- Sigel criticizes ongoing Ethereum trolling, emphasizing the importance of “moneyness” in L1 chains.
- Solana’s low fees attract users, sparking debate about its “moneyness” surpassing ETH’s.
- Ethereum faces competition from Solana and must scale activity while lowering transaction costs.
Matthew Sigel, the Head of Digital Assets Research, responded to the continuing criticisms of Ethereum (ETH). He claimed that this constant trolling of the cryptocurrency is draining and disingenuous, while the idea of “moneyness” fuels the success of layer one (L1) chains such as Ethereum and Solana.
In conventional economics, one common valuation of a company’s stock is the price-earnings (PE) ratio. For blockchains such as Ethereum, the corresponding measure is ‘moneyness’ which relates to the extent to which a token is relied on, trusted and used as a store of value and means of payment in the relevant ecosystem. This is done by ETH which covers transaction fees (or “taxes”) and by maintaining the system through validators.
First of all, moneyness does go beyond Ethereum’s role, its functions as an asset and a medium of exchange in DeFi and other applications also contribute to its value. The value of the token is correlated with its current usage and future expectations that are founded on the expectation of rising blockchain activity to maintain the token’s value.
Solana’s Challenge to Ethereum
However, Solana presents considerable competition to Ethereum given that the latter enjoys massive popularity among the community due to its considerably higher transaction costs. Due to a very low level of “taxation” of economic actions, Solana has found many fans among users and developers. This has fueled some to assume that because Solana is less expensive than Ethereum, its “moneyness” might actually be more than ETH.
While Solana make use of its low fees, ETH on the other hand is trying to lower fees through the use of Layer 2(L2) scaling solutions. These L2 networks intend to bring down the fee for transactions that are chargeable at present, while at the same time, increase the activity level. However, Solana will need to find ways to develop its user base and derive additional revenues from the network effects enabled by higher users’ engagement.
However, ETH still has challenges that it has to overcome in order to sustain the value proposition inherent in ETH. This current structure of the network especially with a growing focus on Layer 2 solutions is likely to reduce ETH’s ability to capture value from transaction fees and MEV. These L2 networks may eventually become separate ecosystems hence may result to a decreased effect from Ethereum.
For Ethereum and Solana to remain valuable, they must remain as the currency of sorts within their respective systems. With new rivals like Solana rising, ETH needs to reduce fees, scale activity up, and illustrate the necessity of its future architecture.
