Revisiting Ethereum's Development and Challenges: What Exactly Has Caused Ethereum to Lose Its Momentum?
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Revisiting Ethereum's Development and Challenges: What Exactly Has Caused Ethereum to Lose Its Momentum?
Key opinion leaders and stakeholders in the Ethereum ecosystem are becoming aristocratic, forming an exclusive interest class. The developer ecosystem lacks sufficient incentives, making innovation naturally appear weak.
Navigating Web3 tides with focused insightsAuthor: @Web3Mario
Summary: This weekend, social media was buzzing again with a new round of debates around ETH. I believe this stems from two main factors: first, Vitalik's recent interview with ETHPanda sparked extensive discussions within the Chinese community; second, the persistent underperformance of ETH against BTC compared to SOL has led to widespread frustration. On this topic, I have some thoughts I'd like to share. Overall, I maintain that ETH’s long-term trajectory remains sound—there is no true direct competitor in the market. Within Ethereum’s core narrative of being a “decentralized execution environment,” the key word is not “execution environment” but “decentralized.” That foundational principle hasn’t changed. However, two critical issues are currently holding back Ethereum’s development. First, the Restaking sector has launched a vampire attack on Layer2—the mainstream technical development path—diverting significant resources away from the broader ETH ecosystem. Because Restaking’s core mechanism fails to generate incremental demand for ETH, application-side projects struggle to access sufficient resources and user attention, stalling growth and user education efforts. Second, key influencers and early beneficiaries within the Ethereum ecosystem are becoming increasingly aristocratic, forming an entrenched interest class. This stagnation in social mobility suppresses incentives for developers and naturally leads to weaker innovation.
Restaking’s Vampire Attack on Ethereum’s Ecosystem Resources Leaves the Application Layer Underfunded
I’ve touched on this point before in a previous article, but I’d like to revisit and re-articulate it here.
We know that Ethereum’s official roadmap has always aimed to build a fully decentralized execution environment through sharding—essentially a truly distributed cloud, not controlled by any single party. Applications can bid for computing and storage resources on this cloud, with supply and demand governing resource allocation. Given the complexity involved, sharding was chosen because maintaining 100% redundancy of all data across every node would be prohibitively wasteful. Instead, data is split into segments processed separately, with results aggregated by a relay system.
Due to technical challenges, the implementation approach evolved, and the community eventually converged on Rollup-based Layer2 solutions as the dominant path forward. In this model, applications deploy on individual Layer2 chains, while Ethereum’s mainnet serves as shared infrastructure—providing data finality and acting as a communication relay. This master-slave architecture strikes a reasonable balance between efficiency and cost, reducing operational expenses while preserving strong security rooted in decentralization.
Ethereum also established a coherent business model with a solid economic design for ETH. It transitioned from POW to POS, allowing stakeholders to earn a share of transaction fee revenues in exchange for staking their assets. Additionally, each application chain must post transactions on the mainnet to achieve data finality, which requires ETH to pay gas fees. As long as Layer2s remain active, they indirectly drive activity on Ethereum’s main chain. This enables ETH to capture value from the entire ecosystem.
However, problems began emerging at the end of last year with the rise of the ETH Restaking sector, spearheaded by EigenLayer. The original concept behind Restaking isn’t complicated. Those familiar with DeFi will recognize similar innovations built around idle assets—what we often call “yield layering.” But Restaking goes further: it directly reuses ETH already staked in PoS and offers external execution services, known as AVS (Actively Validated Services). While I appreciate the entrepreneurial creativity here, this trend is precisely what’s causing Ethereum’s current困境 most directly.
The timing couldn’t have been worse. Just as Layer2 technologies matured and settled into stable architectural patterns, the ecosystem should have shifted focus to scaling applications—accelerating product iterations, increasing marketing budgets, and expanding user adoption. Instead, Restaking triggered a vampire attack on Layer2, severing ETH’s value accrual mechanism.
Why? Because Restaking introduces a “second consensus layer” that allows applications to bypass Ethereum’s mainnet—and thus avoid paying ETH-denominated gas fees. Take the most concrete example today: Data Availability (DA) layers. Previously, application chains achieved data finality by posting data on Ethereum via smart contracts, creating consistent demand for ETH. Now, Restaking enables applications to purchase consensus directly through AVS, potentially using *any* asset—not just ETH—to pay for it. As a result, the DA market has shifted from Ethereum’s monopoly to an oligopoly shared between Ethereum and Restaking protocols. This erodes Ethereum’s pricing power and cuts directly into its revenue.
Even more damaging is how these scarce resources—especially vital during a bear market—are being diverted toward redundant infrastructure projects instead of supporting application growth and user education. Today’s lack of vibrant applications is exactly why Ethereum’s value capture system appears stagnant. Anyone who’s run a project knows timing matters. Launching the right product at the right moment is crucial for long-term success. Missteps can stall momentum indefinitely. It’s truly regrettable.
That said, this issue is somewhat inevitable and understandable—it reflects a fundamental challenge of decentralized governance: fragmented authority reduces efficiency. In a distributed, permissionless system, anyone can pursue their vision and compete for resources. During bull markets, this fosters rapid innovation and broad value creation. But in bear markets, where competition shifts to zero-sum resource battles, the absence of centralized coordination leads to misaligned priorities and stalled progress. Contrast this with Solana, which operates more like a centralized company. Its top-down structure enables faster decision-making, quicker response to trends, and more focused execution—explaining why Memecoin Summer flourished there.
Ethereum’s Key Influencers and Early Beneficiaries Are Becoming Aristocratic, Creating a Closed Caste That Stifles Developer Incentives and Innovation
There’s a noticeable absence in the Ethereum ecosystem: a lack of proactive, charismatic thought leaders like those seen in Solana, AVAX, or even the former Luna ecosystem. While such figures are sometimes criticized for fueling FOMO (fear of missing out), there’s no denying their role in building community cohesion and boosting confidence among startup teams.
In Ethereum’s case, aside from Vitalik, few other influential voices come to mind. This stems partly from the early team’s fragmentation but also reflects deeper structural issues—specifically, class stratification. Early participants have captured disproportionate gains. Imagine having taken part in a fundraising round worth 31,000 BTC (worth over $2 billion today)—and that’s before accounting for the broader wealth accumulated within the Ethereum ecosystem.
Given such windfalls, many early insiders naturally shift toward conservative strategies. Why take risks when you can preserve wealth? Stability becomes more appealing than expansion. To minimize risk, they grow cautious—opting to protect existing positions rather than push bold new initiatives. For instance, why champion new projects when you can simply safeguard AAVE’s dominance and lend your vast ETH holdings to leveraged traders for steady passive income?
Yet despite these challenges, I remain confident in ETH’s long-term outlook. There is no real competitor in the space. Ethereum’s identity as a “decentralized execution environment” hinges far more on “decentralized” than “execution environment”—and that foundation remains intact. So long as the ecosystem can realign its resources and refocus on building compelling applications, Ethereum’s future remains bright.
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@web3_mario
