Ethereum Surges 1.79% as Galaxy Digital Criticizes L2 Blockchains

Ethereum's latest price was $3682.48, up 1.789% in the last 24 hours. Galaxy Digital's head of research, Alex Thorn, has criticized the business model of many Ethereum layer-2 (L2) blockchains, describing them as "ETH extractive." Thorn argued that these L2 networks retain most of the fee revenue while contributing relatively little back to the Ethereum L1. He also noted that most L2s are controlled by single companies or foundations, which means very little value accrues to ETH holders, and most L2s do not even stake back the ETH they collect in fees.

Thorn pointed out that post-EIP-4844 dynamics show that aggregate L2 blob confirmation costs and L1 gas spend have hovered around $10,000 per day, while L2s earn from $100,000 to $400,000 daily in user fees. This leaves a nice margin even including running the chain. Blobs are dedicated spaces offering data storage used by layer-2 blockchains built on top of Ethereum. Thorn contrasted payments from Base to the Optimism Collective, since Base uses the OP Stack, versus payments from L2s to Ethereum. Over the last 180 days, Base paid $4.4 million to OP, while all L2s combined paid $3.05 million to Ethereum L1 for blobs and gas. Thorn further claimed Coinbase made $14.9 million in Base fee revenue in Q2, with $443,000 in L1 data costs and $2.16 million paid to OP, saying “OP is literally making 4.8x more off Base than Ethereum is.”

The critique culminated in a broader alignment question, to which Thorn responded: “…They aren’t really ‘eth aligned…’ they look pretty ‘Eth extractive’ to me.”

Base graduated to Stage 1 in April on data aggregator L2Beat, an intermediate decentralization tier envisioned by Ethereum co-founder Vitalik Buterin. Stage 1 indicates improved fault-proofs and governance safeguards, while Stage 2 is defined by an L2 having no group of actors that can post a state root other than the output of the code, even unanimously. The L2 powered by Coinbase was among other chains that recently updated their security measures to prevent ways to block messages to the mainnet other than compromising at least 75% of the network’s security council. Thorn’s argument revives a long-running debate over how much economic value L2s should return to Ethereum versus to their operators or upstream collectives. The post-4844 cost structure lowered L2 data costs by introducing blobs, but the balance between user fees retained by L2s and L1 spend and staking remains contested.

Vitalik Buterin, the co-founder of Ethereum, has advocated for a shift in Ethereum Layer 2 solutions from Optimistic Rollups to Zero-Knowledge proofs. This proposal aims to achieve faster withdrawal times, targeting sub-hour times shortly and potentially achieving as low as 12 seconds medium-term. Buterin emphasizes the need to abandon the Optimistic proof system, citing lengthy withdrawal times of several days. The Ethereum Foundation plans to integrate zkEVM, enhancing efficiency by allowing validators to check only ZK proofs instead of re-running transaction blocks. Buterin believes that if the native withdrawal time can be shortened to under 1 hour in the short term and to 12 seconds in the medium term, it will further solidify Ethereum Layer 1 as the default platform for issuing assets and the economic center of the Ethereum ecosystem.

The transition to Zero-Knowledge proofs could significantly impact Ethereum and related assets by improving liquidity and user experience. Reducing withdrawal time lowers capital lock-in, boosting Ethereum’s utility and market liquidity. Assets such as Optimism, Arbitrum, and zkSync may see increased interest from developers and the market. Zero-Knowledge technology advancements have made hybrid approaches feasible, balancing security, speed, and maturity. This transition could result in shifts in Total Value Locked and improve capital costs for liquidity providers. However, no major regulatory or institutional statements on the technical transition have been noted so far.

Ethereum DApps have generated $26.8 billion in fees since inception, according to data reported by market analyst the DeFi Investor. This milestone showcases Ether’s powerful network and the confidence that people put in its platform. This significant revenue generation highlights the network’s capability to maintain its status as the leader in the DApps market despite the existence of other strong rivals. This remarkable performance has been catalyzed by multiple factors, including Ether’s advanced infrastructure and huge developer community, which offers a strong environment for the development and operation of decentralized applications. The network’s continued advancements have improved its responsiveness and effectiveness, making it an ideal platform for customers. Furthermore, the broad variety of utilities run by Ethereum DApps, including DeFi, NFTs, among others, has led to this impressive revenue generation.

This revenue growth contributed by Ethereum DApps highlights a wider trend within the decentralized sector. This performance means that more people are turning to decentralized technologies for various applications, indicating that the need for DApps continues to surge. Ethereum’s ability to seize the massive amount of this demand is a testimony to its leading position in the DApps market. However, this market is quite multifaceted, and other platforms are continuously developing to challenge Ether’s supremacy. For example, networks like BNB, SOL, and TRON have made significant achievements in attracting users with their own extraordinary offerings and benefits. This tremendous revenue generation showcases a substantial accomplishment that demonstrates Ethereum’s leadership in the decentralized landscape. The network’s powerful ecosystem, continuous advancements, and wide variety of applications have led to its success. However, the market is so multifaceted and competitive, and so Ether will need to embrace continuous advancement to maintain its leading position in the market.

Cosmos Health Inc. secured $300 million in funding from U.S. investors to create an Ethereum reserve, marking a significant move for corporate crypto treasuries. This strategy positions Cosmos Health within cryptocurrency finance circles, highlighting Ethereum’s growing role in corporate asset management, as shareholders respond positively with a 16.18% stock price increase. Cosmos Health has aimed to reshape its financial landscape by incorporating Ethereum into its treasury strategy. As per a Securities Purchase Agreement, this Chicago-based healthcare group intends to purchase Ethereum with a major portion of the proceeds from its newly secured $300 million financing. This pioneering move by Cosmos marks a substantial expansion of its financial tools, reflecting a broader commitment to embrace cryptocurrency.