Investing in numerous L2s, IOSG partners: Ethereum should abandon its commitment to neutrality and shift towards performance-oriented.

Recently, Momir Amidzic, a partner at venture capital firm IOSG that invests in multiple Ethereum Layer 2 projects, discussed the future of Ethereum and Layer 2 in a Twitter article. In fact, this article follows his previous piece "Ethereum Reconstructed: Restoring Control and Value to ETH." IOSG's investment portfolio includes Layer 2 projects covering Ethereum and Bitcoin such as Arbitrum, zkSync, Stacks, BOB, Taiko, StarkWare, and Aztec Network.

Ethereum faces internal and external troubles

In the article "Ethereum Reimagined: Regaining Control and Value of ETH", he first mentioned that the Web 3 vision from 2021 has gradually faded, and Ethereum has also faced significant setbacks. Not only does the community no longer endorse the Web 3 vision, but Ethereum also faces fierce competition from platforms like Solana, vying for the remaining market share. With external threats and internal troubles, the split in L2, the erosion of value accumulation, the dilution of ecosystem control, and insufficient cohesion have further weakened Ethereum.

Momir Amidzic pointed out that these issues have affected the economic value of ETH, and with the rise of Layer 2, the influence of Ethereum has also weakened. These issues ultimately led to a sharp pullback in the price of ETH. In response, Momir Amidzic proposed solutions including strengthening Layer 2 interoperability, prioritizing the development of infrastructure centered around ETH, and adopting decisive and performance-oriented leadership. He noted that Ethereum has solid infrastructure and a vibrant developer community as its advantages, but must act quickly and strategically to restore ETH's standing.

The value that Ethereum takes pride in has been replaced by nihilism.

At this stage, Ethereum is shifting from the fervor of Web 3 to a more sober reality, leading to a reassessment of its core value propositions. The once idealized vision of decentralization and user autonomy has now been replaced by a more cynical view of the crypto industry, seeing it as nothing more than Bitcoin and a digital casino. This shift in sentiment has a particularly severe impact on Ethereum.

Another element that exacerbates this phenomenon is that Ethereum is no longer the sole representative of the Web 3 vision. Solana is rising as the center of crypto consumer activity. Against this backdrop, this article aims to identify Ethereum's most pressing strategic challenges and propose viable solutions to address this evolving landscape. However, this article focuses on exploring issues related to Layer 2.

The split of L2 is a loss for Ethereum, users, and protocols.

Momir Amidzic pointed out that the fragmentation of Layer 2 disrupts user experience and liquidity. This affects the composability advantage of the Ethereum mainnet, which is still evident in today's competitors like Solana. For users, inconsistent protocols, standards, and cross-chain issues weaken the seamless interaction experience initially promised by Ethereum. Developers need to maintain protocols across multiple L2s, creating unnecessary burdens, while startups must face complex Go To Market strategies, forced to spread limited resources across users of various L2s.

More importantly, Ethereum has decided to set Layer 2 as the mainstream scalability solution, which could potentially weaken its control over its own ecosystem, as Layer 2 is essentially developed and operated by third parties, effectively outsourcing the scalability solution. As Layer 2 establishes its own ecosystem and forms network effects, it may evolve into a strong moat.

As time goes by, these execution layers (Layer 2) perform better relative to Ethereum's settlement layer, forming a leverage effect that leads the future Ethereum community to overlook the importance of the settlement layer. Assets may begin to exist natively in the execution layer (Layer 2), reducing Ethereum's influence as a settlement layer and its potential for value accumulation, with the settlement layer gradually being commoditized.

The author adds: The blockchain is divided into data availability layer, execution layer, settlement layer, sequencer layer, and aggregation layer. The approach of Layer 2 usually involves using its own execution layer to carry out transactions, and then sending the transaction data to the Ethereum mainnet for settlement. Depending on the consensus mechanism (Opmistic丶zk), the finalization time of transactions also varies.

( Modular Narrative Makes a Comeback! How do the Settlement Layer, Execution Layer, and Aggregation Layer create new opportunities? )

The rise of L2 affects the accumulation of ETH value.

The rise of L2 has affected the value accumulation of ETH, leading to a decrease in funds flowing back to the Ethereum mainnet. This shift transfers economic benefits from ETH holders to L2 token holders (. The author adds: Most L2 token prices have fallen by 80-90% from their peaks ), weakening the incentive to hold ETH for investment purposes. Although this trend has significantly reduced the value of ETH as a productive asset, it poses an inevitable challenge for any L1. However, as the most mature public chain, Ethereum is the first to face this issue.

But Momir Amidzic also admitted that single chains like Solana and even L2 may face similar challenges in the near future. Ethereum is also facing significant leadership challenges, and within the Ethereum community, realistic performance goals need to be balanced with idealism, which may slow down progress. ETH holders lack mechanisms to directly influence strategic key decisions, and their only option is to sell their tokens when dissatisfied.

However, Momir Amidzic also pointed out that in hindsight, these issues are easily defined, but to some extent, they may arise from regulatory considerations and the result of mitigating risks from the state, rather than a genuine lack of insight into governance and leadership.

Ethereum should promote L2 interoperability standards

One of the solutions proposed by Momir Amidzic is to let Layer 2 operate under a survival of the fittest model, leaving 2-3 active mainstream L2s, while others will gradually disappear or shift to become application rollups serving specific use cases. Another solution is to establish robust interoperability standards to reduce friction across the entire rollup ecosystem and lower the chances of any single rollup establishing a dominant moat.

He believes that Ethereum should actively promote the latter and enforce interoperability standards while it still has influence over Layer 2. He pointed out that this influence is increasingly diminishing, and the longer Ethereum delays, the worse the effectiveness of this strategy will be. If a unified Layer 2 ecosystem is proposed, Ethereum can enhance user experience and strengthen its competitiveness against single blockchains.

However, relying solely on market-driven integration poses significant risks for ETH. Each Layer 2 is likely to prioritize the value accumulation of its own token, sidelining ETH and weakening Ethereum's economic model. To avoid this outcome, Ethereum must take decisive action to shape its L2 ecosystem, ensuring that value and control remain tied to the mainnet and ETH.

ETH is positioned as a currency and pure on-chain collateral.

The narrative of productive assets is not a sustainable long-term strategy for L1 tokens (, which include Ethereum ). The window for L1 to capture most of the MEV is likely only left for the next five years, as value accumulation continues to shift upwards. Meanwhile, the narrative of value storage has been solidly occupied by BTC, leaving almost no room for a second asset. If ETH tries to compete here, the market may see it as the 'poor man's $BTC,' similar to the historical positioning of silver as a secondary substitute for gold.

Although ETH may ultimately demonstrate a clear advantage over BTC in terms of value storage, this transition may take at least a decade, and ETH cannot afford to wait that long. In the meantime, Ethereum must create a unique narrative to maintain its relevance.

Momir Amidzic believes that positioning ETH as a "currency" and pure on-chain collateral provides the most promising path for the next decade. While stablecoins dominate on-chain finance as a medium of payment, they still rely on off-chain ledgers. The blockchain-native, unstoppable currency role has yet to be established, and ETH is uniquely positioned to seize this opportunity. However, this requires Ethereum to regain control of the universal layer of its ecosystem and prioritize the adoption of ETH, rather than the proliferation of wrapped ETH standards.

Ethereum has two ways to establish ownership of the ecosystem.

There are two ways to re-establish ownership of the Ethereum ecosystem:

Expand Ethereum's L1 layer to elevate performance to the level of those more centralized but better-performing competitors, ensuring a seamless experience for consumer applications and decentralized finance (DeFi).

Launch Ethereum's native Layer 2 and focus all business development and adoption efforts on this Layer 2. By concentrating activities on the infrastructure owned by ETH, Ethereum can strengthen ETH's core position in the ecosystem. Ethereum must shift from the outdated ETH alignment paradigm to an ecosystem model owned by ETH, prioritizing direct control and maximizing the value accumulation of ETH.

However, regaining control of the ecosystem and enhancing ETH adoption are subtle decisions that could alienate key contributors, such as rollups and liquid staking providers. Ethereum must respond cautiously, balancing the need for control with the risks of community fragmentation to ensure that ETH can successfully establish its new narrative as the cornerstone of the ecosystem.

( Ethereum scaling solution R1 is here! Focused on fundraising without issuing tokens, the new generation L2 emphasizes decentralization and public welfare )

IOSG Partners Replaces Ethereum with Performance-Oriented Prescription

Finally, Momir Amidzic clearly pointed out that the leadership of Ethereum must evolve to address its governance and strategic challenges. Ethereum leaders should be performance-oriented, have a stronger sense of urgency, and adopt a pragmatic approach to ecosystem development. This evolution requires abandoning the past commitment to trusted neutrality, as this commitment hinders decision-making, especially in developing the Ethereum product line and positioning ETH as a competitive asset.

Moreover, the market has expressed dissatisfaction with Ethereum outsourcing critical infrastructure, from rollups to staking, to decentralized entities. To address this issue, Ethereum must shift from the outdated paradigm aligned with ETH to a model owned by ETH, ensuring that critical infrastructure is unified under a single code: $ETH. This change will strengthen ETH's core position and restore market confidence in Ethereum's strategic direction.

What is the best approach for L2 and Ethereum? Venture capital partners provide advice.

In the article on May 9, Momir Amidzic further pointed out what he thinks is the best approach from the perspective of Ethereum and Layer 2.

The Ultimate Strategy Guide for Ethereum:

Having key infrastructure: Regarding L2, acquire existing or develop new general solutions (Ethereum R1), committing value to ETH. While dedicated rollups can scale, innovate, and attract institutions, Ethereum must control general L2 activities.

Enforce interoperability standards to address the issue of liquidity fragmentation, ahead of market forces solving it on their own. Market solutions will lead to 2-3 dominant L2s that leverage the underlying layer, controlling the ecosystem and asset issuance. Interoperability ensures the long-term value of L1.

The Best Strategy Manual for Layer 2:

Main L2 (Base, Arbitrum):

L1 introduces liquidity to L2 to achieve network effects and ecosystem dominance, competing with Solana's integration approach.

Ignore broader interoperability standards and focus on standards within its ecosystem.

Actively bringing institutions into its L2 ( regardless of the Ethereum strategy, limited to the current L2).

Less dominant L2:

Support broader interoperability standards to weaken the moat of the dominant L2.

Actively introduce institutions to use specialized Layer 2.

This article is about investing in many L2s by IOSG partners: Ethereum should abandon its commitment to neutrality and shift towards performance-oriented. Originally appeared in Chain News ABMedia.