Ethereum and Bitcoin are under the spotlight as two key figures in the cryptocurrency world shed light on their evolving dynamics. Ethereum co-founder Vitalik Buterin has proposed a new framework for measuring how closely projects align with Ethereum's values, while cryptocurrency analyst Leon Waidmann highlights Ethereum's better performance in Grayscale ETF liquidity when compared to Bitcoin.
Vitalik Buterin Calls for Ethereum Alignment: A Metric-Based Approach to Strengthening the Ecosystem
In a recent blog post, Ethereum co-founder Vitalik Buterin emphasized the importance of aligning projects within the Ethereum ecosystem with a shared set of values. Published on Sept. 28, 2024, Buterin discussed what he called "Ethereum alignment," outlining how crucial it is to maintain cohesion in one of the most influential blockchain networks in the world.
Buterin argued that achieving alignment across a diverse set of contributors—ranging from developers and researchers to local communities—remains one of Ethereum's greatest social challenges. However, he also acknowledged that this is no small feat, given the complexity and diversity of the Ethereum ecosystem.
“The primary challenge,” Buterin explained, “is making sure that all these projects are, collectively, building something that feels like one Ethereum ecosystem, and not 138 incompatible fiefdoms.”
Ethereum is known for its open-source nature and decentralized ethos, but these qualities can also create fragmentation. As new projects, applications, and communities emerge, they often pursue unique visions that may not always be in sync with the core principles of Ethereum. To prevent such fragmentation, Buterin proposed establishing a set of metrics that can be used to measure how well projects align with Ethereum's broader values.
Buterin believes that creating these alignment metrics will foster collaboration and ensure that Ethereum continues to operate as a unified network rather than a series of disjointed projects. He identified several key areas where alignment could be measured, such as the open-source nature of a project, its level of interoperability, and the degree to which it adheres to decentralization and security principles.
Open Source as a Cornerstone
One of the foundational aspects of Ethereum alignment, Buterin noted, is whether a project is open source. Open-source projects allow their code to be inspected, which is crucial for security. More importantly, open-source development reduces the risk of proprietary lock-in, where users become dependent on a single company or entity. By keeping the code open, third parties can freely build on top of it or improve it, promoting innovation and preventing monopolies from forming within the Ethereum ecosystem.
However, open-source development isn’t the only factor Buterin identified as a pillar of alignment.
Another key metric Buterin suggested was interoperability—how well a project can work with others within the Ethereum network. He proposed that applications and wallets could be rated based on their compatibility with Ethereum’s technical standards, such as ERCs. By adhering to these standards, projects can ensure they remain a functional part of Ethereum’s broader ecosystem, enabling seamless interaction between applications.
For instance, a decentralized finance (DeFi) platform that supports multiple ERC-20 tokens and integrates well with Ethereum wallets and other decentralized applications (dApps) would be considered highly interoperable. This, in turn, would enhance the user experience and strengthen the Ethereum ecosystem as a whole.
In his blog, Buterin also introduced decentralization and security as two critical factors for evaluating Ethereum alignment. To measure these, he suggested using what he called the "walkaway" and "insider attack" tests.
1. Walkaway Test: This test assesses whether a project can function independently if its core team or infrastructure disappears. A decentralized application (dApp) should ideally continue to operate even if the team behind it were to disband or if its servers were taken offline.
2. Insider Attack Test: This evaluates the potential damage a project’s team could do if they decided to exploit the system from within. The more resilient a project is to insider threats, the more aligned it is with Ethereum’s decentralized and trustless ideals.
These tests show the importance of security and decentralization—two of the most important principles behind blockchain technology. By emphasizing these metrics, Buterin is advocating for a network that can thrive independently of any single point of failure, ensuring its longevity and security.
Buterin didn’t stop at technical and structural metrics. He also highlighted the social impact of projects as a potential criterion for Ethereum alignment. He urged the community to consider whether projects are contributing positively to the Ethereum ecosystem and to humanity at large. For example, projects that enhance financial inclusion, democratize access to financial tools, or introduce innovative funding mechanisms for public goods could be considered highly aligned with Ethereum’s values.
In Buterin’s view, Ethereum is not just a technological platform but a movement that has the potential to drive significant positive change in the world. Projects that share this vision of improving global financial systems and empowering individuals should be encouraged and supported within the ecosystem.
Credible Neutrality: The Guiding Principle
Throughout his blog post, Buterin stressed the importance of Ethereum remaining credibly neutral. He warned against the ecosystem devolving into a space where connections and influence dictate success. "If alignment means having the right friends, then ‘alignment’ as a concept has failed," he wrote.
This neutrality is essential for ensuring that Ethereum remains an open and inclusive platform where projects succeed based on their merit rather than political alliances or marketing prowess. Buterin’s stance is a clear reminder that the Ethereum ecosystem should prioritize substance over hype—a sentiment echoed by other community members.
In July, Ethereum community member Ryan Berckmans emphasized the importance of limiting marketing efforts in the Ethereum space. He argued that aggressive marketing could lead to an environment where winners and losers are determined by partnerships rather than innovation, ultimately harming the ecosystem in the long run.
While Buterin remains one of the most influential voices in the Ethereum community, his central role has also drawn criticism. In a recent interview, Cardano founder Charles Hoskinson pointed out that Ethereum could be overly dependent on Buterin for direction. Hoskinson suggested that without Buterin, Ethereum’s ability to execute its future roadmaps might be jeopardized.
“Everybody looks to him for the roadmap. Everybody looks to him for inspiration, and he’s also the only person who has enough power to rally people,” Hoskinson said. He questioned whether Ethereum could progress as swiftly without Buterin at the helm.
Ethereum Outperforms Bitcoin in Grayscale ETF Liquidity Dynamics: Analyst Leon Waidmann's Insight
According to Leon Waidmann, Head of Research at Onchain Foundation, Ethereum is showcasing a stronger liquidity profile compared to Bitcoin, particularly when analyzing the flow of funds in Grayscale’s cryptocurrency-based investment products.
Since the conversion of Grayscale’s over-the-counter (OTC) trusts to spot ETFs earlier this year, Waidmann has tracked the liquidity dynamics in both Bitcoin and Ethereum-based products. His findings suggest that Ethereum has demonstrated more resilience in maintaining liquidity than Bitcoin, indicating better potential for future upside.
Waidmann's analysis focuses on the first 50 days of Ethereum’s performance as a spot ETF. According to his data, the Ethereum-based product has been losing liquidity at a slower rate compared to Bitcoin. This slower outflow suggests that investors are showing more confidence in Ethereum, potentially setting the stage for stronger price action and growth in the coming months.
The launch of Bitcoin spot ETFs in the US on Jan. 11, 2024, marked a significant milestone for the cryptocurrency sector. This was followed by Ethereum’s own spot ETF launch on July 23, 2024. Grayscale, one of the most prominent asset managers in the cryptocurrency space, converted its respective Bitcoin and Ethereum OTC-traded products into ETFs following these launches.
Waidmann’s research reveals that while both Bitcoin and Ethereum have experienced outflows from their ETF products, Ethereum's outflows have been more manageable, reflecting a stronger retention of liquidity. If this trend persists, it could give Ethereum a larger upside compared to Bitcoin.
The battle between Ethereum and Bitcoin for dominance in the crypto markets is long-standing, but recent metrics from Grayscale's ETFs reveal a fascinating shift in the dynamics between the two leading digital assets. Waidmann’s data highlights that despite Bitcoin's longstanding dominance, Ethereum's ETF outflows have remained more controlled, indicating a higher level of investor confidence.
On Sept. 15, 2024, the ETH/BTC ratio dropped below 0.04 for the first time in over three years. Since the Ethereum Merge—a significant upgrade that transitioned Ethereum from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism—Ethereum’s price relative to Bitcoin has fallen by more than 55%.
Despite this drop in the ETH/BTC ratio, the fact that Ethereum ETFs are showing better liquidity retention than Bitcoin suggests that investors may be holding their ETH positions with the belief that Ethereum has stronger long-term potential.
While Ethereum may be outperforming Bitcoin in terms of ETF outflows, Bitcoin has seen a significant surge in inflows over the last week. According to data from CoinGlass, Bitcoin-based ETFs have registered positive inflows for seven consecutive days, accumulating over $1.35 billion in assets under management (AUM) during this period.
The most notable inflows occurred on Sept. 18, 2024, when Bitcoin ETFs added nearly $0.5 billion in AUM in a single day, making it the most productive session for Bitcoin ETFs since mid-July. ARK Investments, a major player in the crypto ETF space, contributed over $200 million to this sum, signaling strong institutional interest in Bitcoin.
Despite these positive inflows for Bitcoin, Ethereum’s ETF performance continues to send mixed signals. Over the last week, Ethereum spot ETFs recorded five positive days and two negative days, with a net inflow of $93.2 million across all publicly traded Ethereum ETFs.
Ethereum's Liquidity Resilience and Market Implications
Waidmann’s research uncovers an important trend in the cryptocurrency ETF market: while Bitcoin continues to attract short-term capital inflows, Ethereum's ability to retain liquidity over time could offer stronger long-term potential. This liquidity resilience, coupled with Ethereum’s ongoing technological advancements and ecosystem growth, suggests that Ethereum may be better positioned for future market gains.
One of the key factors supporting Ethereum’s long-term outlook is its transition to proof-of-stake through the Merge, which has significantly reduced the network's energy consumption while enhancing its scalability. These improvements are likely to play a critical role in attracting more institutional interest in Ethereum, especially as the demand for environmentally sustainable blockchain solutions continues to grow.
Moreover, Ethereum’s role as the foundational layer for decentralized finance (DeFi) and non-fungible tokens (NFTs) adds another dimension to its market potential. The Ethereum blockchain supports a wide range of decentralized applications, making it a versatile asset in the evolving digital economy.
While Bitcoin remains the largest and most well-known cryptocurrency, Ethereum’s liquidity dynamics and growing institutional interest suggest that the second-largest cryptocurrency by market capitalization could soon narrow the gap. The slower rate of outflows from Ethereum-based ETFs, as observed by Waidmann, points to stronger confidence in Ethereum’s long-term potential.
However, Bitcoin’s short-term inflows and its status as the first cryptocurrency give it continued relevance and appeal, particularly for investors seeking a store of value in turbulent markets. The surge in Bitcoin ETF inflows over the last week underscores the persistent demand for Bitcoin among both retail and institutional investors.
Ultimately, the competition between Ethereum and Bitcoin is far from settled. Ethereum’s liquidity resilience and broader use case in DeFi and NFTs give it a compelling narrative for growth, while Bitcoin’s role as digital gold ensures its place in the portfolios of investors looking for a safe haven asset.
