Ethereum
Analyst: Arbitrage and Optimism Have No Chance Against Superior Ethereum
Ethereum (ETH), one analyst insists, will continue to outperform layer 2 tokens like Arbitrum, Optimism and others in the months to come.
Discussions about when Ethereum-based altcoins will overthrow Ethereum have been constant for years.
Even with the rise of DeFi, which has propelled market leaders like UniswapMaker, Aave and other top projects, Ethereum remains undisputed in second place, trailing only the world’s most valuable platform, Bitcoin.
Q: What matters most for L2s to accumulate value in L1 ETH?
– Use ETH as a gas token?
– Use ETH DA rather than Alt DA?
– Is ETH used as “currency” on L2 (e.g. to mint NFTs)?
– L2 says it is aligned with ETH 😬?
– Something else? pic.twitter.com/10CIQwJkXW– Matt Huang (@matthuang) April 3, 2024
However, the dynamism of crypto now means that analysts are comparing Ethereum to its scaling solutions such as rollups, mainly Arbitrum, Base, Optimism and even sidechains like Polygon.
Analyst Makes Strong Case for Ethereum Layer 1
By taking solid arguments for ETH to expand gains compared to layer 2 tokens like ARB and OP.
Would you rather own ETH or a basket of L2?
A relative analysis framework:
1. Price/Sales: ETH has a 365-day P/S ratio of 156. ARB, OP, STRK stand at 194 (fully diluted).
2. Token Unlock/Circulating Supply Change: ETH was deflationary last year (-0.28%) and is underway… pic.twitter.com/WCuWWYyt3t
– Michael Nadeau (@JustDeauIt) June 17, 2024
While the benefits of relying on Ethereum layer 2 solutions are clear, many still believe that ETH, as a token, has more utility than layer 2 tokens and could, over time, years, continue to outperform.
According to the founder, one of the main advantages of ETH over layer 2 tokens is the strong financial parameters of the coin. It is worth noting that ETH, he adds, has an annual price-to-sales (P/S) ratio of 156. Meanwhile, layer 2 tokens have a higher ratio of 194.
This means that investors view ETH as a better asset based on current earnings.
Beyond that, the founder notes that ETH is deflationary. Last year he note that it had a deflation rate of -0.28% and remains largely deflationary this year. On the other hand, layer 2 tokens are inflationary, with millions or even billions of tokens unlocked or ready to be released.
The more tokens released, the higher the dilution rate, capping the winnings. This year alone, ARB, OP, and major layer 2 tokens have seen declines in the face of increasing dilution.
ETH Has More Utility Than Layer 2 Token Scaling
The analyst further observed that ETH offers a wider range of features than layer 2 tokens. For example, although it rewards validators with gas fees, it can also be staked for a almost risk-free annual return.
The coin is also a base currency for various on-chain products like NFT and decentralized money markets.
Since EIP-1559 allows for the burning of ETH, the coin’s value could continue to rise as the network gains greater adoption. Token burning functionality and broader utility are missing in Layer 2 tokens; most of them are mainly used for voting.
DISCOVER: How to Buy Ethereum in June 2024 – Beginner’s Guide
Bottom line: Spot Ethereum ETFs are a game changer
The arrival of Ethereum spot ETFs would be a game changer for ETH, allowing institutions to gain exposure. As billions flow into the coin, its gap with layer 2 tokens and even top altcoins will only increase.
Even though Ethereum dominates, the role of layer 2 platforms is crucial.
Ethereum and Layer 2 solutions will coexist and, more importantly, play a complementary role as the mainnet secures Layer 2, providing faster and cheaper transactions for specific use cases.
Warning: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose your entire capital.