Leaping over the Ethereum Madhouse

Written by Yanz & Liam

Editor: Liam

“I’m really selling it this time!”

On April 22, the ETH/BTC exchange rate briefly fell to 0.01766, setting a new low since 2020.

Lin Feng, who had been investing and holding Ethereum for four years, could no longer bear it and posted a heartbreaking statement on WeChat Moments. Compared with a simple loss, this was more like a collapse of faith and a farewell to a dream.

On the same day, institutional investors also took action.

Galaxy Digital swapped ETH for SOL, and crypto VC Paradigm also transferred 5,500 ETH (about 8.66 million US dollars) to the brokerage platform Anchorage, presumably in preparation for sale.

The most ironic thing is that another organization, the Ethereum Foundation, has joined the army of selling coins. A wallet associated with the Ethereum Foundation deposited 1,000 ETH (about $1.58 million) into Kraken.

Ethereum, a project once regarded as the flag bearer of the blockchain revolution, seems to have reached its darkest hour.

Behind this collective escape are stories of people being forced to say goodbye to their ideals, as well as difficult choices between faith and interests.

All of this was recorded, witnessed, and remembered in the group chat called "Ethereum Madhouse".

Ethereum Madhouse

"Our initial group name wasn't actually 'Ethereum Madhouse', but 'I was wrong, I regret buying Ethereum'."

On February 3, 2025, the cryptocurrency market fell collectively, and Ethereum plummeted by 25% at one point, hitting a low of $2,080.19 per coin, catching many Ethereum holders off guard, including Orange.

Orange, who previously worked for a venture capital firm (VC), entered the crypto market in 2021. His research on Ethereum technology laid the foundation for his belief in entering the circle.

However, the drop in Ethereum price to $3,300 made Orange feel uneasy. He kept muttering to himself, and a group chat "I was wrong, I regret buying Ethereum" came into being.

On February 3, Orange was even more panicked - "I can't run away, what should my brothers do?"

In order to seek psychological comfort and to keep each other warm, this small group, which originally had only 6 friends, began to welcome more "people who made mistakes": there were super big investors like Dachengzi and Du Jun, as well as VC executives. Everyone gathered here to heal each other and seek psychological comfort.

As Ethereum continued to fall, the number of “patients” increased day by day, gradually expanding and stabilizing to 250 in just one month - Orange said: "Buying Ethereum is 'idiot'" , this deliberately controlled number carries a bit of self-deprecation.

“At first, some people called for buy the dips when the price was $3,000, but then it dropped to $2,500 and $2,100, and the voices for buy the dips became smaller and smaller. In the end, everyone started to joke that those who wanted to buy the dips should ask Professor Yang Yongxin to give them a call. So we changed the name of the group to “Ethereum Madhouse” because everyone felt that they had gone crazy.”

Image source: Big Orange @0xVeryBigOrange

As the group leader, Juzi witnessed all of this. He was an observer and one of the people locked up in the insane asylum. But he could do nothing about it. It could even be said that most people who stayed in the group could do nothing about it.

Orange couldn't help but miss the summer of 2020.

That summer, Uniswap's trading volume exceeded that of Coinbase, the liquidity mining promoted by Compound made countless people rich overnight, and the concept of decentralized finance DeFi swept the entire cryptocurrency world.

DeFi Summer is like a frenzy of technology feast. Ethereum, as the protagonist of this feast, has attracted the attention of countless investors and developers.

For traditional Web2 VC practitioners like Orange, this is not only an opportunity to make money, but also an enlightenment and baptism of thought.

“We did a lot of research at the time,” Orange recalled. “Vitalik and the Ethereum Foundation (EF) drew a lot of ‘BTC’, such as sharding technology (Sharding), zero-knowledge proof (zk)... At the time, we felt that this was the future.”

Similarly, Lin Feng also bought Ethereum in the midsummer of 2020. At that time, he was full of hope and expectation, and was excited about Ethereum's vision of becoming the "world computer".

“As an Ethereum holder at that time, I was very proud. This is a real value investment and an innovation at the level of human civilization.”

In addition to individuals like Orange and Lin Feng, a large number of traditional VCs also entered the emerging field of Web3 that summer with curiosity and longing for the new world.

As the founder and spiritual leader of Ethereum, Vitalik's every word and action has attracted widespread attention, and everyone has followed Vitalik's guidance in investment layout. A large number of VCs have bet heavily on Ethereum's ecological infrastructure. The valuations of ZK and Layer2 tracks that Vitalik is optimistic about have skyrocketed. Scroll is valued at $1.8 billion, zkSync is valued at $2 billion, and Starknet is valued at $8 billion... All kinds of capital have entered the market, betting on Ethereum's expansion dream.

However, after the DeFi Summer craze subsided, in the new cycle, the technological narrative was abandoned by investors and replaced by the opposite of technology, MEME, as if it were a mockery.

"We were very firm in our belief that Solana would not become the 'Ethereum killer', but now it seems that the market doesn't care about core issues such as privacy and security at all." This deviation made Orange feel helpless, but what really put him in trouble was his deep affection for Ethereum.

As a loyal believer, he not only held a large amount of Ethereum in the bull market, but also chose to stake ETH in exchange for long-term returns. However, when the market entered a cold winter, the price of ETH plummeted, and the pledged assets could not be withdrawn, Orange, like many members of the Madhouse, was caught in a dilemma.

In fact, most of these trapped people are not speculators with the mentality of "getting rich overnight". Instead, they are long-term holders who have experienced multiple rounds of market fluctuations and have a certain understanding of Ethereum, commonly known as old leeks.

The irony of this cycle is vividly reflected here - paper hands are rewarded for PVP, while diamond hands are punished, and they are constantly experiencing the dual torture of reality and cognition.

For them, Ethereum is both a symbol of hope and an inescapable shackle.

They love Ethereum because it represents technological innovation and future possibilities; they also hate Ethereum because the pain and hardship caused by price drops are real.

For Lin Feng, the pain of selling Ethereum comes from real financial losses, but more from "damage to his moral integrity". He entered the crypto world because of Ethereum and called himself a value investor. He used to be proud of investing in Ethereum, but now reality makes him deny his former self. What makes him even more ashamed is that he found that the faith he once boasted about was not firm. In the face of the continuously falling K-line, he simply couldn't ignore the price, and finally chose to give up at a loss.

Lin Feng sold Ethereum and also sold his former dream.

However, most patients are still waiting in the "wards". Not only do they want to get their money back and be discharged from the hospital, but they are also waiting for another hot summer, the dream they planted in the story three years ago.

There is no new story for Ethereum

“No paradigm innovation has occurred in Ethereum this year!”

The well-known KOL Dachengzi is also a member of the Ethereum Madhouse. On Twitter, he is known as the "Head of the E Guards" by everyone.

On March 21, 2024, Big Orange tweeted that from today on, I am a die-hard Ethereum bull. If Ethereum does not reach a new all-time high before May, I will eat shit.

Despite his passion, Big Orange also admits that Ethereum currently lacks innovation.

“There is nothing new that catches people’s eyes,” said Yuan Jie, co-founder of the public chain Conflux, who calls himself the “Web3 investment director.” He once aspired to create an “Ethereum killer” and has witnessed the rise and fall of the Ethereum ecosystem.

The craze of DeFi, NFT, and GameFi in the last cycle is still unforgettable to him. "At that time, there were a lot of new things to learn every day, and in the process of learning, participation could also bring good wealth returns."

Ethereum had its best story during its “golden age”. That year, the on-chain ecosystem grew explosively, and the Ethereum “cult” reached its climax. Capital, developers, and users focused their attention on certain specific directions (such as Layer 2, DeFi, ZK technology, etc.) and expanded blindly for a time, with investors coming and going.

The narrative three years ago fueled the boom of the last cycle, but now that story is over.

Just like the land loses its fertility due to over-cultivation, Yuanjie said when talking about the present situation, " Vitalik used his personal charm to participate too deeply in guiding the direction of the industry and formulating routes, resulting in the ineffectiveness of Ethereum's resource allocation."

Whether it is a breakthrough in technology or a new application in the ecosystem, Ethereum has failed to provide enough novelty to attract the market's attention.

Like a frog in boiling water, the Ethereum main chain is facing the dilemma of "gradually barren land".

"The on-chain transaction volume and activity are very low, the entire ecosystem has become cold, resulting in Ethereum's deflation mechanism (EIP-1559) not working well." In Big Orange's view, the deflation mechanism of EIP-1559 is like a beautifully designed irrigation system, but in the absence of sufficient "water source" (liquidity), this system can only be superficial and cannot provide real nutrients for the Ethereum ecosystem.

What’s even more complicated is that “blood-sucking flowers” ​​bloomed on such barren land.

Layer 2 carries Ethereum’s dream of expansion. As the common ruler of the world, each Layer 2 regards Ethereum as the orthodoxy, but they also establish their own states and suck the value of the Ethereum main network, constantly weakening Ethereum’s control over its own ecology.

“Everyone is scrambling to transfer Ethereum assets to their own chains, because the more you transfer, the higher your points will be, and the more airdrop tokens you will get,” Yuan Jie seemed a little excited. He attributed these “blood-sucking flowers” ​​driven by a short-term profit-seeking mentality and the current ecological homogeneity to the “prisoner’s dilemma” of human nature.

Yuanjie believes that this may not be Vitalik’s original intention, but in the process of planning to use Layer2 to expand the boundaries of the Ethereum ecosystem, he ignored the fact that "everyone wants to get rich quickly and compete for the same property", and eventually "fell into a cycle of involution and self-destruction."

The Layer2 network is highly fragmented, which separates user experience and on-chain liquidity. The composability advantage that the Ethereum mainnet once boasted of during the DeFi Summer is gone. Instead, Solana has become the habitat for many consumer applications with its simple feature of being “fast”.

"When I think of ETH now, I think of ATOM. I am really afraid that ETH will repeat the mistakes of ATOM."

Lin Feng believes that ETH’s predicament is similar to that of ATOM, and both are experiencing “value transfer upstream.”

In the Cosmos ecosystem, various sovereign application chains (such as OSMO, JUNO, etc.) are interconnected through the IBC protocol, but they capture the value of their own ecosystems, and ATOM, as a central hub, fails to effectively capture value from these chains.

After the rise of various Ethereum L2s, they obtained a large amount of MEV and transaction fee income by relying on sorters, which greatly reduced the value flowing back to the Ethereum mainnet and weakened ETH's value capture ability.

“If the Ethereum main chain is successfully upgraded and its carrying capacity is greatly improved, then Ethereum may truly usher in a new peak of development,” Dachengzi believes.

How to restore greatness?

On April 22, when many institutions were selling ETH, F2Pool co-founder Wang Chun once again exchanged 50 WBTC for 2,794 ETH, worth approximately US$4.36 million, giving some hope to those who still hold ETH.

Ethereum, the land that once gave birth to countless innovative fruits, seems to need a long "fallen period".

When the land is fallow, some people cut their meat while others hold on.

Dachengzi chose to stick to it. The bull market in 2021 has brought Dachengzi a lot of benefits. His feelings for Ethereum have long surpassed a simple investment relationship. For him, ETH is not just an asset, but more like a belief.

Among the "E Guards" that still exist today, everyone has become non-staff consultants to the Ethereum Foundation, offering advice and suggestions for Ethereum. Based on their respective "reform measures", they can be roughly divided into two camps.

One faction is on the right, advocating drastic reforms and believing that Ethereum should pursue more "practicality" and should be compliant and "close to authority."

For example, Orange believes that Ethereum needs to "stop playing dead" and actively embrace compliance.

"Some things have been destined since the birth of mankind. You can't fight the state machine. If you want to survive well or show your own function, you should not fight against the entire state machine."

The Ethereum Foundation needs to strike a balance between ideals and bread. Yuanjie does not deny that the Ethereum Foundation focuses on academic discussions and pure technological innovation, but a pragmatic business department is necessary.

“If Trump is in power and we need Trump to accept Ethereum, then someone who doesn’t hate Trump will have to deal with him. If Vitalik can’t do it himself, then he can let someone else do it. A good foundation, as a non-profit organization, should be able to accommodate various decisions.”

Lin Feng even believes that the Ethereum Foundation has focused too much on ideology in the past, neglected real creation and construction, and is too "weak". The Ethereum Foundation needs a Trump-like reformer to completely revolutionize the atmosphere.

The other faction is on the left, believing that Ethereum’s greatest value lies in “decentralization” and that it is the last “idealistic place” in the crypto world besides Bitcoin.

Well-known KOL Blue Fox Notes said that he only cares about one thing about Ethereum: "whether it will continue to maintain its core values ​​of decentralization, security, and trustlessness in the future. If it does, he will continue to support it. If it changes, he will leave no matter how high the price is."

"The crypto world needs an internationalist fighter. Apart from the disappeared Satoshi Nakamoto, no one can compare to Vitalik." Investor Jacob invested in Ethereum. Despite facing huge financial losses, he still recognizes Ethereum's values ​​of not compromising with authority.

“SOL and other emerging high-performance public chains are essentially capital-driven company stock logic. High efficiency naturally makes it easier to attract market attention, but Ethereum is a new form of human civilization. ”

Behind this left-right dispute is a different understanding of the priority of blockchain - is it pragmatism, the pursuit of efficiency and commercial success, or adhering to the spirit of decentralization and freedom?

In the darkest moments, confidence is more important than gold.

Jocy, founder of IOSG, called for, "Ethereum will not die. It is the most successful decentralized organization in the Web3 industry. Looking to the future, please cherish the Ethereum in your hands and look at its value and innovation from a ten-year perspective."

Back to the "Ethereum Madhouse", the shelter that was originally created out of panic has now become a corner that witnesses history.

Whether it was the moment when Lin Feng pressed the sell button, or every day that Big Orange held on firmly, or every emotional fluctuation that Orange saw in the asylum, they were recording and shaping the history of Ethereum.

No matter what the future holds, regardless of whether they leave or stick with it now, those who were once crazy about Ethereum will always remember that hot summer and the Ethereum that once made them believe in the future.

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