In a charged assertion on X, Justin Bons, founder and Chief Funding Officer of Cyber Capital, certainly one of 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 take care of its payment income as a consequence of 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 report 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 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 nearly independently, thereby fragmenting the ecosystem. This fragmentation, in accordance with Bons, is breaking apart liquidity and composability, essential parts that facilitate seamless operations throughout the Ethereum community.
The shift in the direction of L2 options, in Bons’ view, has led to an increase in centralized tendencies inside platforms that have been initially promoted as decentralized. “This additionally pushes the customers into centralized L2s. As each single L2 within the prime 10 (stopped counting after 10) can now steal person funds & censor. That is ironic, contemplating that your entire ‘L2 scaling’ roadmap was justified within the title 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 improvement. “The full 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 improvement!” he asserted, suggesting that this governance mannequin has enabled L2 entities to exert disproportionate affect over the community.
If Ethereum have been to scale on the L1 degree with new technological breakthroughs, Bons speculates that it might “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 could want 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 must discover a option to contribute again to Eth or else we’ll see a possible collapse in worth.” Bons’ response underscored a systemic concern: “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 downside as you’re establishing a system with opposing & perverse incentives. Making it fully unfixable & damaged.”
In a contrasting view, a person named @bowtied3hbt drew an analogy to america, the place the federal system permits states appreciable autonomy but stays purposeful. Bons countered this comparability, highlighting historic conflicts that have been essential to take care of the federation, such because the Civil Warfare, thus illustrating the enforceability challenges in decentralized programs which lack overarching compulsion mechanisms.
“A number of wars have been fought to maintain the US federation collectively! From the Civil Warfare to the Utah Warfare, to call a couple of. The distinction is that in cryptocurrency, no one 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
