The strength demonstrated by assets during downturns, especially their performance compared to other assets, is an indicator that provides us with a lot of information. The declines in asset prices are only bought by the inelastic demand for the asset or by investors who believe that at certain prices, the return on these assets will ensure the recovery of investments within a certain period.

Fees Paid by L2

These market downturns coincide with a clear deterioration in the demand for Ethereum for various reasons. The most important one is the decline in fees paid for L2, as we can see in this chart.

The rationale behind this modification is to try to enable the Ethereum ecosystem to scale, allowing for much more activity. We could say that this objective has been achieved and is reflected in charts like the following one. The activity has multiplied by 20 times thanks to the reduction in the cost paid to Ethereum.

The complex question to answer is when the L2s will compensate Ethereum for this growth in activity. An increase that should occur when this space begins to exceed its maximum occupancy, and then the auction of that space can raise its price. This leads us to consider whether this price discovery may have been optimal for this revenue transition. It creates an environment of low incremental revenue, positioning us in a dichotomous space: either zero revenue or potentially substantial revenue.

To make an analogy, it's as if a traditional airline suddenly transitioned to a low-cost model overnight. It probably wouldn't have been able to handle such a rapid change in its revenue/expense structure. In the long run, it might have been the right strategic decision since the low-cost model is the foundation of the airline business. However, the approach is extremely complex to manage, as while the goal should be to lead that business model in the long term, the viability risk during the transition becomes a critical factor.

Issuance and asset profitability

At the same time, there is currently a strong consensus on reducing the profitability of Staking due to the high percentage of Ethereum being staked. There are significant reasons to understand that this poses a risk to the ecosystem that needs to be addressed, but it also reduces the attractiveness of Ethereum as an asset, and thus its demand from an investment perspective.

The culture of Ethereum shows a certain reluctance toward investors, and it is certainly secondary to other project decisions.This can be seen in the lack of strategic direction that Issuance has traditionally had, which is the foundation upon which investors build their scenarios for investing.

EIP 1559 represents a significant change because it addresses the need to understand that the asset's price is also crucial for the project's development. The ecosystem's ability to secure funding is directly related to the asset's price, and for that, it is important that holding the asset has a financial component, not just a cultural or philosophical one. Otherwise, this would take us back to business models that have been extensively explored around open-source software

Reducing the return from staking inevitably diminishes the asset's attractiveness. If it even becomes negative, it could have an adverse effect. In fact, an attractive staking yield has been a significant driver for other ecosystems, albeit postponing the issue of sustainability.

In the presentation in Brussels, Vitalik mentioned as a possible scenario the potential to increase Ethereum's capabilities to also scale as L1, something that would undoubtedly be positive for the direct demand for Ethereum

Conclusions

There are many other sources of demand for the asset, such as being a native digital asset that serves as excellent decentralized collateral. The level of decentralization continues to be a security guarantee, both technologically and legally (due to having highly decentralized governance). However, in such a competitive environment, having financial resources remains crucial for an ecosystem. Deteriorating the demand for the asset and especially its attractiveness as a financial asset could significantly limit its competitiveness in the future. The primary activity on Ethereum today is financial, primarily stablecoins and trading, so having an attractive underlying asset certainly becomes a competitive advantage that should not be relinquished.