Why the ETH Price Has Been Stuck for Five Years

Transcript

So, as I'm sure you're very well aware, a lot of people in the community are unhappy that Ether, the asset hasn't been performing so well. Um, famously, David Hoffman kind of gave up on ETH and yet he I saw his name on uh the list of supporters of ETH Labs, which was interesting. Anyway, tell us what you view as the problems with Ether, the asset. >> Yeah. Um, and I actually Yeah. um what went on on on David's podcast just the other day to to specifically like try to have him reconsider and I think we were somewhat successful. Um basically I think

I think I think it is important to start by zooming out a bit right like um I actually like now this was two days ago three days ago already when I was on um coin market cap and and had a look and um if you if you if you ignore the stable coins I think out of the cryptonative assets I think there are only eight coins left with a market cap cap above 10 million 10 billion only eight coins above 10 billion um and only two coins above hundred billion, right? Like obviously Bitcoin and Ethereum um Bitcoin and Ether. Um and I I was a bit shocked actually with the with the number only eight and um and so I think that puts it a bit into perspective like

Ethereum and Ether have been very very successful. Now the problem and the problem for sentiment and and I share that is that Ether had that success 5 years ago, right? Like Ether has been in this category hundred billion dollars plus for five years. And so basically it won round one. It it it really had a lot of success, but basically ever since it's been it's been waiting for what what what what else is there like what more is there for for Ethereum for Ether to to go? And I think I think we've been failing so far to really clearly outline um what is the role for ether that would justify a valuation above that type of category, right? Um um Bitcoin is the only one above a trillion. There's

really very very few trillion dollar assets in the world. Um what is the type of project that uh the type of role that would justify Ether to join that category? Um and I don't think it's it's impossible. Um I think the problem has been that the relationship between Ethereum and Ether has been just very vague and very like undefined for for a long time. People keep asking this and in the early days that didn't matter so much. Uh I think in the early days coins were just sentiment trades anyway, right? Like it's just like ah I'm excited about Ethereum. I buy some ETH.

Um but now of course people are getting more more sophisticated. H markets are getting more sophisticated. And so um the question is what is the actual value story here? like where does the value of east come from um and so on and um now that's a long intro to then say I don't I'm not here today to have like a perfect answer for for you on like what what is the role of ETH what what what is like what is the value story of ETH I think that's also that would I think be a bit naive right like to to think that that would be easy to to just to just oneshot I think the the much more important thing is that it's time now that these questions are properly like centered in the community, centered across the the code of space and that we

have a have a clear answer, we have a clear story and as we are keep evolving and designing Ethereum, we do this with a clear role of ETH in mind and that that can be all kinds of different answers, right? Like again like I'm not I don't I'm not partial to a specific answer here for now and but we have to be much more intentional about this and um so really ETHLab's position on ETH for now is really just this need for intentionality like we really just for now we we're here just to to to say that while as Ethereum is being evolved as Ethereum is being designed um there needs to be intentionality around the role of ETH. Um and so this is part of our mandate that we that we set for ourselves is that um in our work we will be intentional about the relationship.

>> So there was a time period when the price of ether was related to activity on the L1. Do you still feel like that is a good way conceptually? You know we can leave the mechanics aside but do you feel like conceptually that that's a good way to approach it? Well, I think I think it is a piece of the story, right? So I think the the the story back then was just very simple like you could you could very easily point to okay how is activity on the L1 useful for ETH because it is directly like it's directly uh acrewing the value through the burn to to ETH and now you can then still make the case ah but actually maybe we want monetary premium

and so so you can once you have the basic value acrruel story right you can then have have a more ambitious story for your asset but um but but the basic story was very clear there was a lot of demand and it was directly healthy Um I think in a future where we get the relationship between the L1 and the L2s right I think there can be many many activities beyond just the L1 that can be very healthy for ETH right there can be uh for example um usage of ETH in various ways as collateral in in different roles across the Ethereum ecosystem. Um just by the way as a small point there as an example um it's almost ironic today ETH in a way has the worst interop properties of any asset in the

in the um um Ethereum ecosystem and the worst meaning it shares this with many of the other assets but basically like there there's many of these assets that can directly teleport teleport from chain to chain right like if you if you use USDC um and via CCTP you can just instantly hop from one chain to the next with your with your USDC with your ETH you cannot not um that seems like a problem, right? Like how is it that ETH the native asset of the system does not have the best properties into our properties, right? And so like if I if I design my markets, of course it's it's much more convenient to actually like base everything off of the assets that are that have the best most convenient properties for me available. So it it's as simple as in some in some places, right? fact that this is just a small

piece of the story but in in in some places it's just as simple as making sure that ETH is a first class citizen as we for example look at the the the etheric system as a whole and then similarly on the L1 as well what is the role of ETH um is it is it just the the the transaction mechanism is it the burn and of course that that always is a big trade-off right like a big reason of why people basically like left Ethereum and and and and felt the need to to also help start these other ecosystems specifically was because of the high fees. So it's that that that that particular mechanism has is is want us to be very nuanced about but again I feel like I'm maybe it's it's unsatisfying answer but I think it's just it's really just about taking the consideration of ETH role

seriously that that that is the first step and then there are many other steps necessary but just like I feel like people kind of skipped step one and so again we are just here for step one >> and what do you think about the criticisms that Ethereum gave away blockspace that too cheap a price and that basically the L2s should pay more in fees. >> Yeah, I think that is a plausible characterization though I I would put word it slightly differently. I think I think again to me it's always a lack of intentionality. So like if we look back the fee burn was also not never intentional right. So 1559 is in principle just a scarcity management

mechanism. So um we have limited block space on the L1 and that's in a way a a failure of the L1. Right? So now we are scaling Ethereum block space but the the fee that we're charging for transactions is is purely a a congestion pricing fee. So and only if there's too much demand from the for the L1 does the price go up and only then does the burn go up. That's very different from any normal product in the real world where there is sometimes there's a congestion pricing mechanism on top but there's always some sort of reserve price some sort of minimum price and that that you get charged that that accounts for for usability. That's not how Ethereum has done things. And so we we use the same mechanism for data as well. So data as well does not have a reserved price on

Ethereum. It basically is like only if there is congestion only if there is insufficient supply of data would we charge a higher price. and and we've only ever occasionally in Ethereum's history seen that. But again, this is not in that sense a failure because the system was never designed to charge specific fee amount. It's really just that there was no intentionality around fees. Do we want to charge fees? How much fees do we want to charge? What about like the um um the uh ability to charge fees if activity happens on the L1 versus the L2s, right? Like so basically like and how much fees could we charge if we wanted to? Um all of this has just been falling out of the mechanism as a purely technical mechanism, not as an economic

mechanism. And so just revisiting this and now just asking the question, okay, let's just be intentional. What what should Ethereum's optimal fee level be? And maybe that optimal fee level is zero or close to zero. That could be a choice we make, but we should make it as a choice and it should not just fall out of the technical uh decisions that are being made um without intentionality. >> You just caught a piece of Unchained. I'm host Laura Shin and the full conversation is in the description below. We go live every Monday and Thursday. Subscribe so you never miss it. Fidelity has been researching and investing in blockchain since 2014, long before it was a headline, and they're hiring crypto and DeFi professionals to join their team and discover what's next

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