Ethereum Cancun upgraded to a "lonely"? Why is it beneficial to high-performance L1 such as Solana?

After the Ethereum Cancun upgrade, the prices of high-performance L1 public chains such as Solana, Sui, Aptos, Sei, etc. have collectively increased in the secondary market. This has made many Ethereum ecological builders and community members feel a bit incredible. , I feel that the secondary market’s reaction to the Cancun upgrade is a bit ridiculous or even unreasonable.

Secondary market prices, formed in markets with sufficient liquidity, may price the Cancun Upgrade more effectively than mathematical models and our beliefs. This means that if everyone, like Vitalik, believes in prediction market theory, then the market price may more accurately reflect the value of the Cancun upgrade. In this case, we should recognize that the market may have stronger information and insights in some aspects, and this factor should be taken into account, rather than relying solely on theoretical models or personal beliefs. So when it comes to pricing for Cancun upgrades,

in other words, there's usually a rationale for what's out there. Instead of wasting time arguing about whether something should exist or not, we should spend time developing a deep understanding of the underlying reasons why this market phenomenon occurs. Personally, I summarize this fundamental reason into the following two points:

1. Ethereum Rollup L2 is currently at a disadvantage in the competition with the high-performance L1 application layer market

Ethereum Cancun Upgrade, also known as Proto-DankSharding, is the prototype stage of Ethereum’s modular sharding solution.

In the post-Cancun upgrade era, the Ethereum mainnet will mainly carry the functions of the consensus layer, DA layer and data settlement layer, while the execution layer will be outsourced to Arbitrum, Optimism, ZkSync, Starknet, Linea, Scroll, etc. Rollup L2s.

And Vitalik has launched a proposal on the Ethereum forum, planning to increase the non-zero byte gas consumption of the main network by 4 times.

In this way, Ethereum will gradually withdraw from the competitive market at the application layer, leaving Ethereum L2 and Alt L1 to compete head-on.

If we are in the Arbitrum Season in March 2023, Arbitrum is crazy siphoning users, funds and developer resources from Avalanche and Polygon, and the market is full of beautiful imaginations about Rollup L2 Flip Alt L1.

But now that time and space have changed, Solana, the representative of the high-performance L1 public chain, has begun to reverse the polarity and siphon the resources of Rollup L2.

Using DEX trading volume as an indicator, in the spring market of 2024, except for Arbitrum, which is still resonating with the market, there is very little DEX trading volume on other L2s. On the other hand, Solana’s DEX trading volume has skyrocketed.

The TVL of the Sui ecosystem has quietly achieved an exponential growth of ~20 times from October 23 to the present.

The reason for this situation is that in order to successfully exit the currency issuance, Rollup L2 developed an over-reliance on the "Odyssey Mission" growth strategy in the bear market. . They collude with idle users and developers who focus on getting Grants, resulting in uneconomic allocation of block space and community resources, harming the experience of real users.

Real users who use Rollup L2 not only have to pay extra gas fees for the behavior of woolists, but also miss out on the entire bull market because of the lack of assets with wealth effects on L2.

These have led to the current situation where high-performance L1 public chains overwhelm Ethereum Rollup L2.

2. The Ethereum business model is economical in land rent and the high-performance L1 public chain is more like a high-tech company.

@MessariCrypto, an investment research institution that claims to be Ethereum’s hacker, mentioned this point of view for the first time in its annual report . From the perspective of block space economics, the business model of Ethereum L2 is to resell the block space of the Ethereum main network to Dapps and end-users.

In the emerging technology industry of Web3, Rollup L2 is actually doing the business of the most traditional retail and wholesaler. The difference is that traditional retail and wholesalers earn the difference in product prices, while Rollup L2 earns the difference in gas fees.

The block space price of the Cancun upgrade has dropped by 1 order of magnitude, which is a major blow to Rollup L2, which relies on earning gas price differences as its core business model. They only have the option of issuing assets. Now, due to the long-term connivance of the wool party, the ecology of L2 has become salinized, and even the meme currency, the most profitable asset, cannot survive on L2.

Compared with the Ethereum ecosystem, high-performance L1 public chains such as Solana, Sui, Aptos, and Sei are more like high-tech companies. They adopt a new generation of consensus algorithms, support parallel computing VMs, accounts/ New technologies such as object smart contract programming language improve the production efficiency of block space and solve the pain points such as high gas fees and long confirmation time faced by real users of Web3.

Of course, the current high-performance L1 public chain suppressing Ethereum Rollup L2 in the application layer competition may just be a cyclical phenomenon at the end of this bullish market. Whether this situation can be sustained will take longer to verify.

But even if Ethereum Rollup L2 makes a comeback in the future, it will most likely be completed by a new generation of Rollup with new primitives such as RollAPP, chain abstraction, and parallel EVM execution layer, rather than the current universal Rollup L2. .

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