This article is translated from the Ethereum ecosystem community ETHTAO podcast: "ETHTAO: Is Ethereum over-punished? What if you join the foundation?" ETH is an Ethereum community built by a group of early Chinese OGs of Ethereum, dedicated to spreading Ethereum culture to the Chinese community and using technology to participate in the construction of the Ethereum ecosystem.

<Dialogue Guests>

Fatbro: A serial entrepreneur in the Ethereum ecosystem, with experience in Bitcoin mining and EOS ecosystem construction

Pan Zhixiong: Senior blockchain researcher, focusing on the evolution of Ethereum technology

In the first episode of ETHTAO podcast, two Ethereum ecosystem veterans, Fatbro and Pan Zhixiong, discussed the past, present and future of Ethereum in depth, starting with their respective experiences in the industry and extending to many hot topics such as Ethereum’s value, market competition, technological development and ecosystem valuation.

Connecting with Ethereum: From Mining to the DeFi Wave

Fatbro : Hello, Mr. Pan. It is a pleasure to talk to you about Ethereum in the first episode of ETHTAO podcast. ETHTAO, which means "Tao", is not only the DAO of the blockchain world, but also contains the "rule by inaction" of traditional Chinese culture. We hope to easily talk about all aspects of Ethereum. Mr. Pan has a deep understanding of Ethereum, and it is a great honor to talk with you. How did you enter the world of Ethereum?

Pan Zhixiong : I knew about Bitcoin as early as 2011, but I really devoted myself to Ethereum in the early ICO in 2017. At that time, decentralized projects such as Brave issued tokens on the Ethereum platform, and there were also attempts at decentralized VPNs and chat software. At the same time, new public chains such as EOS also began to explore. The DeFi Summer of 2020 really made Ethereum well-known and had an impact on the traditional world. I followed early DeFi projects such as MakerDAO, Uniswap, Curve, and gained a deep understanding of the ecosystem. Fatbro, you must have participated in it.

Fatbro : I first came into contact with Bitcoin mining. I thought it was interesting but lacked novelty, so I only tried it briefly in 2012 and 2013. In 2017, I returned to this industry because of EOS. I felt that blockchain could do something different, so I devoted myself to the construction of EOS. However, Block.one's inaction disappointed us. If they had done something back then, Solana would not be needed to challenge Ethereum's position today. When EOS lost faith, I re-examined which infrastructure could better support applications and provide decentralization and security.

After DeFi Summer, I returned to the Ethereum community as a Builder and worked on some tool projects and services. I have mixed feelings about Ethereum. Ethereum does not seem to have found a new growth point in this cycle, and the craze of DeFi Summer and NFT Summer has not reappeared. Even with hot spots like RWA, it is gradually drifting away from the traditional Ethereum community and feels like a parallel universe. The community's doubts about Ethereum are also reflected in the price, and many project parties have switched to Solana or other chains. I would like to ask Mr. Pan, should the project parties in the Ethereum ecosystem stick to Ethereum, or deploy to other ecosystems in order to survive?

The value of Ethereum: decentralization first

Pan Zhixiong : Of course, this goes back to the core question: What is the value of Ethereum?

Solana is very different from Ethereum. Solana is vigorously supporting developers and ecosystem construction, which is completely different from Block.one. It is far beyond EOS in some ways and has clear business motivations. Memes on Solana have been very popular in the past two years, while inscriptions on the Bitcoin network have received more attention in previous years.

This depends on the values of the protocol itself and its coordination with the application scenario. Meme and consumer applications usually do not require strong decentralization or security. At this time, Ethereum's high gas fees and poor user experience become disadvantages. Of course, the wallet form may improve in the future. But at present, applications should choose the ecosystem that best suits their development, because the "foundation" of the public chain is different.

Ethereum, including Vitalik, although not sensitive to the application layer, he clearly conveyed the decentralized values of Ethereum to the community. The Ethereum Foundation has funded multiple clients and promoted decentralization at all costs, which is completely different from the route of other public chains. If you care about decentralization, self-custody and anti-regulation, in addition to Bitcoin, only Ethereum can really meet these challenges. Solana considers more from the perspective of Wall Street or the US market, and its anti-regulation and client stability remain to be verified. But for Meme or consumer applications, Solana is indeed more suitable. Developers don’t have to be bound and can try different platforms because the underlying differences will attract different users.

The Role and Challenges of the Ethereum Foundation: Lack of a “Marketing Department”?

Fatbro : Vitalik once wrote about "decentralized legitimacy". Is this important for application development? Many project parties are facing life and death decisions. At this stage when the crypto population is about to explode on a large scale, we need to think about how Ethereum can seize the opportunity. Now the performance and security of some Layer2s are comparable to Solana. The Base chain has also had a Meme coin explosion, but it seems that it has not been sustained. This makes me think: Does the Ethereum ecosystem lack a "marketing department"? Do we also need a team like Solana to measure the value of the chain with KPIs such as daily active users and number of wallet registrations?

The Ethereum Foundation is still a non-profit organization driven by technical vision. Although there have been some adjustments recently, I don’t know the details. Mr. Pan, do you know if the Ethereum Foundation has KPIs similar to those of a company? Or, how will they efficiently promote user onboarding like Solana?

Pan Zhixiong : The Ethereum Foundation is a non-profit organization, and I have limited knowledge of its internal operations, but they have recently gradually disclosed some major adjustments. We don’t know much about the Solana Foundation and its organizational structure, but we do see high-quality commercial advertisements on Twitter, which may be promoted by the core team or subordinate organizations.

According to Vitalik's idea, the overall structure of the Ethereum Foundation should not interfere too much with the development of the application layer. Although the white paper mentions application scenarios such as DAO, the foundation's funds are mainly invested in research, such as ZK, client development, Ethereum 3.0 exploration and cryptography research, with a high proportion of funds. There has been little direct help for application developers, and application development mainly relies on L2 commercial company financing or public goods funding such as Gitcoin. This is related to the original design concept of Ethereum. It is not an application-centric project. Even the ICO, Token issuance and even DeFi that broke out later, I don't think they are really what Vitalik likes.

The Success of EVM and the Value of Ethereum’s Consensus Layer

Fatbro : Ethereum has invested heavily in building the underlying infrastructure and has adhered to the open source concept. These technologies have served the entire industry. I would like to ask frankly: If the ETH network no longer exists in the future, but the team funded by the Ethereum Foundation has made important contributions to human society, do you think Ethereum is successful?

Pan Zhixiong : I think Ethereum is successful. Although EVM was not designed with token scenarios in mind in the early stages, which led to some "twisting", it is still being optimized, such as parallel EVM . EVM may become a unified industry standard, and the Ethereum Foundation still has its say. Every year, new features are added to the EVM upgrade. Even if Ethereum is not the largest Layer 1, its control over the EVM standard also makes it have a huge impact and value on the industry.

Fatbro : This reminds me of the history of the Internet, when TCP/IP, which did not have the best technical architecture, became the mainstream. The success of EVM lies in the accumulation of time and the largest amount of capital . Many smart contracts have withstood the test of time and money, which is unmatched by other ecosystems. Even if it is an unknown developer, as long as they fork the Uniswap code to Layer2, users dare to use it boldly. This is the value of EVM trust transmission .

Pan Zhixiong : Let me add one more point: the issue of transaction review . Ethereum separates the consensus layer and the execution layer. In the future, it plans to introduce the concept of Inclusion List to directly implement the anti-transaction review function in the consensus layer. In this way, the review resistance no longer depends on the execution layer, and the possibility of being attacked is lower. Its mechanism is probably to introduce the Includer role to ensure that nodes must include certain transactions according to the rules to prevent censorship. If it is implemented in the next 1-2 years, Ethereum will be ahead of other public chains in this regard. At present, other public chains may lack power, but for the Ethereum DeFi ecosystem, this will bring huge value.

Fatbro : In other words, if OFAC sanctions an address on Solana, the probability of it being blacklisted by the node is much greater than that of Ethereum.

Pan Zhixiong : In theory, as the number of nodes increases in the future, censorship may become easier. Ethereum is trying to achieve physical decentralization as much as possible. Although Solana has many nodes, it is not yet at that level and is vulnerable to censorship.

Ethereum's expansion and market competition: the compromise of EIP-1559

Fatbro : EVM has been successful and will continue to be successful. The value of Ethereum lies in its consensus layer , which provides security output by promoting decentralization. I wonder if other public chains spend a lot of tokens to incentivize validators. In the future, will it be more cost-effective to hand over consensus to the Ethereum consensus layer?

Pan Zhixiong : I have studied this issue. From a commercial interest perspective, any additional issuance of a public chain is to subsidize node infrastructure. If the cost is too high, the network will not be profitable. On the contrary, if the network transaction volume is large enough and the tax revenue can cover the cost, it will have no motivation to rely on the Ethereum consensus layer. Solana has a huge transaction volume, and its revenue scale should have exceeded the hardware cost, so it certainly has no motivation. Ethereum has also reached this point. But will the revenue of other public chains decrease in the future?

Pan Zhixiong : How to define public chain income? In my opinion, Solana's inflation rate is still quite high.

Pan Zhixiong : Recently, the Solana community voted to reduce the issuance rate, but it was not passed. Analyzing the coin holders, it is retail investors who want to maintain a high issuance rate to obtain higher returns. This shows that many people in the community care about the issuance rate, and it needs to be calculated clearly. Although the specific figures are unclear, considering the number of nodes and income, the basic income and expenditure model can be calculated. But if decentralization is considered, whether additional subsidies are needed is another matter.

Fatbro : After the implementation of EIP-1559, Ethereum entered deflation, gas fees were stable, and the community was generally optimistic. But now Ethereum continues to expand Layer 1 and subsidize Layer 2. The Pectra upgrade will increase block capacity, which to some extent "destroys" deflation. Under the competitive pressure of high gas fees, Ethereum is forced to increase supply. This is essentially a pragmatic choice under market competition .

Pan Zhixiong : I think competition is an important factor. Ethereum is also considering increasing the Gas Limit for the client, as well as increasing the block Gas Limit and increasing the number of blocks. These are all based on hardware capabilities and market demand. Unlike the past when it was the only dominant player, Ethereum must now actively optimize its product experience to adapt to competition.

Fatbro : From actual experience, the cost of Ethereum Layer 1 is not expensive, and Layer 2 is even lower. For large and financial users, security, network capacity, and protocol options are abundant. In comparison, Solana's DeFi ecosystem is still insufficient. Ethereum provides a more mature financial service infrastructure.

Continuing with the previous topic, there are two more upgrades related to EIP-1559 on the Ethereum Foundation roadmap: adjusting the time parameters to make the gas fee rise faster; and PDS (MEV fairness), absorbing and destroying a reasonable part of MEV. These are exploring new systematic taxation methods, but the core is still industry demand and on-chain application development.

The future direction of Layer2: the next growth point based on Rollup and Ethereum

Fatbro : Some people say that Bitcoin is gold and Ethereum is oil. Ethereum's technology stack, community adoption, and the application scenarios that ETH can penetrate may be more important than EIP-1559. All Layer2 Gas Tokens basically use ETH. Now some Layer2s are subsidized, and some Layer2s are very profitable. But Layer2 and Layer1 are independent execution environments, and the first layer cannot force the second layer. In the future, there may be a protocol layer requiring Layer2 to pay taxes for the use of block space. Vitalik called for Layer2 Alignment . Will this be a feasible solution or a beautiful vision?

Pan Zhixiong : I am very concerned about this. Now some Layer2 do not use Ethereum DA. If they switch to cheaper data storage, the cost will drop significantly. When the scale of Layer2 is large enough, reaching one-tenth of the Ethereum ecosystem or even higher, will it have the motivation to "leave" or choose a place with lower "taxes"? From a business logic point of view, if the technology switches seamlessly, this is possible. But the key is: what is our purpose of using Ethereum? If it is only for storing data, other solutions can also be implemented. If you want users to understand the value of Ethereum, such as anti-censorship, decentralization, and security, this narrative can enhance loyalty. Without these deep value supports, Layer2 migration will be easy.

Fatbro : I think we can feel the atmosphere and temperament of public chains, which largely determines their legitimacy and behavior. For example, OP is quite "halal".

Pan Zhixiong : OP Stack projects (such as Optimism) and core applications such as Uniswap are essentially the "sons" of the Ethereum ecosystem and are unlikely to leave on their own initiative. It's hard to say about other projects, as commercial considerations often prevail.

Fatbro : I noticed that the Ethereum Foundation and Justin Drake are both pushing Based Rollup/Native Rollup recently. Teams like Puffer and Taiko are developing very fast. Layer2 obviously has a profit model, so why upgrade to this direction? I think there are two benefits: first, through the Pre-confirm mechanism, funds can be withdrawn faster; second, it is more legitimacy and more aligned with Ethereum.

Pan Zhixiong : They all emphasize shared Layer 1 security and node validator system. This logic is valid, and Layer 2 does not need these. But when these standards are launched, there will be no essential difference between other Layer 2s, and it may just be a difference in Client implementation.

Fatbro : This solution is not mandatory at the protocol level, but is considered from the perspective of engineering implementation, taking into account decentralization, security and user experience. Ethereum's layer 1 has been expanding. At the Devcon Bangkok Conference, the Beam Chain concept was proposed at the consensus layer, and Single Slot Finality also shows that Ethereum has not given up on layer 1 expansion. Vitalik recently wrote an article titled "Why Expand Layer 1", proposing an idealistic vision of ensuring that Layer 1 has enough space when Layer 2 is forced to withdraw cash. So, will the expansion of Layer 1, the popularization of parallel EVM and ZK, lead Ethereum's layer 1 to a more decentralized, high TPS path?

Pan Zhixiong : Vitalik will definitely say "No", he still needs the support of Layer2. The new features and development work of Layer1 has been ongoing, showing linear growth. But Layer2 has increased Ethereum's throughput by an order of magnitude. So Layer2 is still an important factor in Ethereum's expansion. It's just that there are many Layer2s now, which are scattered, resulting in the separation of assets and liquidity. Will Layer2 be reduced and merged in the future to concentrate liquidity and solve user experience problems?

Fatbro : Yes, in the past few years, Layer2 competition has become homogenized, and all have been made compatible with general EVM, resulting in no fundamental changes in applications. It is more efficient to gather all funds on one chain, and Solana's meme explosion also benefits from the concentration of attention.

So, based on these premises, how should we value ETH assets? In the past, there was the foundation of deflation and Ultrasound Money. Now the Ethereum ecosystem is ETH plus many Layer2 tokens. ETH subsidizes Layer2 in terms of technology and block space, and actually subsidizes Layer2 tokens in terms of token value. Should we revalue ETH? How do you view this issue in the short/long term?

Pan Zhixiong : This is a bit beyond my scope. But we can compare it with the valuation of Ethereum, which is close to that of Alibaba, and see how many applications and developers it has. Ethereum undergoes major adjustments every year.

Fatbro : Ethereum has invested heavily in infrastructure construction and capacity expansion for Layer2, which is essentially to attract more users. However, no new business or transaction volume has exploded in this cycle. In the past few years, block congestion leading to high gas fees was common, but this cycle, although Meme exploded, it did not happen on Ethereum. Ethereum has done so much capacity expansion, what do you think will be the next growth point? Or do you have a "white moonlight" in your heart, hoping that it can achieve a breakthrough on Ethereum?

Pan Zhixiong : I am interested in the following application scenarios involving hundreds of millions of users:

First of all, stablecoins . I am particularly looking forward to a currency based on algorithms, partially or fully collateralized, not anchored to the US dollar or any single value. Although there have been no completely successful cases in more than five years, starting with Basis, everyone has opened this door. I am looking forward to more attempts, such as RAI, which uses pure Ethereum collateral to remove Ethereum volatility.

The second is social networking . I participated in Status’ ICO in 2017 and I really like Farcaster’s attempt, which is very valuable. However, the social network effect is too strong, and it is difficult to snatch users from Twitter, WhatsApp, and WeChat. We need to find magical scenarios to allow everyone to continuously migrate social relationships in order to reach a user scale of hundreds of millions.

Fatbro : I think there is one thing that you may not have seen, that is, Ethereum has already produced a lot of RWA assets , including US consumer loan notes, etc., which are minted to the Ethereum network. These asset packages have not yet been connected to Ethereum OG applications due to compliance reasons, and each plays its own game. I look forward to the day when I can pledge Ethereum to go long Tesla with 50 times leverage, or use RWA assets as collateral to go long Ethereum. This kind of product will closely connect the real world and the Crypto world, and traditional financial products will also have new ways of playing because of Ethereum, a new exchange. There are already signs of this, and maybe we can try it after the laws and regulations are broken.

In addition, payment is also very important and is usually closely tied to social interaction. Stablecoins are the largest payment scenario in our industry, and USDT and USDC have broken through the circle. Recently, although the Altcoin market is sluggish, stablecoins continue to flow in. This may mean that stablecoins are not only used in the currency circle, but also used for Russian trade, Yiwu import and export payments, or for salary payments in some countries where legal currencies have collapsed. This is a Bankless application scenario, and I am looking forward to it.

Having said that, I have never predicted every outbreak of Ethereum. Although some people talked about DeFi before DeFi Summer, no one expected it to be so large-scale. Compound liquidity mining was the trigger.

Today is April 2nd, and the Pectra upgrade will arrive this month or early next month. There are several highlights: EIP-7702 introduces "smart contract" EOA addresses, simplifies account abstraction, and is expected to significantly improve wallet user experience and onboarding process.

But I don’t quite understand why we should continue to add blocks and expand capacity at this time. Mr. Pan, what do you think should be upgraded every time Ethereum is upgraded? Is the current decision-making mechanism reasonable? Is there a better way to get more community participation?

Ethereum upgrade decision: the trade-off between decentralization and efficiency

Teacher Pan : This question needs to be viewed from two aspects. Let me first add the background of the Pectra upgrade. Although this upgrade introduced optimizations such as EIP-7702 and BLS12-381, serious problems occurred in the test network: all clients used the main network settings incorrectly, resulting in a fork in the test network and a long recovery process. The Pectra upgrade is expected to be launched at the earliest at the end of April or even early May. This exposes some concerns about the Ethereum development mechanism.

The Ethereum development team and priority setting have both positive and negative aspects. On the positive side, they always put decentralization at the top of their priority list. For example, the Glamsterdam upgrade after Pectra will consider incorporating EOF and PeerDAS to improve the decentralization of the Ethereum DA layer. Ethereum's Roadmap and Vitalik's updates are highly transparent, and you can see the progress of different tracks.

However, there is a disconnect between user perception and developer perception. Many features are defined by the client team, Vitalik sets the framework, and developers then arrange the plan. If the ecosystem urgently needs AA or expansion, and Ethereum fails to provide it in time, the demand may spill over to Solana or other ecosystems.

Today I saw an article written by a GCC researcher about a certain EIP of Pectra, which sorted out that it may take five or six years from the proposal of the EIP (such as BLS12-381) to the inclusion of the upgrade, which is a long cycle. Fortunately, all Ethereum ACD meeting archives, minutes, and EIP update records are transparently disclosed on GitHub, and the history can be traced, which is very valuable for understanding the source of EIP.

But community disconnection does exist. If more application developers, Layer2, wallets and other closely related Infra can participate more in the decision-making process and weigh the pros and cons, it will be more beneficial to the development of the ecosystem.

Fatbro : I attended the Interoperability meeting in Bangkok, where they proposed the RIP standard related to Rollup, which may also move in this direction, giving Rollup more say. The application layer is also using the ERC standard, which can be implemented without Ethereum upgrades. Pectra's 7702 is biased towards the application layer, but its history also reflects Vitalik's strong promotion of AA wallets, smart contract wallets, and Social Recovery. Do you think Vitalik's weight in Ethereum upgrade decisions is too large?

Pan Zhixiong : I think his current decision-making weight is indeed relatively large, probably more than half. But he knows the history of the origins of all EIPs and the entire ecosystem far better than others, so it is reasonable for his decision-making weight to be higher.

Fatbro : Vitalik is a genius, but he may lack experience in market competition and business practices, which seems to have put him under a lot of pressure recently. I have a hypothesis: If we can join the Ethereum Foundation, what role would you most like to play to help Ethereum do better?

Pan Zhixiong : Ethereum's processes and systems are already very complete, but there is still a disconnect from the EIP ERC standard to the Layer2 wallet adoption. I hope to connect the Ethereum Foundation with the business end and make them closer. At the early research level, let wallets and Infra understand their value and avoid unnecessary energy investment. If there is a greater consensus, it can be advanced faster. So I am more interested in this role.

Fatbro : I think Ethereum needs a CMO! . If I can contribute to the Ethereum Foundation, I hope there will be a user growth-oriented department to set KPIs for Layer2, mainnet or developer growth. Although the Ethereum Foundation has led DevCon, technical documentation construction, etc., I don’t think it’s enough. New users see a lot of negative information on Twitter and may be reluctant to enter the Ethereum ecosystem, thinking it is difficult to raise funds, going downhill, or choosing a younger ecosystem with faster growth. Ethereum needs to clear the haze and convey positive energy and values. The role of CMO is crucial, focusing on startups, developer growth and user onboarding. I hope our discussion can be heard, and it would be even better if the Ethereum Foundation is already changing. We will continue to update the discussion video, pay attention to the growth of Ethereum, and hope that more practitioners and developers will participate.

Pan Zhixiong : Finally, let me add that those of us who have been paying attention to Ethereum for a long time have been reading the Ethereum Ecosystem Weekly Report, which is of great value. But it stopped at the end of last year, so I started to do Ethereum Weekly Digest at the beginning of this year, hoping to follow the progress and ecology of Ethereum more closely and attract more people to pay attention. If you are interested, you can subscribe for free.

Fatbro : I have also been writing a column Fatbro Investment Weekly recently. I have been supporting Ethereum, but I am also under pressure. I hope everyone will pay attention to my latest observations on Ethereum, and I hope everyone's wallets will get fatter and fatter. Today's discussion ends here. The program is not prepared in advance and the topic is random. If everyone likes this format, we will invite more new voices, new entrepreneurs, and investors to participate in the future to review and discuss the future of Ethereum together. I hope Ethereum will get better and better. Thank you again, Mr. Pan, goodbye!