This episode dissects Ethereum's recent strategic shifts and internal realignments, offering a deep dive into the bull case for ETH amidst evolving L2 dynamics and competitive pressures, crucial for investors navigating the future of decentralized platforms.
What Went Wrong for Ethereum?
- The conversation kicks off by addressing criticisms Ethereum faced over recent years. Ryan Berckmans acknowledges that Ethereum's rollup-centric roadmap, while strategically sound as a hub-and-spokes model (L1 + L2s), experienced significant growing pains. He points to unforced errors within the community regarding narrative communication and delays in crucial initiatives like interoperability and L1 business development.
- Berckmans highlights that Etherealize, an L1 business development group, only began operating in earnest this year, suggesting some initiatives could have started sooner.
- The complexity of the L1+L2 model also took time to mature.
- Despite successes like Base (Coinbase's L2) and World Chain showing strong growth, and Robin Hood acquiring a company with an ETH L2, Jason, the host, raises the counterpoint that these L2 achievements hadn't translated into positive price action for ETH the asset, which, until recently, was at similar price levels to 2017.
Rethinking L1 Valuation: Beyond Transaction Fees
- Tom Dunleavy, Head of Venture at Varies Capital, argues that traditional financial analysis, like focusing on transaction revenues, is the wrong way to think about L1s. He posits that transaction and execution fees are trending towards zero, a phenomenon showcased by chains like Solana.
- Dunleavy states, "All of the transaction fees, all the execution fees... are effectively going to zero."
- Instead, he proposes valuing L1s based on the total value they secure. For Ethereum, this includes value fragmented across L1 and L2s.
- The core idea is that ETH's market capitalization must be substantially higher than the value it secures to prevent attacks. Dunleavy suggests if Ethereum secures a trillion dollars in the future, its market cap would need to be an order of magnitude close to that. Currently, with roughly $200 billion secured (including stablecoins), ETH's market cap is around $350 billion.
The Rollup-Centric Roadmap: A Necessary Evolution
- Addressing whether the rollup-centric roadmap was the right decision, Ryan Berckmans firmly believes it was initiated at exactly the right time. However, he emphasizes that the initial rollout lacked crucial supporting activities.
- These missing pieces included robust interoperability solutions, a focus on user experience (UX) across the entire Ethereum ecosystem, L1 business development, and a cohesive narrative to align the community.
- Berckmans uses an analogy: "You're going to the restaurant, they make you the best steak you've ever had in your life, but if the room you're sitting in is dirty... it just detracts from the whole meal."
- The goal, he clarifies, was always an "L1 plus L2 hub and spokes model," not an "L1 or L2" scenario. The current focus is on rectifying these past omissions.
Ethereum's Core Product: Freedom and Global Prosperity
- When asked what product Ethereum sells, Ryan Berckmans offers a philosophical perspective. He argues Ethereum doesn't merely sell raw materials like ETH the asset, blockspace, or blobs.
- Instead, "What Ethereum sells is freedom and global prosperity by giving folks self-sovereign access to the global economic hub."
- This value proposition, he believes, drives institutional adoption and growth, allowing organizations to come on-chain on their own terms while remaining interoperable.
- Tom Dunleavy adds that while speed is a commodity where centralized servers will always win, Ethereum's unique commodity is "censorship resistance [and] distributed world ledgers," with Ethereum having proven itself the most secure over time.
The "Ethereum Pivot": A Shift in Heart and Mind
- The discussion turns to the recent "Ethereum pivot." Ryan Berckmans characterizes this less as a technical roadmap change and more as a "pivot at the social layer."
- He references Vitalik Buterin's talk in Taipei, where Buterin described the L1 not just as a "security vending machine" for L2s, but as a "broad-spectrum hub" providing bridging, governance, liquidity, and more.
- This resonated with the community, with influential members like "Liam" popularizing the idea of the L1 as the "economic HQ."
- This social consensus, Berckmans explains, led to a reprioritization of L1 scaling efforts that were always planned but now have renewed urgency.
- Tom Dunleavy concurs on the pivot's importance, noting that L2s like Base were capturing significant volume, but also raising concerns about capital flowing to L2 tokens instead of ETH. He controversially suggests, "all L2s should retire their tokens," and instead pay a tax in ETH for using Ethereum's security.
The Challenge of Pricing Blockspace and Economic Security
- Santi, a host, raises the critical question of how to effectively price blockspace and tax or rent out economic security, a central tension in L1/L2 dynamics.
- Tom Dunleavy acknowledges this is the "million-dollar question," with pricing being "somewhat unknowable."
- He suggests value is determined by where assets can achieve more velocity within an ecosystem and the native security benefits of settling on a particular blockchain versus others.
- Dunleavy believes that "monetary premium" and other less tangible factors are inherently important in valuing these assets, as direct cash flow analysis is insufficient.
Navigating Internal Coordination and Factions
- Ryan Berckmans candidly describes a period of "low-grade civil war in Ethereum over the last 18 months," stemming from disagreements about the role of L2s, L1/L2 interplay, and value accrual.
- He notes that the greatest challenge was achieving "social consensus" on Ethereum's overarching strategy.
- This internal friction, he suggests, contributed to ETH's underperformance as confidence waned.
- However, Berckmans sees a positive shift: "The world is ready to come on chain... it's not okay for Ethereum to, you know, operate in its ivory tower... We got to open the doors and build connections. And that's what's happening now."
Bolstering Business Development: The Rise of Etherealize
- Both speakers emphasize the critical need for robust business development (BD) in Ethereum. Tom Dunleavy recounts an experience in DC where policymakers noted representation from many chains but were unsure who to meet with for Ethereum.
- Ryan Berckmans mentions Etherealize (co-founded by Vivec, Danny, Zach, and Grant) as a key BD group, but stresses, "we need 10 times more Etherealizes." He advocates for a more scalable, grassroots human capital strategy for go-to-market efforts.
- Tom Dunleavy agrees Etherealize is a positive step but believes it's "massively understaffed" compared to the BD arms of competitors like Solana and Avalanche, highlighting the need for an "actual labs organization" to advocate for Ethereum globally.
Impact of L1 Scaling on Layer 2s: Complementary, Not Competitive
- Jason, the host, questions the impact of renewed L1 scaling efforts on the existing L2 ecosystem. Ryan Berckmans argues that scaling the L1 is "massively net good" for L2s.
- He asserts that the most important form of scaling L2s provide is "political diversity" and "business model innovation," allowing various entities to customize their chains while benefiting from the broader Ethereum economy. Technical scaling is an input, not the sole purpose.
- "Even if the L1 was perfectly scalable... you're still going to have all these large players that want to create their own walled gardens," Berckmans explains, suggesting these would resemble L2s.
- Tom Dunleavy, however, highlights user experience (UX) as a persistent problem, stating, "If I have to... make a swap from Arbitrum to Ethereum to do a transaction, it's confusing." He believes Solana's opportunity arose from Ethereum's roadmap taking "way too long to deliver."
Ethereum's Technical Roadmap: Pectra, "Fusaka," and Beyond
- The discussion delves into specific upcoming Ethereum upgrades. Tom Dunleavy expresses concern that current upgrades like Pectra and the upcoming "Fusaka" (expected later this year) primarily focus on L2 scaling (e.g., increasing blob capacity) and that dedicated L1 scaling features might not arrive until "late 2026," which he views as "far too late."
- Ryan Berckmans clarifies that Pectra recently doubled blob capacity, and "Fusaka" aims to increase it roughly eightfold through features like peer-to-peer data availability sampling (DAS). DAS (Data Availability Sampling) is a technique allowing nodes to verify that all data for a block is available without downloading the entire block, crucial for scaling data throughput for rollups.
- The hard fork after "Fusaka," codenamed "Glamsterdam," is where more L1 scaling changes are being considered.
- Berckmans also notes ongoing efforts to raise the L1 gas limit via social consensus among validators, which could double L1 capacity sooner.
The Debate on L2 "Tariffs"
- The idea of L2s paying a "tariff" or tax to Ethereum L1 is debated. Ryan Berckmans views this as "shortsighted and premature," arguing that L2s currently paying very little for L1 security acts as a "loss leader to grow the network effect."
- Tom Dunleavy, however, "kind of likes it." He sees it as a way to bring incremental revenue to Ethereum, especially given the high-profit margins of L2 sequencers. He also points out that "Base rollups" are on the roadmap to enshrine L2 sequencing revenue back to the L1.
- Dunleavy reiterates his skepticism about the necessity of L2 tokens, suggesting they should be denominated in ETH.
ETH Valuation and Value Accrual Mechanisms
- Santi challenges the speakers on how to justify ETH's $300 billion+ valuation, especially given the self-referential nature of much on-chain activity.
- Tom Dunleavy reiterates his thesis: value L1s based on the "amount [of value] that is secured." This includes current and projected assets, applications, and users. The cost to attack the network (i.e., acquire enough ETH to compromise consensus) should theoretically underpin ETH's value.
- He draws an analogy to the US, where tax revenue is a fraction of total economic activity, but notes ETH is different because holding more ETH directly impacts network consensus, unlike holding more USD.
The Bull Case for Ethereum: Towards 10k and Beyond
- Tom Dunleavy lays out his bull case, suggesting "10k ETH" is possible in the next 18-24 months. He believes assets are coming on-chain faster than anticipated, citing the Maldivian government's plan to tokenize $9 billion in real estate as an example.
- The catalysts, he argues, are numerous "incremental steps": improved BD through Etherealize, L1 scaling, better L2 integration, and enhanced coordination within the ecosystem.
- Ryan Berckmans declares himself an "Ethereum megabull," envisioning ETH as a "multi-trillion dollar asset" that will "eat the economic world." He contrasts Ethereum's modular L1+L2 architecture, which "scales the way the world actually works," favorably against what he sees as Solana's monolithic scaling challenges.
- Berckmans states, "Ethereum is now through the woods... and it offers the world what it actually needs."
Portfolio Perspectives and L2 Token Viability
- Regarding personal portfolios, Tom Dunleavy mentions holding ETH and Solana in roughly equal proportion previously (though now leaning more towards ETH due to improved confidence in Ethereum's execution) alongside some longer-tail plays. He remains critical of the standalone value proposition of many L2 tokens.
- Ryan Berckmans disagrees on L2 tokens, believing the "best ones will be very very good" if they can justify their existence through strong L2 performance and tokenomics.
- His second-largest holding is World Chain, citing its high growth, prominent token, and association with Sam Altman. He sees it as having "Base-like growth with a token."
Concluding Thoughts: Addressing the Final Hurdles
- Tom Dunleavy concludes by emphasizing that while he's "enormously bullish Ethereum," the community must address the "last 2%" of issues to realize its full potential.
- Ryan Berckmans offers a final powerful statement: "Ethereum is 15% of the market cap of Bitcoin and 1.5% the market cap of gold. And as onchain grows a thousandx in the coming years and the lion share of it is on Ethereum, it's going to become obvious to folks that... Ethereum is going to end up being much more important than people think."
Reflective and Strategic Conclusion
This episode underscores Ethereum's strategic refocus on L1 scaling and ecosystem cohesion as critical drivers for future growth. Crypto investors and researchers should monitor the progress of L1 upgrades, L2 interoperability solutions, and Ethereum's business development efforts, as these will significantly influence its competitive positioning and value accrual.
