In a charged assertion on X, Justin Bons, founder and Chief Funding Officer of Cyber Capital, one among Europe’s oldest cryptocurrency funds, has voiced a important 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 keep up its payment income resulting from insufficient community capability, whereas Layer 2 (L2) options are capitalizing on this limitation by conserving 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 file 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 now not hold tempo because of the payment diversion to L2s.
Is Ethereum Dying As a result of Of L2’s?
Bons argues that this state of affairs 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, at the moment are working virtually independently, thereby fragmenting the ecosystem. This fragmentation, in response to Bons, is breaking apart liquidity and composability, essential components 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 person funds & censor. That is ironic, contemplating that the whole ‘L2 scaling’ roadmap was justified within the identify of decentralization… A bait & swap,” 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 whole rejection of on-chain governance by the ETH group might solely have one end 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 value of all L2s in a single day by making them out of date & pointless,” illustrating a battle of curiosity the place L2 entities could desire to suppress L1 developments to keep up their market place.
Contributing to the talk, Pengu Aaron, lead of the ICP Hub Singapore, remarked, “IMO the L2s must discover a technique to contribute again to Eth or else we’ll see a possible collapse in worth.” Bons’ response underscored a systemic challenge: “L2s solely must contribute again to ETH from ETH’s perspective. From the L2s perspective, it makes way more sense to maintain all of that worth for themselves. That’s the drawback as you might be organising a system with opposing & perverse incentives. Making it solely unfixable & damaged.”
In a contrasting view, a person named @bowtied3hbt drew an analogy to the US, the place the federal system permits states appreciable autonomy but stays practical. Bons countered this comparability, highlighting historic conflicts that had been needed to keep up the federation, such because the Civil Struggle, thus illustrating the enforceability challenges in decentralized techniques 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 couple of. The distinction is that in cryptocurrency, no person can power an L2 to remain on ETH if it goes in opposition to 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
