Forward the Original Title: 🔎Can ETH make a comeback?

This cycle has been very rough for ETH.

In 2022, when BTC was at the bottom of the bear market, many people were talking about how ETH could easily reach $10K in this cycle.

Now, many people seem to doubt that ETH will even reach a new ATH this year.

And you can’t really blame them given the current market sentiment.

As Ignas shared in a recent post, even ETC has outperformed ETH lately.

Don’t get me wrong - I’m a huge fan of the Ethereum ecosystem, but in my opinion, ETH’s underperformance signals a need for some major changes.

I’ll start by trying to answer the following question:

Why has ETH been underperforming this cycle?

No one can know for sure, but I believe these are the main reasons:

• There are now way too many ETH beta tokens

As almost every single Ethereum L2 has launched a token, a lot of Ethereum fans have started choosing to buy L2 tokens instead of ETH.

This significantly decreased the amount of capital that has flown into ETH.

If you’re bullish on Solana, which doesn’t have L2s, you just buy SOL. But if you’re bullish on ETH, there are dozens of ETH beta plays that you can buy.

• Liquidity fragmentation

There are now over 100 Ethereum L2 projects.

While for an advanced DeFi user bridging funds from an L2 to another isn’t an issue, for the average retail investor this process can be a nightmare.

Indeed, transacting on Ethereum L2s is now fast and cheap, but L2 scaling won’t help Ethereum reach mass adoption until the cross-L2 user experience gets better.

• Other L1s have started catching up with Ethereum

Last cycle, Ethereum was by far the leading L1 blockchain across all metrics.

While I believe it still has the best DeFi ecosystem, other L1s like Solana are now regularly surpassing it in revenue and DEX trading volume.

I believe this is partially due to its technological progress.

Ethereum made some great progress over the past years, but some L1 competitors have been advancing faster and are now able to offer a way better UX.

What can be done to make ETH great again?

A few ideas are the following:

• Encourage Ethereum L2s to support ETH by burning a % of their transaction fees
• Cement ETH as the primary asset of the Ethereum economy (Vitalik suggested supporting more the dApps that use ETH as the primary collateral)
• Allocate more resources to solving the L2 fragmentation problem and unifying liquidity across Ethereum L2s (this should be the no. 1 priority IMO)
• Accelerate the development of Ethereum (Ethereum has a very high annual burn rate of over $100M but somehow it’s shipping upgrades at a much slower pace than other L1 competitors)
• Create a sustainable revenue model for the Ethereum Foundation from transactions/staking fees, eliminating the need to sell ETH
• Start scaling the Ethereum L1 too - While it’s clear that Ethereum’s goal is to scale primarily through L2s, I’m pretty that there any many changes that could be made to also scale the L1

I think those could be some significant steps in the right direction.

Over the past years, it feels like the Ethereum Foundation and its community became a bit complacent, which can hurt the project a lot in the long term.

Ethereum is still the leading L1, but other L1 with hungry teams can win the L1 wars if Ethereum doesn’t start adopting a winning mentality.

Fortunately, we’re already seeing a few positive developments, especially from ecosystem projects that are trying to improve the sentiment around ETH:

• MegaETH is building a high-performance Ethereum L2 that aims to compete with highly scalable L1s by supporting 100,000+ TPS
• Eclipse is developing the first Ethereum L2 powered by Solana Virtual Machine to combine Solana’s speed with Ethereum’s high-security
• Ethereum’s next big upgrade called Pectra is coming soon and it will significantly improve Ethereum’s UX by bringing native account abstraction
• Eric Trump is shilling ETH - This leads to the question: Is a US National Ethereum Reserve coming?

The first three things from the above list will certainly increase the Ethereum L2 adoption. But the real question is:

Will they also have a positive impact on the price of ETH?

We will see.

But in my opinion, the most important things that need to be done in order to make ETH go up again are these ones:

• solve liquidity fragmentation (the cross-L2 UX needs to be drastically improved)
• improve the ETH tokenomics (maybe by encouraging L2s to burn a part of their transaction fees as Vitalik suggested in a recent blog post)

Personally, I’m not holding a large amount of ETH at this moment as I prefer betting on other tokens of fast-growing DeFi projects such as FLUID.

But ETH going up would benefit everyone who holds altcoins.

Historically, ETH pumping is what triggers an altseason.

THE FIRST ONDO SUMMIT

Ondo, a leader in Real-World Asset Tokenization, is organizing its first-ever Summit on February 6th, 2025.

Since its launch in 2021, Ondo surpassed $500M in TVL and brought several of the most popular products in TradFi on-chain.

And on February 6th, Ondo Summit will bring together the biggest names in traditional finance and blockchain. The event will be streamed live from NYC.

Why tune in?

• Ondo has confirmed that they will make several major reveals
• This will be the first major event to bring tokenization into the spotlight following the inauguration of Trump
• TradFi Leaders from some of the world’s largest institutions such as BlackRock, Fidelity Investments, and BNY will be among the speakers

I think that Ondo might announce the release of Ondo Global Markets during it.

Ondo Global Markets, which was initially introduced in February ‘24, is one of the most ambitious tokenization projects to date - and it aims to bring thousands of liquid publicly traded securities on-chain.

This could enable a new level of capital efficiency for these assets.

Watch the Ondo Summit livestream on Feb. 6 to learn what’s next for tokenization!

On-chain Alpha🔎

Pendle flipped Uniswap in TVL for the first time ever

Source: DeFillama

Crypto Meme😂

The latest developments in DeFi

Berachain launched its mainnet and the $BERA token

Pendle announced plans to release a funding rate market, enable permissionless listings, and expand to new chains

Frax Finance launched BAMM - a primitive that enables leverage for any token

Chintai announced a $795M real-world asset tokenization deal. Just a few days ago, DPI Capital also chose Chintai to launch their $30M tokenized venture fund

Metamask introduced gasless transactions for Ethereum users

Ondo introduced Ondo Global Markets - a tokenization platform designed to bring public securities on-chain. On top of this, Ondo Summit starts today

Arbitrum team announced the development of a solution to seamlessly connect Ethereum L2s with < 3-second cross-chain swaps

Avalon Labs announced the launch of its AVL token on Feb. 12. Avalon is a popular Liquidity Hub for Bitcoin

Securitize integrated with Solana to expand its tokenized real-world asset solutions

AAVE’s proposal for its deployment on Sonic L1 has passed

Phantom Wallet has added support for Sui

Injective launched Injective’s AI Index, which combines the largest AI tokens and top AI stocks into one on-chain asset

Aptos announced the launch of native USDC on its L1

Bunni v2, the first DEX built on top of Uniswap v4, went live

That’s all for this week!

Until next time,

The DeFi Investor

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