of the Ethereum ecosystem (including Layer2) is 72 billion, and the scale of stablecoins is 83.6 billion US dollars. The total TVL of the Solana ecosystem, which is regarded as the "Ethereum killer", is only 7 billion US dollars (MEME coins account for more than 40%), and the scale of stablecoins is only 3.7 billion. It is almost a discontinuous lead.

For assets with obvious cyclical demand, countercyclical buying and selling is often the best operation strategy. Specifically, buy when Ethereum's P/E ratio (total market value/GAS revenue) and P/S ratio (total market value/total on-chain transaction volume) reach their highest points, and sell when these ratios are at their lowest. Therefore, the current long-term slump in Ethereum network activity also means that a periodic buying point has appeared.