As 2023 has passed, is Ethereum closer or further away from surpassing Bitcoin?

As the Bitcoin narrative of a new round of bull market becomes the main line, the Ethereum ecosystem, which has been optimistic in the bear market, gradually weakens. Coupled with the strong outbreak of Solana, the crypto industry seems to have ushered in the beginning of 2024 with the "narrative of the rise of new public chains."

Although the price of Ethereum has doubled in the past year, many people still criticize it, and even start to FUD Vitalik's decision-making level. The main reason for this phenomenon is that everyone has too high expectations for ETH (at least it will outperform Bitcoin), and it is also related to the overly impressive performance of SOL. Today we will review what new changes have taken place in the Ethereum ecosystem in the past year. (FUD: Fear, Uncertainty, Doubt, the abbreviation of fear, hesitation and doubt, refers to the negative feelings spread by people that cause panic among investors.)

01Ethereum enters deflation

Since the beginning of the year, the number of Ethereum has decreased from 120.5 million to the current 120.1 million, with a total of 340,000 destroyed in a year, worth $750 million. With the arrival of the bull market, the destruction volume will inevitably increase significantly.

Ethereum total supply change, source: ultrasound.money

02 LSD track explosion

Since the merger of Ethereum was completed in September 2022, it has become a hot spot in the first quarter of 2023 after several months of development. As the end of the bear market, the stable annualized return of about 4% has attracted a large amount of funds to join. LSD projects such as Lido, RPL, and SSV have ushered in a wave of explosions. The Ethereum pledge rate has continued to rise. As of January 3, 2023, the pledged amount has reached 28.8 million.

Changes in Ethereum staking, source: dune.com

As the amount of pledged funds continues to expand and the Shanghai upgrade approaches, a small number of project parties have begun to target this part of the funds and launched their own DeFi products. Through the layered nesting method, they have improved the utilization rate of pledged funds. After the wealth effect appears, more institutions and funds have begun to pour in and lay out related tracks, thus deriving LSDFi related tracks and gradually improving LSD-related infrastructure.

There are good things, but there are also unsatisfactory things. As the pledge rate increases, Lido will occupy more than 1/3 of the Ethereum pledge market share. The pledge track is too centralized, and the market is beginning to worry whether Lido's growth will threaten the security of Ethereum mainnet consensus. There are various opinions on whether Lido's centralization is harmful.

On December 28, Vitalik mentioned the DVT (Distributed Validator Technology) technology, which solves related problems from the perspective of staking centralization and verification decentralization. On November 28, 2023, Lido DAO has begun to adopt the DVT technology provided by Obol Network and SSV Network.

Market share of various projects in the pledge track, source: dune.com

With the arrival of the bull market and the increase in Ethereum’s value, it is almost certain that the Ethereum staking track will become a market with a scale of hundreds of billions. In addition, with the development of the industry, stable financial management will gradually become a rigid need for some people, and the development and innovation of related tracks are worth looking forward to.

03 Layer2 is flourishing

Layer2 has developed into an important part of Ethereum. Each Layer2 has made different progress in various aspects. It can be said that each chain has its own characteristics. Let's take a brief look.

Layer2 TVL top ten rankings, source: L2 Beat

• Optimism

With the establishment of the bottom of the bear market in 2022, the price of Optimism ushered in a wave of explosion in early 2023. Although the ecosystem is obviously weaker than Arbitrum in all aspects, the project has found a different way. Relying on the modular + one-click chain technology OP Stack, it cooperates with many projects, including BASE, opBNB, Manta Network, DeBank and many other well-known projects choose to use OP Stack technology. Recently, because the specific time of the Cancun upgrade has been confirmed, Optimism and other second-layers have once again attracted everyone's attention.

• Arbitrum

In the first quarter of last year, with the issuance of Arbitrum Token, the Arbitrum ecosystem ushered in a big explosion, and was even called "Arbitrum Summer". Representative projects include GMX, MAGIC, RDNT, GNS, AIDOGE, etc., most of which have been launched on BN.

However, "institutional tokens" such as Optimism and Arbitrum have the same problem, that is, high market value and low circulation. In the past year, the market value of the two Layer2s has been rising, but the token price has remained unchanged, and they have completely become institutional "cash machines". It can be said that the project is good in all aspects, but it only gives retail investors a little bit of profit.

• zkSync & StarkNet

zkSync and StarkNet are the two PUA leaders in the industry. They have been collecting fees to the point of being exhausted, and the wool party has been completely counter-moneyed, especially StarkNet. The project party has been doing all kinds of tricks. The community and the project party are already at loggerheads. The wool party is itching with hatred, while zkSync insists on PUA to the end, and even said that it will issue tokens in 2025. However, ZK's progress is generally slow, and there is nothing worth mentioning in 2023.

• Base

Base attracted a lot of capital in the short term by relying on the wealth effect of the ecosystem, and rose with the help of several waves of traffic, but most of the ecological projects did not last long. In early August, when the Base mainnet was about to be launched, the meme token Bald appeared on the chain with a thousand-fold increase, and the market value exceeded 100 million US dollars in 2 days. The huge wealth effect FOMO users entered the market, but unfortunately the project ended in a rugged end, but the funds that entered were settled.

Not long after that, the social track project Friend Tech's Ponzi scheme and the Airdrop expectations supported by Paradigm made it one of the few phenomenal products in the bear market, and brought hundreds of thousands of users to the Base chain, completely establishing the position of the Base chain in Layer2. However, Friend Tech is currently in a cold state.

• Blast

It was launched on November 21st. Relying on Blur's own traffic and the expected Ponzi scheme of Airdrop, although it encountered the problem of centralized wallet management in the middle, it still did not prevent its TVL from exceeding 1 billion US dollars in about two months after its launch. It has now become another place for large-capital users in the industry to manage their finances stably.

• Manta Pacific

In less than three weeks, TVL has skyrocketed from 30 million to 650 million. It uses the same financial management method as Blast, attracting funds to pledge through the New Paradigm event to obtain Airdrop. The selling point is that the pledge period is shorter than Blast and the capital utilization rate is high.

• Metis

With the recent Cancun upgrade approaching, Metis has emerged as a dark horse, with outstanding market performance in the short term, and its TVL has also risen to the top three in the short term. Since most Layer2s have the problem of too centralized sequencers, Metis is working on a decentralized sequencer solution. As for whether it is driven by technology or capital, it depends on one's opinion.

• ZKFair

Through the form of Gas fee Airdrop, 100% of the Tokens will be Airdropped to all community users to attract user participation in the short term. After the Gas fee Airdrop activity was launched, in less than a week, the gas fee consumed on the chain exceeded 60 million USDC, the number of active addresses exceeded 200,000, and the TVL exceeded 120 million. It has fallen back after the recent activity ended, and the main focus is on fair distribution. It can be said that for users who continue to benefit from zkSync and StarkNet PUA, it is very conscientious. As for the subsequent development, you can continue to pay attention.

It can be seen that the development of the second layer is that each company utilizes its own advantages. As the market improves, the speed of rise is getting faster and faster, and more and more simple and crude. Many of them no longer need months or even years to accumulate slowly as before, but through a series of stimuli and short-term bursts to occupy the market. As to whether it can be sustained in the long run, it remains to be seen.

04 Dex Bot emerges as a new force

It can be said that before the BRC20 inscriptions came into being, almost 90% of the local dog issuance was on Ethereum, with dozens or hundreds of new projects being generated every day, and some players kept an eye on the dynamics of the chain every day, hoping to get returns beyond their expectations. With the increase in players, good tools are even more powerful for investors, and Dex Bot was created in this environment.

In mid-May, the Unibot project was established. In just over two months, it became a phenomenal product, earning tens of millions of dollars in a bear market, which led to the entire track and related concepts being hyped. However, after the launch of Banana Gun in September, Unibot's market share was compressed due to its better operating experience. Recently, due to the popularity of Bitcoin and SOL, the transaction volume on the Ethereum chain has plummeted, and the demand for Dex Bot has naturally decreased. However, as a new narrative that emerged this year, it is worth continuing to pay attention to.

Dex BOT trading market share, source: dune.com

05Ethereum Inscriptions & Memes

The emergence of the Ethereum inscription protocol Ethscriptions can be said to be a complete replica of the Bitcoin Ordinals protocol, and it has been rejected by everyone since it was proposed. The mainstream view is that it is a step backward in history, but it cannot withstand the explosion of the Bitcoin ecosystem, coupled with other reasons, which has also brought it up.

At present, the entire Ethereum inscription track, except for ETHs, has no other eye-catching existence. Although there are some micro-innovations and the emergence of runes + NFT, most of them are short-term speculation, FOMO wave and then a mess. In addition, the inscription casting craze of new public chains is also lively when it is launched, and the performance of various public chains is tested, but in the end most of them are short-term prosperity. As long as you dare to take over, you will be buried, without exception. As for whether there will be new narratives and new things in the related tracks in the future, we need to continue to pay attention. (Note: FOMO: Fear Of Missing Out, fear of missing opportunities)

Meme, as one of the mainstream narratives in the last round, has produced many phenomenal projects such as doge and shib. In this round, the emergence of PEPE can be said to have further stimulated the activity on the Ethereum chain. In mid-2023, users began to FUD institutional tokens, and the project was launched only to dump their chips. Retail investors are always at the last stick.

Memecoin just solves this pain point. Relatively speaking, it is fairly distributed, community-driven, has no threshold, and anyone can participate . The later popular BRC20 is also related to this. Although many projects are like meteors with extremely high short-term popularity, there is nothing after the popularity passes, and very few projects really succeed, it is indeed a track for retail investors.

06Others​

Apart from the above, the performance of other tracks was mediocre.

In the DeFi track, RWA represented by Maker began to expand outward, but the response was mediocre. The old DeFi represented by Uniswap began to expand inward, making some micro-innovations in technology and launching full-chain expansion plans, hoping to further occupy more market share;

The blockchain game track is completely dead . Although some blockchain games have been launched on other chains, and full-chain games have also been promoted to a certain extent, there is no blockbuster that has completely detonated the market;

In the NFT track, although Yuga Labs has made some efforts in games, the response has been mediocre , and its own NFT has not made much progress this year. Azuki raised 20,000 Ethereums at the end of June, but the final product directly copied Red Bean, draining the already limited liquidity of the NFT market, and the Red Bean series also ushered in a wave of declines. Regarding the NFT trading market, OpenSea has directly shrunk from its previous valuation of tens of billions to 1.4 billion, or even less, and institutions have lost more than 90% . Blur is also constantly eroding OpenSea's market share. Ethereum projects have already occupied the market share. It can be said that it is currently in a red ocean with fierce market competition. It is extremely difficult to make some achievements, but Bitcoin is just the opposite. It can directly copy Ethereum and is a completely undeveloped virgin land.

07 Summary

The above are some of the new innovations in Ethereum that I have noticed this year. Concepts like account abstraction and AI are also under construction, but no phenomenal products have emerged, so they are not listed one by one.

On the other hand, due to Ethereum's recent poor performance, many people began to FUD, believing that the reason is that Vitalik has major problems in the decision-making level of Ethereum's development. The decentralization of tax authority will lead to the separatism of Layer2 princes and the weakening of Ethereum's value capture. Regarding this statement, everyone has different opinions.

Finally, the following things are worth looking forward to about Ethereum: one is the Cancun upgrade, which is good for the second layer; the other is the approval of the Ethereum ETF application after the approval of the Bitcoin ETF.

In 2024, do you think the development of Bitcoin ecosystem or Ethereum ecosystem will be more promising?