The Crossroads of Ethereum: The Dilemma of Fragmentation and the Road to Restructuring

Core Challenges and Future Directions

Ethereum is facing severe challenges. As the Web3 craze recedes and new platforms emerge, the market is questioning its future. Issues such as the fragmentation of Layer 2 networks, a decline in value capture ability, dilution of ecosystem control, and insufficient leadership are weakening Ethereum's user experience and economic value. These factors have led to a sharp correction in the price of ETH.

However, hope still exists. By promoting L2 interoperability, improving infrastructure centered around Ether, and adopting a more decisive leadership approach, Ethereum still has the opportunity to regain its glory. Its solid underlying architecture and vibrant developer ecosystem are lasting advantages, but strategic actions need to be taken quickly to restore the status of ETH.

The market is reassessing the core value proposition of Ethereum. The once-promised vision of a "user-governed decentralized internet" has now been replaced by a more ironic narrative: cryptocurrencies are either a store of value game like Bitcoin or a digital casino. This shift in sentiment has particularly impacted Ethereum, which prides itself on being the cornerstone of the new internet.

More seriously, Ethereum is no longer the sole representative of the Web 3.0 vision. Certain platforms are becoming new hubs for crypto consumption activities. In this context, this article analyzes the strategic challenges currently faced by Ethereum and proposes feasible solutions.

Four Major Challenges

Ethereum faces numerous challenges, among which the four most pressing issues are L2 network fragmentation, declining value capture capability, dilution of ecosystem control, and lack of strategic leadership.

The fragmentation of L2 networks leads to a disjointed user experience, eroding the composability advantages of Ethereum. Users have to deal with different protocols and standards, developers must maintain multiple versions of protocols, and startup teams face complex market entry strategies. This has prompted many consumer-facing applications to turn to other platforms.

Worse still, outsourcing the scaling roadmap to L2 is weakening Ethereum's control over the ecosystem. Over time, the voice of the execution layer may grow stronger, potentially leading the community to overlook the importance of the mainnet settlement layer.

The rise of L2 has also significantly impacted the value capture of ETH, greatly reducing the value flowing back to the mainnet. This has weakened the motivation to hold ETH as an investment asset. Although this is an inevitable trend, Ethereum has experienced this phenomenon earlier due to its earlier practice of the L2 route.

In addressing the above challenges, Ethereum has also exposed strategic leadership deficiencies. The community has long been caught in the trade-off between efficiency and egalitarianism, and the insistence on "trustworthy neutrality" often becomes a constraint on decision-making. ETH holders lack mechanisms to influence significant decisions and can often only express dissatisfaction by selling their tokens.

Strategic Response

There are two paths to resolve the L2 fragmentation crisis: relying on market mechanisms to achieve ecological integration or establishing strong interoperability standards. Ethereum should seize the current window of influence on L2 and promote the latter. By building a unified L2 ecosystem, it is expected to regain the composability advantage.

Relying solely on the narrative of "productive assets" is not a sustainable strategy for ETH. Positioning ETH as the "internet-native currency" and the highest quality on-chain collateral is the most promising direction for the next decade. However, to achieve this goal, Ethereum must regain control of the universal execution layer in the ecosystem and prioritize the promotion of ETH adoption.

Reestablishing ecological ownership can be achieved by enhancing L1 performance and launching Ethereum-native Rollups. This requires a shift from the "ETH-compatible" paradigm to an "ETH-dominant" ecological model, prioritizing direct control over core resources.

Ultimately, the leadership of Ethereum must innovate to address governance and strategic challenges. A stronger sense of urgency and a pragmatic attitude are needed to drive ecological development, abandoning excessive adherence to "trustworthy neutrality." At the same time, a shift to a "ETH-led" new model is necessary to ensure that core infrastructure is unified under a single token system.

The advantages of Ethereum

Despite facing challenges, Ethereum still possesses strong advantages to support its position in the cryptocurrency space:

1. Proven infrastructure that offers unparalleled decentralized security.

2. Forward-looking design, including anti-quantum attack solutions and flexible monetary policy.

3. The largest and most diverse developer community.

4. Modular pathways have made progress in balancing decentralization, scalability, and security.

5. The most customizable technology stack, suitable for vertical scenario applications and institutional adoption.

Market Signals and Future Outlook

The recent price trend of ETH has placed it in a historically oversold range. This severe drop has only occurred six times in the ten-year history of ETH, ringing alarm bells for the entire ecosystem. However, historical data shows that after the previous five similar pullbacks, strong rebounds followed, injecting hope into the current predicament.

To reshape its industry leadership and restore market confidence, Ethereum must immediately address core challenges: implementing L2 interoperability standards, shifting to an "ETH-dominant" ecosystem model, prioritizing L1 scaling and native Rollups, and evolving towards a performance-driven decision-making approach. If decisive action is taken, Ethereum is expected to experience a strong recovery; otherwise, it will face the risk of being eroded by competitors in the market.