Ethereum Faces Challenge of Invisibility as It Evolves to Settlement Layer

Ethereum's evolution has established it as a foundational layer for on-chain finance, enabling programmable money and driving the DeFi movement. However, its increasing invisibility poses challenges.

The risk of becoming invisible infrastructure

Ethereum is shifting towards a settlement layer focused on security and data availability. Key developments like EIP-4844 enhance scalability but reduce user visibility. Users interact with applications built on Ethereum without recognizing its underlying role, risking the network's cultural and economic significance.

What happens to ETH?

ETH's current value relies on transaction fees, staking rewards, and blobspace payments.
Staking yields are mainly derived from inflation rather than actual usage.
If blobspace fees increase, rollups may switch to cheaper alternatives like Celestia.
Low fees could threaten ETH’s economic model and validator interest.
Potentially, ETH may transform into a bandwidth credit or low-volatility bond, diverging from its original vision as programmable money.

Governance gridlock and fragmentation

Decentralization slows progress on major upgrades, causing fragmentation among rollups and Layer 2s. This results in a disjointed user experience across wallets, bridges, and tokens, diminishing user engagement with Ethereum.

The need for a compelling narrative

Ethereum lacks a clear, engaging narrative compared to other cryptocurrencies.
A more defined story is needed to attract users and developers.

What needs to happen next?

ETH should be the exclusive payment method for core services like blobspace.
Shift staking economics from inflation-based rewards to real revenue generation.
Enhance user experience to create a cohesive ecosystem across wallets and applications.
Clearly communicate Ethereum's values and outcomes that resonate with users.

Ethereum’s moment to lead

While Ethereum's decentralization and integration ensure its relevance, failure to evolve politically and culturally could lead to obscurity. It must reclaim its narrative and leadership to maintain its position as a vital player in the crypto landscape.