In a charged assertion on X, Justin Bons, founder and Chief Investment Officer of Cyber Capital, one among Europe’s oldest cryptocurrency funds, has voiced a vital view of Ethereum’s present trajectory, asserting that “Ethereum is dying while L2’s dance on its grave.” Bons argues that Ethereum (ETH) is struggling to take care of its price income because of insufficient community capability, whereas Layer 2 (L2) options are capitalizing on this limitation by preserving Ethereum’s capability constrained.
Bons claims, “ETH cannot sustain high fee revenue because it lacks the capacity. At the same time, L2s are seeing record highs in usage & fees while they lobby to keep ETH’s capacity down!” He characterizes this dynamic as parasitic, the place L2s profit at Ethereum’s expense, notably publish the EIP-4844 (Proto-Danksharding) implementation, which Bons claims has precipitated a collapse in fee revenue for Ethereum. His commentary means that the price burning mechanism, meant to offset inflation by making Ethereum deflationary, can now not hold tempo because of the price diversion to L2s.
Is Ethereum Dying Because 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 nearly independently, thereby fragmenting the ecosystem. This fragmentation, in keeping with 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 also pushes the users into centralized L2s. As every single L2 in the top 10 (stopped counting after 10) can now steal user funds & censor. This is ironic, considering that the entire ‘L2 scaling’ roadmap was justified in the name of decentralization… A bait & switch,” 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 total rejection of on-chain governance by the ETH community could only have one outcome: Capture, resulting in what is effectively centralized control over ETH development!” 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 will “crash the token & equity price of all L2s overnight by making them obsolete & unnecessary,” illustrating a battle of curiosity the place L2 entities could desire to suppress L1 developments to take care of their market place.
Contributing to the talk, Pengu Aaron, lead of the ICP Hub Singapore, remarked, “IMO the L2s have to find a way to contribute back to Eth or else we will see a potential collapse in value.” Bons’ response underscored a systemic subject: “L2s only have to contribute back to ETH from ETH’s perspective. From the L2s perspective, it makes far more sense to keep all of that value for themselves. That is the problem as you are setting up a system with opposing & perverse incentives. Making it entirely unfixable & broken.”
In a contrasting view, a consumer named @bowtied3hbt drew an analogy to the United States, the place the federal system permits states appreciable autonomy but stays useful. Bons countered this comparability, highlighting historic conflicts that had been needed to take care of the federation, such because the Civil War, thus illustrating the enforceability challenges in decentralized methods which lack overarching compulsion mechanisms.
“Multiple wars had been fought to maintain the US federation collectively! From the Civil War to the Utah War, to call a couple of. The distinction is that in cryptocurrency, no one can power an L2 to remain on ETH if it goes in opposition to the L2s pursuits. That is 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
