Author: Justin Bons, founder of Cyber Capital Source: X, @Justin_Bons Translation: Shan Ou Ba, Jinse Finance

Ethereum (ETH) is facing a tricky problem: it is unable to sustain high transaction fee revenue due to a lack of scalability. At the same time, the usage and fees of Layer 2 networks are reaching historic highs, while these networks are constantly lobbying to reduce Ethereum's capacity. This situation has gradually evolved into a parasitic relationship, eroding the foundation of ETH.

The imbalance between fee revenue and inflation

Since EIP-4844 (Proto-Danksharding), Ethereum's transaction fee revenue has dropped significantly. The reason is simple: Layer 2 networks are collecting all the fees. As a result, fee consumption can no longer keep up with inflation. L2 is gradually taking over transaction execution, leading to a high inflation rate for Ethereum, far exceeding previous levels.

The rise of Layer 2 not only divides the entire Ethereum ecosystem into competing camps, but also disrupts liquidity and composability, causing the ecosystem to become fragmented. Considering the economic incentives of L2, solutions like shared ordering are simply not feasible in practice, just like L1 scalability. These issues have pushed users towards highly centralized L2.

The centralization and governance dilemma of L2

Today, the top ten L2s have the potential to steal user funds and engage in censorship. Ironically, when Ethereum initially formulated the "L2 scalability" roadmap, it was rationalized in the name of decentralization. However, the reality is that this approach has ultimately become a "bait and switch", placing Ethereum in a centralized decision-making process. The Ethereum community completely rejects on-chain governance, resulting in the effective centralization and control of ETH development.

As L2 currencies gradually dominate the ETH ecosystem, a return to L1 scalability has become impossible. In the hypothetical scenario where Ethereum achieves L1 scalability through new technological breakthroughs, the tokens and equity prices of all L2s would collapse overnight, becoming outdated and useless. L2 is effectively stealing ETH users and fees, pretending to be "part of" ETH, but the reality is far from it. The best case is that they are competitors, and the worst case is that this is a slow vampire attack draining the life out of ETH.

The future direction of L2 and ETH

If L2 continues to migrate or directly becomes the new L1, Ethereum will inevitably decline. That's why in certain cases, we are bullish on L2 instead of ETH. ETH is sacrificing itself for L2, even though it pains the crypto punks. Ironically, ETH is repeating the same mistakes as BTC, heading down the same path of corruption and capture, exposing systemic governance issues.

ETH currently has little hope of recovery, as its leadership has already compromised with L2. Any effort to scale ETH would undermine the capital and fees earned by L2, and venture capital cannot benefit from L1's scalability. These parasites distort public resources into a rent-seeking platform for the venture capital chain, severely damaging Ethereum's long-term development.

Conclusion

In the current situation, Ethereum is undergoing a deep internal struggle. The rise of L2 seems to bring convenience to users, but it is actually eroding the foundations of Ethereum. The ETH community must reevaluate the on-chain governance and scaling roadmap to avoid a path of irreversible decline.