The Ethereum Roadmap Wars | Will Ethereum Win?

Bankless Nation, it's time for another Bankless Takes. We haven't done one of these in a while. And just as a reminder, these episodes are just like David and my pure unadulterated takes. Like take 'em or leave 'em. I mean this is just how we're feeling, what we're thinking at the moment. Uh not investment advice. You you have any more disclaimers for uh the Baker Station here?

I I think the vibe is like Ryan and I do a ton of podcasts together, and then we need to reflect on the podcast that we've done over recent times. And so the banklist takes is just kind of like a moment to for me to ask Ryan, hey Ryan, what'd you think about the things that we've learned over the last month? And

Yeah.

for Ryan to ask me the same.

Well, so the topic today is the Ethereum roadmap wars, which I feel like we've been talking about since probably June or so. And it's it's part of this uh this larger feeling that uh within crypto, and this is a sentiment type feeling, uh, that Ethereum is losing, that the roadmap is has gone astray, that competitors are catching up, that Ethereum and Vitalik Buterin need to get war time serious and Ethereum

Itself is perhaps off track.

Yeah, and we can

We need to reconsider what track that we're on.

And uh so we have evaluated this position. Uh we've we've heard many of the the Ethereum bears uh take this position, even some folks that are internal to Ethereum inside the community who are also taking this this position. So I feel like now we've we've considered this position and we've considered the um you know like the counter evidence and the counter-arguments. So it's like maybe time to just talk and regurgitate. So this is about the Ethereum roadmap wars and where we are and what we think about them and how they resolve and why I don't know about you, David, but why I at least am still bullish Ethereum.

And of course, we're not the only ones that are considering this. I would say the Ethereum community at large is considering this. And so uh even though some people are saying, hey, like actually the path that we're on, some people are saying that the path that we're on is just the correct path, it is still being articulated now differently as a result of the conversations. Uh so I think collectively there's been some processing uh about the conversations that have been h held. Uh so we're gonna get into all these conversations, but first a moment to talk about our friends and sponsors over at

All right, let's get to the main event here and talk about uh the roadmap wars, the Ethereum roadmap wars. And I think we should begin this conversation to kind of recap the criticism so far.

Define the Problem.

Yeah, let's let's collect the criticisms and uh the sentiment so far and let's do a good job of this, David. Let's steel man the case. And basically, if I were to summari summarize the the uh sentiment and hyperbole, it's kind of like Ethereum is dead. It's being uh squeezed, it's being outflanked, it's being squeezed on one side by you like Bitcoin as a you like better monetary asset, and the other side by more we use alternative.

Yeah, exactly. Uh and on the other side, by all of these um alternative layer ones that are kind of like fast uh layer ones, which the cycle starling has been uh slon up to this point. So it's being out flat, flanked, is being squeezed. And I think there are maybe three reasons for this, at least categories of reason that I want to bounce by you. And then David, you and I should do a a good job of like, I want to do a good job of steel manning the case here to get us um up to speed. Uh so the first is this it's an overall sentiment that Ethereum doesn't have a North Star. So, you know, some of the other communities, like Isolana, for instance, is NASDAQ on-chain. That's the vision. That's our North Star. That's what we're trying to build to. Well, what's Ethereum? Can you articulate it? It's not digital gold like Bitcoin, is it? Um, that's the purpose of Bitcoin. Everyone kind of knows that. It doesn't have a like one line quip. Uh, you know, other alternative layer ones, it's all about fast finance, Bitcoin, the digital gold. Competitors just have a better North Star. So this is kind of the collection. This is almost a vibe based narrative type of uh critique here. Uh, and like that's that's the first.

The second big criticism is uh Ethereum's roadmap, the creation of layer twos are creating these parasites. Uh layer twos are parasitic to Ethereum. Ethereum, the layer one, once upon a time, created a ton of value. It created a ton of ETH burn. Uh, it created a ton of revenue for stakers. And now, since the emergence of layer twos and the migration of activity onto layer twos, uh, a lot of that value capture has started to approach zero. It's gone down quite a bit. Uh ETH has been actually inflationary year over year. Uh DeFi activity has migrated onto layer twos. Uh, there is less ETH fee capture for uh Ethereum on the layer one. Uh and also layer twos are just they're actually just distinct blockchains. Uh, you know, centralized sequencers, completely like differentiated block space. Uh, and so, you know, the base, we we report on this on the weekly rollup uh pretty frequently, base is making a ton of revenue, and that revenue is going to Coinbase. Arbitrum is making a ton of revenue, and that are that revenue is going to the Arbitrum Dow. And uh and in that same era in which the profits of layer twos are very large, those profits are coming out of the profits of the of the Ethereum layer one, as evidenced by the net inflation that Ethereum has had year over year.

Yeah, and I think um the data sort of backs uh at least to some of what you just said, but there's less fee capture for Ethereum. You you said base is kind of making all the margin. They're not really passing much onto ETH holders in the in the form of uh like a burn or you know cash flows for if you're a holder of ETH. And then there is something to the case that L2s, you know, the Ethereum community has been saying, hey, L2s are Ethereum. And they're right in one sense, but they're also like not correct in another sense. In one sense, I think they're they're right that um L2s are part of the Ethereum ecosystem, part of the Ethereum economy. You know, I I think there's maybe lots of reasons to think they are net good for Ethereum, the network, but it's also not quite interchangeable. You know, the block space on something like base, if it's a uh, you know, stage stage zero or or stage one, is not does not quite give you the same uh security and uh settlement assurances as something on mainnet. It doesn't. And the the reason why is because it's not all the way, you know, stage two. So there is uh some potential ability to kind of like um you know, like for a uh you know centralized actor to basically do something nefarious. And I would

I would also even add to that, even if base did become a stage two, it still wouldn't be Ethereum. Like these are block spaces, they're just different. They're different blockchains. They're not the same thing.

They they they are different in a fashion. And also, you know, the uh sequencer is is centralized, right? So so that's another uh piece of the puzzle here. So I think that like there's some truth in b in in the idea that uh layer twos are not Ethereum, and also there's truth that layer twos are Ethereum. And so like this subtlety is

semantics. It's

What is Ethereum is up for debate.

Okay, so we don't know the roadmap. Ethereum doesn't have North Star. These L2s, they're looking parasitic, at least in the short run, to ether the asset. And then this third one is uh Ethereum is fragmented. What do people mean by that? And we started talking about this uh earlier in the year with a like fixing fragmentation uh series, but uh what is the main criticism with Ethereum feeling fragmented?

Yeah, so the Ethereum roadmap, which is to eventually produce hundreds of thousands of transactions per second, if not millions of transactions per second. And we are achieving that scale by having a collection of scaling zones that when you add them up, can maybe we can get to a million transactions per second. But maybe that's because you actually add 10 different roll-ups that each have a hundred thousand transactions per second, and then you add them in aggregate to get to a million transactions per second. And that is fragmentation. It's not exactly what people thought about scaling to a million transactions per second. People want a million transactions per second, like on the same network in the same spot, in the same shared state. Same line. And so this whole multi-chain UX has emerged, uh, bridge hopping, you know, using a cross to go from one chain to another, which takes time. Uh, it creates like derivative assets. So there's like Arbitrum USDC, there's optimism USDC, there's optimism ETH. And you can like accidentally bridge over like an optimism derivative token onto Arbitrum, and then it's another derivative token, but then that token is also on the layer one and it's a different one. And so this fragmentation emerges. Uh, and it's just a terrible UX. Uh also liquidity fragments, like when everything is in the same Uniswap pool, liquidity is much better. But when we have like 20 different implementations of Uniswap across many different chains across Ethereum, that's just like it provides poorer execution. It's literally a worse financial product. Uh, and then

In addition to all of that, in addition to the fragmentation, like some of the best places to execute your DeFi trade or to do your activity are just somewhere somewhere else that you are not. Uh, and then you need to go take steps to get there. Uh and it doesn't really feel some people are saying, well, this doesn't count as scaling.

If you have if you need to add in many, many net many networks in order to get a million transactions per second, that doesn't that shouldn't actually count. It should actually just be less this one seamless network. And we scale that to a million transactions per second. And that's not what Ethereum is doing. So that's kind of like the whole Ethereum is fragmented concern.

Yeah, the wallet UX really hasn't caught up to this, right? It's kind of like messy. I mean, you know, that that can catch up, but that this lived people's lived experiences is every layer two feels like sort of a separate chain and you're like, you know, starting kind of from scratch. I'll also add to this this feeling of like, well, you know, in the old days, when somebody was getting on chain for the first time, you had one place to direct them. Just come to Ethereum, right? Well, now where do you direct them? Where do I start? Do I start on base? Do I start on Arbitrum? Do I start on like ZK Sync stack? Or if I'm a developer, where do I deploy my application? I have all of these different chain options. It's no longer simple as it was in the in the days where there was one Ethereum chain and one mainnet. So from that perspective, it's fragmented as well.

Yeah. Application developers don't want to also have to make a bet on the which they which horse they think is the fastest in order to deploy the app. Their app, they just want to deploy an app.

Okay, so all of this, critics will say, explains this chart that I'm looking at. This is the uh Bitcoin uh ETH Bitcoin ratio, and it has been going down for the last year since the beginning of the year and the last two years, right? And so this is Ethereum being being squeezed by Bitcoin as a you know like a monetary asset. And then on the other side, if we were to look at the um ETH sole ratio or the sole ETH ratio, right? That would be in the opposite direction. So Sol, Solana, and some set of alternative layer ones have appreciated uh relative to Ether over the past like year to like 24 months, um, you like some rather significantly. So this is an example of evidence for everything you just said. So, you know, the criticisms that we just you like said, well, the market agrees with it because look at what you like, what's happening in the market, and um it looks like Ether, the asset, is being squeezed be between other uh assets.

And also importantly, like you're actually getting this, you know, ETH B2C ratio from Max Resnick, who is explaining that this is evidence as to like why the current Ethereum plan is actually failing. Uh this is a is in a Twitter thread that says in a competitive environment with network effects, we cannot afford to tank for years and cross our fingers it didn't work for polka dot, it did not work for Cosmos, but maybe it might work for us. And he's saying, no, they didn't work for them, it's not working for us. That's why we need to scale the layer one. Uh and then his evidence for this is the ether Bitcoin ratio. And so people are excusing Pride, but like clearly price is down, therefore something is wrong.

Yeah, and I think we've had a number of guests that have made this case. Max Resnick is one. There's somebody by the name of Brett on Twitter who's just like very active in this space. And John Charbonneau. And some of those uh characters, I would say, are sort of inside the community, inside the house. They're they're working on uh Ethereum-related projects or sort of traditionally friendly to Ethereum. They've made the case and have some compelling arguments around this. We've also had those that are like, you know, tr traditionally very antagonistic to the Ethereum community, people like Kyle Simani, obviously, you know, making these claims, maybe for different reasons, people to argue. But um there have been some pretty good articulations of these claims. I guess let me just ask you, while we're in the steel man zone right here, of those three, Ethereum doesn't have a North Star, L2s are parasitic, Ethereum is fragmented. What do you think are the like the most compelling? Like what are what are the most accurate uh you like takes out there? And what are the sort of the you know most compelling arguments?

Probably in the reverse order that we articulated them. So starting with Ethereum is fragmented, that is a real problem that needs to be addressed head on. Layer twos are parasitic to ETH. I'm not going to call a problem, although it is worth noting the changing economics around Ether, the asset, uh and and just paying paying attention to what's going on there. And I think we'll uh circle back around to that part of the conversation later in this episode. Uh Ethereum doesn't have a North Star, I think is actually the weakest. Um people like their memes. So like Solana's Nasdaq on-chain or decentralized NASDAQ uh vision is like easy to articulate. Uh, but I also think just like it's one of those things where like if you optimize for decentralized NASDAQ, you accidentally are ignoring some things and then you actually will just walk yourself off of a cliff because you ignore those things. Um Bitcoin is digital gold. Bitcoin has also been very always been very simple, and so it's very easy to meme. Ethereum has always gone for like one of the more complex visions, the most complex roadmaps. But that doesn't mean it's wrong. Uh and just because you can't consolidate like a roadmap into a meme uh doesn't at all mean the North Star isn't there.

Yeah, one one thing I'd say, right may I might phrase it a little bit differently rather than complex roadmaps, I might say ambitious roadmaps because when you look at the Ethereum roadmap, it truly is uh ambitious. And and let's pause while we're we're still talking about this and acknowledge kind of a like a counterpoint to all of this, because I want to acknowledge this because I I want to get your assessment of how much of a factor you think this is actually playing in this. And this is an alternative explanation for all of the criticism and sentiment. ETH is dead, ETH is being squeezed, ETH is being outflanked that we just heard above, is basically, David, this price drives narrative. All right. And so, like, we are uh only talking about this, and we only have this level of of criticism and sentiment because ETH price is down. And so we're we're looking for an explanation. Do you like Tradfy Media does all this all the time? If you if you go on CNBC, stock market's down. There's always like you know, 20 analysts who have the reason why the stock market is down.

Subjacent reason to like why the price moved in the way that it moved.

And sometimes it is related to that move. Um, but like a lot of times, it's just part of the random walk of like markets, right? Just like markets go up, markets go down. They don't perfectly reflect um all of kind of the accurate fundamentals. And so some people would say the only reason these criticisms are actually being surfaced is just because ETH price is down. And this is all cyclical. This is short term, this is not long run. And the conclusion is just be patient, just just wait. And some within the Ethereum community can are basically saying, well, all of these criticisms, David and Ryan, why are you even platforming them on Bangladesh? They can be safely ignored. Like, just ignore them. It's just FUD. And just like, you know, don't worry about it. What's your what's your take on that? To what extent do you think that is uh factoring in here?

Well, the ETH BTC ratio has been down for two years. So at some point you have to ask yourself, well, how random of a walk is this? Uh like two years of a random. I I do agree. I do agree with the point that like we are I I've actually kind of said this in a various capacities, and people have disagreed with with me with me, but like we're in a bear market.

We're in a bear market. Uh maybe we're not in a bear market of prices, which yes, that's technically what a bear market would be. But like we're in a bear market of like user adoption. We're in a bear market of mainstream attention. Uh no, no,

Or at least we're not in a bold market, you would

we're definitely not in a bull market, right? And so inside of this kind of like insular two years of crypto, of which there has been not any new users since 2022. 2022 was the last time we got new users, really. Like maybe people got pulled into meme coins, but not really. Uh and so inside of that environment, we haven't had any fresh new blood. We don't know what the outside consumers want. And so

I think there there is some credence to the idea that like you can kind of random walk pretty far inside of that void of a adoption bear market. But nonetheless, two years is like a long time for a walk.

I think it's irresponsible to say that. Uh, because uh Max Resnick in my debate with him and at Permissionless made this point where like, uh, maybe, maybe prices are down. Uh

Because of this third thing, which is that the actual roadmap is off track.

Right? Maybe the roadmap is off track. Uh, maybe, maybe the fragmentation and the prices are actually related to each other. Maybe those are down because of the same thing for the same reason. And I think like if we want to be proactive and not rest on our laurels uh and lean into the fact that, like, yes, Ethereum has a roadmap. We need to execute change. Uh, and we have the opportunity to consider the changes that we are executing uh and reevaluate them on a case by case basis. We are not Bitcoin.

We are not setting a North Star at the very genesis of our network and then tunnel visioning our way there. We are considering steps along the way. We pivoted the Ethereum roadmap pretty heavily in 2019. Uh, we have this option to like consider the choices that we're making. And so therefore, we should do it. And as two years of a downtrend, of a uh price downtrend in the Bitcoin ether ratio continues, we should be considering that more over time. And so at some point, price does become signal, not noise.

U You were talking about the Bitcoin ETH uh the ETH Bitcoin ratio, but how about the the sole ETH ratio as well or other alternative layer ones? Do you do you s do you would you say the same?

Yeah. So the sole ETH ratio has been going up for one year. The ETH Bitcoin ratio has been going down for two years.

And so yeah, we are you are seeing signal on different corners of the crypto industry.

I mean, I have to agree with you there. I I think that it it would be unwise and just like not in the best interest of Ethereum to just ignore all criticism and dismiss it as FUD. Like it at least you have to um like look at that criticism and see where the merits are and steel man the case and then kind of like assess. Although I will say like it could be up to 70% of this is like actually, you know, price driving narrative here. And we'd be having a very different conversation if price was in the the the other direction. And so there might be something like going on and there might be some merit to that, but I'm just like not in a place to uh like ignore that. Well, like why would you do that? What what you then create is kind of a you know a uh environment and a culture that is like immune to all criticism and you never pivot and you never change and you never adopt and learn. And I don't think that is a good place for um like uh a crypto network to be. Well, one other thing I'll add to this is I think there's some unrealistic expectations out there as well. There's actually something that Kyle Simani said in our conversation that I somewhat like agree with. He's like, you know, uh ether is a $300 to $400 billion asset right now, okay? And so like last cycle, uh 40x gains from the bottom to the top, you know, like 100 to you know, 4,500, something like that, which was the ETH, it rose that much. You can't get 40 cyc if 40x gains every single cycle. It's just like it's too big. And so I think that there are some people that are first cyclers, and they're looking at ether the asset, and they're like, okay, I hear what you're saying about ether being a good asset, but it's not going to like make be life changing money. And the reason I came to cryptos is life changing money. And so, like, I think that there's some mismatch there with.

I don't know if that's valid because that is a US dollar anchored price reference point. And the angst coming from the Ethereum community is coming from the ratio of market caps compared to Bitcoin and Solana.

Okay, but so I would say it's more accurate for the um the uh sole ETH ratio and like the lower market cap alternative layer ones. Like

basically your base case should be uh a hot L1 that's an alternative to Ethereum is gonna pump more than Ethereum this cycle in any bull market environment. It just has to, because it's coming off a floor of like five to twenty billion or something like this, right? I mean Solana,

Eight billion when Solana created

it was so it was so oversold.

solo.

Right. And so you're coming off that bottom and it's a much smaller market cap asset. So of course it makes sense. Now, I will agree with you though, David, that you'll you can't waive the the Bitcoin Bitcoin ratio.

It came off of four billion.

Exactly. Correct. And what ETH probably didn't drop uh below what, you know, 200 billion or 150 billion or something like that. Right.

Yeah.

So like when your floor is 4 billion, of course you're gonna like

Fifty, yeah.

have much more upside potential. But but you are right in that it doesn't um like you know, that argument doesn't hold sway with the the ETH Bitcoin ratio. The fact that Bitcoin has been overperforming is like um like significant. Anyway, um I guess we're both of the opinion that we can't just you know like uh dismiss all of this as fuck.

Approach things head on. You do hard things. That that's generally the most proactive thing. That's just general life advice. It's just like don't ignore functionality.