Ethereum's Layer 2 Strategy Fails to Boost Value Amidst Competitor Advances

OpenAI is currently investigating the rising error rates in its AI models, ChatGPT and SORA. The company aims to identify the root causes of these errors and implement necessary corrections to enhance the reliability and accuracy of its AI systems. This investigation underscores the challenges faced by AI developers in maintaining the integrity of their models as they scale and evolve.

Ethereum's performance and strategic direction have been under scrutiny, highlighting several key issues that have contributed to its underperformance compared to other cryptocurrencies like Bitcoin and Solana. One of the primary concerns is the divergence of Ethereum's Layer 2 strategy from its core value proposition. The EIP-4844 upgrade, for instance, significantly reduced transaction fees for Layer 2 solutions, but this did not translate into a corresponding increase in Ethereum's intrinsic value. Many Layer 2 projects, such as Base and Arbitrum, have captured a significant portion of user transaction fees, but these fees have not flowed back to bolster Ethereum's value.

Another critical factor is Ethereum's slower progress in engineering implementations compared to its competitors. Ethereum's roadmap is meticulously planned, but actual engineering implementations often take years to materialize. This has led to a significant delay in Ethereum's overall development and roadmap progress. In contrast, Solana has adopted a more aggressive engineering approach, which has allowed it to make rapid advancements.

The lack of new business models or innovations on-chain has also been a contributing factor to Ethereum's underperformance. The richness and activity level of on-chain businesses have not significantly improved compared to previous years, and the fundamentals of Bitcoin have seen substantial improvement in contrast. This dichotomy has affected the overall performance of all public chains, including Ethereum and Solana.

Ethereum's strategic problems over the past few years, particularly its Layer 2 strategy, have been criticized as almost failing. The Rollup-centric approach proposed by Vitalik in 2020 did not materialize until 2022, and by 2025, it became clear that this strategy needed to be changed. The amount of time wasted in this process is significant, and the gap in development efficiency between Ethereum and other blockchains like Solana or Sui is approaching an order of magnitude.

The Ethereum Foundation's extreme commitment to decentralization has also been a point of contention. While decentralization was once considered a key element of blockchain legitimacy, the current administration's crypto-friendly stance has made concerns like crackdowns on crypto projects and censorship resistance less pressing. This has led to a shift in the narrative, with chains like Solana and Sui offering better efficiency and performance, which has turned into an advantage.

Ethereum's definition of decentralization has undergone significant change, with a more pragmatic approach being adopted to balance decentralization with execution efficiency. This includes strategies like continuously increasing the gas limit and implementing block-level access lists to accelerate transaction execution on the execution layer. However, there is still a significant disconnect between Ethereum's research and development teams, resulting in a gap between what the research team works on and what the development team implements.

The Ethereum Foundation has initiated a series of actions to address these issues, including a shift in focus from Layer 2 strategies to Layer 1 scalability. The community has long harbored skepticism about the Layer 2 strategy, and the recent restructuring and layoffs within the Ethereum Foundation signal a determination to address scalability issues. The addition of new executive directors with stronger R&D backgrounds is expected to bring more tangible progress to Ethereum's performance improvements.

Despite these challenges, Ethereum remains a promising investment due to its decentralized, large-scale ecosystem enriched by contributions from a vibrant developer community. The recent improvements and strategic adjustments made by the Ethereum Foundation indicate a commitment to addressing the issues that have hindered its performance. As Ethereum continues to evolve, it has the potential to regain its price momentum and become a leading player in the cryptocurrency market.