L2 chains will redirect Ethereum users to their own chains. Like Uniswap's L2, and they take the transaction fees away from Ethereum.
For example, Uniswap was good for around $500 million per year. Most of that money is now going to Uniswap’s L2 and not to Ethereum anymore. Duo Nine wrote an X thread about this, and it caused quite some discussion. So, let’s see why Uniswap’s L2 is part of a greater issue for Ethereum.
Uniswap’s L2 may indeed put Ethereum at risk. However, it’s only a small part of a bigger issue. As already mentioned, Uniswap generates around $500 million in yearly transaction fees. For many chains, these transaction fees are their main source of income. However, with their own Unichain, for the greater part, that money now goes to Uniswap.
According to Duo Nine, that’s where Ethereum’s issue is. Because it’s not only Uniswap’s L2, but a hundred or so other chains as well. If they take all the transaction fees away from Ethereum, $ETH will see a serious price drop. See the X thread above. Make sure to read the comments as well.
Ethereum as a chain will still exist, however, the token price will go close to zero. He argues that Ethereum can still provide the same service, but now at a token price of $20. Does he have a case in hand?
To a degree, I do agree with him. My view is that there’s not only one so-called Ethereum killer out there. However, it’s rather an accumulation of many chains that will pose the real threat. Each of these chains will gnaw at Ethereum’s legs. Now there’s even a new competitor on the horizon, its own L2s.
Layer 2 chains were the answer to Ethereum’s scalability issue. However, now L2s are starting to take Ethereum’s native transaction fees away. And who can blame them? A question that has puzzled me for a couple of years is, who still wants to pay the high Ethereum fees? There are so many L1 and L2 alternatives.
Why pay $10, or more, when you can get a faster transaction time and a sub-1 cent transaction fee on another chain? Some L2 already offer free transactions. The picture below shows the current Ethereum transaction fees.
Source: Etherscan gas tracker
Duo Nine puts most of the blame in Vitalik Buterin’s hands. He and his team opted for L2s to scale Ethereum. However, now Ethereum is losing its users to the L2s. So, Ethereum is offering its security to the L2s. But who is paying for this security? Duo Nine argues that the L2s are not doing this.
He also claims that Buterin is not paying attention to this issue. For example, Duo Nine sees more dApps moving to appchains. An appchain is an application-specific chain. They are built to meet specific requirements. For instance,
However, in 2022 Buterin dismissed the likelihood of the Unichain. He thought that such a Unichain wouldn’t make sense. Nonetheless, now we have Uniswap’s L2 in real time. See the X post below for Buterin’s comment.
As a result, little by little, Ethereum is losing its edge. Duo Nine sees more apps moving to their own chains. Besides that, there are also apps moving away from Ethereum, to other networks. For example, dYdX moved to Cosmos. On a different note, we also observe serious asset outflows from Ethereum to Solana and Sui.
So, will today’s L2s become L1s tomorrow, with chain abstraction next in line? To clarify this, it means that users only interact with the app. They don’t know which chain they’re using. It’s irrelevant to them. Users want apps that take care of all their needs. The bridging, the fees, and everything else. So, chains with high fees won’t stand a chance in this scenario.
Apps will now push their users to their own chain. Which makes sense. So, Ethereum is losing out on the transaction fees, since users are leaving them. If you now look at hundreds of L2s in DeFi doing the same, you get the idea.
Duo Nine argues that Ethereum is infrastructure and outdated as well. In the meantime, the market has moved on, we now have fast and cheap chains for all your apps.
Duo Nine, a prolific X poster, claims that Ethereum is losing its edge. He sees that the $ETH price will go to double digits. The Ethereum chain will still be around, but the $ETH price will be low.
That’s because the L2 chains will have the former Ethereum users now on their chains. They use the L2 apps on these chains, taking the transaction fees away from Ethereum. Hence, Ethereum will hardly have any revenue anymore.
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BTCIf you hold Ethereum, you are in trouble. Uniswap, an ETH dApp generating $500 mil / year in fees, just created its own L2. Now, those fees are reduced by 100x and go into Uniswap pocket. Multiply this by 100x with other dApps and ETH's price will go to zero. A thread 1/12 🧵
I have a hard time believing this argument. Uniswap's main value proposition is that you can just go and get a trade done in 30 seconds without thinking about it. A uniswap chain or even rollup makes no sense in that context. A copy of uniswap on every rollup does.
10/ We're entering a new phase. One where apps and (meme)tokens will dominate. Mass adoption does not care about the technical jargon, L1s, L2s, Byzantine fault or similar. Users want sleek apps to gamble on tokens, that's it. Ideally with zero fees. Next is important.
