In a charged assertion on X, Justin Bons, founder and Chief Funding Officer of Cyber Capital, one in every of Europe’s oldest cryptocurrency funds, has voiced a vital view of Ethereum’s present trajectory, asserting that “Ethereum is dying whereas L2’s dance on its grave.” Bons argues that Ethereum (ETH) is struggling to take care of its payment income on account of insufficient community capability, whereas Layer 2 (L2) options are capitalizing on this limitation by protecting Ethereum’s capability constrained.
Bons claims, “ETH can not maintain excessive payment income as a result of it lacks the capability. On the similar time, L2s are seeing document highs in utilization & charges whereas they foyer to maintain ETH’s capability down!” He characterizes this dynamic as parasitic, the place L2s profit at Ethereum’s expense, notably put up the EIP-4844 (Proto-Danksharding) implementation, which Bons claims has precipitated a collapse in fee revenue for Ethereum. His commentary means that the payment burning mechanism, meant to offset inflation by making Ethereum deflationary, can not hold tempo as a result of payment diversion to L2s.
Is Ethereum Dying As a result of Of L2’s?
Bons argues that this situation has created a “parasitic relationship” between Ethereum and its L2 counterparts. He believes that L2s, whereas designed to scale Ethereum’s capability by dealing with transactions off the principle chain, are actually working virtually independently, thereby fragmenting the ecosystem. This fragmentation, in keeping with Bons, is breaking apart liquidity and composability, essential parts that facilitate seamless operations throughout the Ethereum community.
The shift in direction of L2 options, in Bons’ view, has led to an increase in centralized tendencies inside platforms that had been initially promoted as decentralized. “This additionally pushes the customers into centralized L2s. As each single L2 within the high 10 (stopped counting after 10) can now steal consumer funds & censor. That is ironic, contemplating that the complete ‘L2 scaling’ roadmap was justified within the identify of decentralization… A bait & change,” Bons elaborated.
The critique extends to the governance mannequin of Ethereum, which Bons claims eschews on-chain governance resulting in what he perceives as centralized management over its growth. “The full rejection of on-chain governance by the ETH group might solely have one final result: Seize, leading to what’s successfully centralized management over ETH growth!” he asserted, suggesting that this governance mannequin has enabled L2 entities to exert disproportionate affect over the community.
If Ethereum had been to scale on the L1 degree with new technological breakthroughs, Bons speculates that it could “crash the token & fairness worth of all L2s in a single day by making them out of date & pointless,” illustrating a battle of curiosity the place L2 entities might desire to suppress L1 developments to take care of their market place.
Contributing to the controversy, Pengu Aaron, lead of the ICP Hub Singapore, remarked, “IMO the L2s need to discover a approach to contribute again to Eth or else we’ll see a possible collapse in worth.” Bons’ response underscored a systemic difficulty: “L2s solely need to contribute again to ETH from ETH’s perspective. From the L2s perspective, it makes much more sense to maintain all of that worth for themselves. That’s the drawback as you might be establishing a system with opposing & perverse incentives. Making it totally unfixable & damaged.”
In a contrasting view, a consumer named @bowtied3hbt drew an analogy to america, the place the federal system permits states appreciable autonomy but stays practical. Bons countered this comparability, highlighting historic conflicts that had been vital to take care of the federation, such because the Civil Struggle, thus illustrating the enforceability challenges in decentralized programs which lack overarching compulsion mechanisms.
“A number of wars had been fought to maintain the US federation collectively! From the Civil Struggle to the Utah Struggle, to call a number of. The distinction is that in cryptocurrency, no person can power an L2 to remain on ETH if it goes towards the L2s pursuits. That’s the place your analogy completely falls aside!, Bons concluded.
At press time, ETH traded at $2,687.
Featured picture created with DALL.E, chart from TradingView.com