Ethereum’s recent price underperformance has caught the attention of industry experts, with Kyle Samani, managing partner at Multicoin Capital, offering a critical assessment of the situation. In an interview with the Bankless crypto podcast, Samani pinpointed two key factors contributing to Ethereum’s struggles: broken Layer-2 interoperability and the shifting of value capture to Layer-2s.
Samani highlighted the frustration users face when trying to move assets between Ethereum’s various Layer-2 blockchains, such as Arbitrum and Optimism. The lack of seamless integration across these Layer-2s makes Ethereum’s ecosystem less appealing compared to more unified chains like Solana. He expressed skepticism that Ethereum can fully address this interoperability issue, given the divergent incentives of different Layer-2 projects.
Furthermore, Samani argued that Ethereum has inadvertently relinquished its primary source of value capture by outsourcing transaction execution to Layer-2s. This shift has led to a decrease in transaction fees, with miners extracting value primarily through MEV (Miner Extractable Value). Samani believes transaction fees will continue to trend towards zero, leaving MEV as the sole significant source of value for blockchains.
Samani also dismissed the notion that Ethereum can become a stable store of value, emphasizing its inherent volatility. He argued that this volatility makes Ethereum unsuitable for everyday transactions or long-term contracts. Samani is skeptical of both Bitcoin and Ethereum’s monetary premium narratives, believing non-productive assets have no place in investment portfolios.
Based on these structural issues, Samani paints a challenging picture of Ethereum’s future, questioning its current $300 billion valuation. While acknowledging Ethereum’s strong network effects, he believes competitors like Solana offer a superior user experience that will continue to attract capital over time. The upcoming Benzinga’s Future of Digital Assets event on November 19 will delve deeper into the influence of Ethereum as an institutional asset class.
