Are Ethereum Venture Capitalists Losing Hope In ETH?

1 year ago 1 year ago

Ethereum venture capitalists (VCs) are “not stupid” and know that investing in the world’s largest smart contract platform won’t result in the “multiples” they desire, according to a crypto user. Going by the handle R89Capital, claims that VCs are now looking at Ethereum layer-2 assets as vehicles to exit the market, dumping “Ponzi tokens.”

Ethereum VCs Exiting ETH For “Ponzi” Tokens?

The user opines that the primary reason why ETH prices may not surge in multiples like emerging tokens, including meme coins like PEPE, for instance, is because of the relatively large market cap.

According to trackers on October 31, ETH has a market cap of over $215.8 billion and is the second largest after Bitcoin (BTC). Typically, coins with higher market caps are harder to manipulate and usually have found more institutional adoption than emerging tokens.

Ethereum price trends to the upside on the daily chart | Source: ETHUSDT on Binance, TradingView

This is because projects with higher market capitalization are more liquid, have higher name recognition, and have had more adoption from a wider range of users. Even so, while these higher market cap tokens are easier to buy in the secondary market due to their higher levels of liquidity, they generally tend to be less volatile than low market cap tokens. Thus, they are often not as good of an investment in terms of returns, but they provide more stability and reliability than other tokens.

These low-market tokens can also be held for speculative reasons primarily due to their upside potential, especially in trending markets. This means that low-market tokens, regardless of the issuing platform, appeal to profit-seeking speculators, not due to underlying fundamentals.

R89Capital aligns with this preview to allege that VCs, looking to recoup their investment, are launching Ponzi tokens on general-purpose layer-2 platforms before dumping them for ETH and eventually exiting for USD.

In this case, Ponzi tokens, as claimed, are low-market coins that can be meme coins or other well-marketed projects. These tokens have higher upsides, are liquid enough, and can be sold for ETH in layer-2 decentralized exchanges or popular ramps like Binance or Coinbase.

The Ethereum Technical Debt: Scaling Remains A Big Issue

Despite this, R89Capital did not provide a specific list of layer-2 projects that it regards as “Ponzis”, but did note that the primary reason Ethereum is capped in supply is due to its high technical debt. Technical debt, in this context, refers to the extra effort and resources required to complete a project as a result of mistakes or shortcuts taken in the development process. As the Ethereum blockchain grows and with the addition of new technologies and features, the accumulation of technical debt has become an ever more pressing issue. As such, the long term sustainability of Ethereum depends heavily on the success of the current scaling solutions and those in the pipeline, such as layer-2 solutions which can offload some of the workload.Over the years, Ethereum developers have been launching new products and scaling solutions, of which the transition from a proof-of-work to a proof-of-stake system and adoption of layer-2 solutions stand out. Even so, scaling remains a challenge impacting user experience, especially when token prices begin rallying.

It is not unusual for gas fees on Ethereum to spike to double-digits in a bull market, discouraging deployment while catalyzing migration of some transactions to competing platforms like Solana or layer-2 scaling solutions like Base or Optimism.

Feature image from Canva, chart from TradingView

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