Ethereum is pivoting towards L1 scaling and privacy. The DTCC, the backbone of the U.S. stock market with $100 trillion in assets, is beginning its migration on-chain. It seems a promising new wave of crypto is on the horizon.
However, the profit logic for institutions and retail investors is fundamentally different.
Institutions possess immense tolerance across time and space. A ten-year investment horizon and leveraged arbitrage on minuscule spreads are far more reliable than a retail investor's fantasy of 1000x returns in a year. In the coming cycle, we may witness the peculiar spectacle of on-chain prosperity, institutional influx, and retail investors under pressure, all occurring simultaneously.
Do not be surprised. This logic has been repeatedly validated by BTC spot ETFs and DATs, the complete disappearance of BTC's four-year cycle and altcoin seasons, and the Korean phenomenon of "abandoning coins for stocks."
Post-October 11th, CEXs, the last bastion for project teams, VCs, and market makers, have officially entered garbage time. The greater their market influence, the more it leads to conservative strategies, which in turn erodes capital efficiency.
The worthlessness of altcoins and editors posting memes are merely episodes of a predetermined path collapsing under its own weight. Migrating on-chain is a move born of necessity, but it will differ somewhat from the free and prosperous world we imagined.
We originally hoped to use wealth effects to numb the loss of belief in decentralization. Let's hope we don't end up losing both freedom and prosperity.
Today will be the last time I discuss concepts like decentralization and cypherpunk. The old tales of freedom and its betrayal can no longer keep pace with the relentless wheels of time.
Decentralization: The Birth of the Pocket Computer
DeFi is not built upon Bitcoin's ideology and entity. It never has been.
Nick Szabo, creator of "smart contracts" (1994) and Bit Gold (first proposed in 1998, refined in 2005), and the inspiration behind core Bitcoin concepts like Proof of Work (PoW) and timestamped records.
He once affectionately called Bitcoin a pocket computer and Ethereum a general-purpose computer. However, after The DAO incident in 2016, where Ethereum decided to roll back transaction records, Nick Szabo became a critic of Ethereum.
During the 2017-2021 ETH bull cycle, Nick Szabo was seen as an outdated relic.
On one hand, Nick Szabo genuinely believed Ethereum surpassed Bitcoin, achieving better disintermediation. At that time, Ethereum fully implemented PoW and smart contracts.
On the other hand, Nick Szabo believed Ethereum reformed its governance system from the perspective of trustlessness. The DAO mechanism for the first time enabled efficient interaction and collaboration among strangers on a global scale.
This allows us to outline what decentralization actually refers to: Technical disintermediation -> pricing cost + transaction consensus; Governance trustlessness -> minimization of trust.
Image Caption: Components of Decentralization
Image Source: @zuoyeweb3
Disintermediation: No reliance on gold or governments, but on computational work as proof of individual participation in Bitcoin production.
Trustlessness: No reliance on human social relationships, but operating under the principle of minimized trust to foster openness and create network effects.
Although Satoshi Nakamoto was influenced by Bit Gold, he was noncommittal about smart contracts. Guided by a philosophy of simplicity, while retaining the possibility of combining opcodes for complex operations, the overall practice centered around peer-to-peer payments.
This is also why Nick Szabo saw hope in PoW ETH—complete smart contracts and "self-restraint." Of course, Ethereum encountered L1 scaling obstacles similar to Bitcoin's. Vitalik ultimately chose L2 scaling to mitigate damage to the L1 core.
This "damage" primarily refers to the full-node size crisis. After losing Satoshi's optimizations, Bitcoin raced down the path of no return towards mining rigs and hash rate competition, effectively excluding individuals from the production process.
Image Caption: Blockchain Node Size
Image Source: @zuoyeweb3
Vitalik at least resisted. Before surrendering to the data-center-chain model in 2025, even while transitioning to PoS, he tried to preserve the existence of individual nodes as much as possible.
Although PoW is equated with hash rate + power consumption, establishing its fundamental production cost, in the early days of the cypherpunk movement, the combination of Proof of Work and timestamps was meant to confirm transaction times, forming an overall consensus and enabling mutual recognition on that basis.
Therefore, Ethereum's shift to PoS fundamentally removes individual nodes from the production system. Coupled with the "costless" ETH accumulated from ICOs and nearly $10 billion from VCs poured into the EVM+ZK/OP L2 ecosystem, an immense institutional cost base has been amassed invisibly. One could entirely view ETH DAT as a form of institutional OTC exit.
After the failure of technical disintermediation, while node explosion was controlled, it led to mining pool clusters and hash rate competition. Ethereum went through several iterations from L1 (sharding, sidechains) -> L2 (OP/ZK) -> back to L1, ultimately embracing large nodes in practice.
It must be objectively stated: Bitcoin lost smart contracts and the "individualization" of hash power; Ethereum lost node "individualization" but retained smart contracts and ETH's value capture ability.
And subjectively evaluated: Bitcoin achieved governance minimization but relies heavily on the "conscience" of a few developers to maintain consensus. Ethereum ultimately abandoned the DAO model, shifting towards a centralized governance model (theoretically not, but in practice, Vitalik can influence the Ethereum Foundation, and the Ethereum Foundation can guide the direction of the Ethereum ecosystem).
There is no hidden agenda here to disparage ETH and elevate BTC. In terms of wealth effect and token price, early investors in both have been successful. But from the perspective of decentralization practice, the possibility of either changing course is no longer visible.
Bitcoin will almost certainly not support smart contracts; Lightning Network and BTCFi are still focused on payments. Ethereum retained smart contracts but abandoned PoW's pricing benchmark. Moreover, beyond trustlessness/minimized trust, it chose to build a centralized governance system—a historical regression.
The rights and wrongs, merits and demerits, will be left for future generations to judge.
The Intermediary Economy: The Fall of the World Computer
Where there is organization, there is inevitably internal strife. Where unity is emphasized, centralization is inevitable, followed by the spontaneous birth of bureaucracy.
In token pricing mechanisms, there are two types: narrative and demand. For example, Bitcoin's narrative is application-oriented—peer-to-peer electronic cash—but people's demand for Bitcoin is digital gold. Ethereum's narrative is the "world computer," but people's demand for ETH is application-oriented—Gas Fee.
The wealth effect is more friendly to the PoS mechanism. Participating in Ethereum staking first requires ETH, and using Ethereum's DeFi also requires ETH. ETH's value capture ability in turn reinforces the rationality of PoS. Driven by real-world demand, Ethereum was correct to abandon PoW.
But on the narrative level, the model of transaction volume ✖️ Gas Fee closely resembles SaaS and Fintech, failing to match the grand narrative of "computing everything." When users who don't use DeFi leave, ETH's value cannot be sustainably supported.
Ultimately, no one uses Bitcoin for transactions, but there will always be those who want to use Ethereum to compute everything.
Image Caption: BTC and ETH Address Profitability
Image Source: @TheBlock__
Decentralization ≠ wealth effect. But after Ethereum's shift to PoS, it has tacitly accepted that ETH's capital value is its sole pursuit. Price fluctuations will repeatedly attract excessive market attention, further interrogating the gap between its vision and reality.
In contrast, the price fluctuations of gold and Bitcoin are already highly equated with shifts in fundamental market sentiment. People worry about the world situation when gold surges, but no one doubts Bitcoin's fundamental value when its price falls.
It's hard to say that Vitalik and the EF caused Ethereum's "de"-decentralization, but it must be admitted that the Ethereum system is increasingly becoming intermediary-centric.
During 2023/24, it became fashionable for Ethereum Foundation members to serve as advisors to projects, such as Dankrad Feist for EigenLayer. But few remember the unclear connections between The DAO and several Ethereum core members.
This situation only subsided after Vitalik announced he would no longer invest in any L2 projects. However, the systemic "bureaucratization" of the entire Ethereum ecosystem had already become inevitable.
In a sense, "intermediary" does not necessarily carry negative connotations like "broker." It refers to efficiently matching and facilitating mutual needs. For example, the Solana Foundation, once considered an industry model, generally promotes project development from the perspectives of market and ecosystem growth.
But for ETH and Ethereum, ETH should become an "intermediary" asset, while Ethereum itself should maintain complete openness and autonomy, preserving the technical architecture of a permissionless public chain.
Image Caption: Ethereum DEX Volume by Token
Image Source: @blockworksres
Within the Ethereum ecosystem, there are signs of stablecoins gradually replacing ETH. As liquidity migrates on-chain with Perp DEXs, USDT/USDC is also profoundly altering the old landscape. The story of stablecoins replacing ETH/BTC as benchmark assets, already played out within CEXs, will repeat on-chain.
