Divergence – Earlybirds Invest

Welcome to Slate Sundays, CryptoSlate’s new weekly feature showcasing in-depth interviews, expert analysis, and thought-provoking op-eds that go beyond the headlines to explore the ideas and voices shaping the future of crypto.

Alon Muroch is a man on a mission. As the founder of SSV Labs, which contributes to the second-largest Ethereum staking infra provider, SSV Network, Alon has been passionately championing the virtues of the industry’s number-two coin since the early days. Long before Ethereum switched to Proof of Stake, Alon contributed to the initial Ethereum clients. And Eth’s lackluster performance and knockdown price are bothering him. A lot.

So much so, in fact, that beyond speaking at the Staking Summit, it’s one of the forces at play bringing Alon to Dubai today, raising awareness about the elephant in the room no Eth bag holder wants to discuss. He explains:

“Most of the negative feedback Ethereum is getting right now is due to the token, not necessarily the technology, and I think Ethereum needs to recognize it. The Ethereum community needs to recognize it and then prioritize it, because this divergence will become very dangerous.”

With 100,000 Ethereum validators, SSV Network secures around 10% of all staked ETH, so Alon is pretty invested in seeing the token price rise. And his sense of urgency is palpable.

“We’re not focusing enough on the narrative and the reason for holding ETH. That’s why ETH is like this,” he bemoans.

Deep in the Ethereum weeds, even deeper in the souk

This is my first time meeting Alon, and I’m not familiar with his temperament, but I can tell there’s a lot on his mind. The price of Eth, for one, which is languishing under $1,800. It’s at least 20 minutes past our scheduled meeting time, and he’s already ordered his coffee when I arrive at the crowded patio.

After traversing the outdoor area between the conference hall and Madinat Souk in the punishing afternoon heat, my inclination is more toward a nice cold beer than a steaming hot cappuccino. I’m flustered and red-faced after walking round in circles, lost, deep in the souk’s rat’s nest of perfumes, textiles, stuffed camels, dates, and multiple other knick-knacks on sale. That Starbucks was harder to find than a patch of shade in the Sahara.

I bet Alon didn’t have as much trouble. After 10 years navigating his way through Ethereum’s many twists, turns, and narrative changes, Google Maps was probably a walk in the park. I apologize for my poor map-reading skills and ask what drew him to Ethereum in the first place.

“Ethereum is at the forefront of decentralization…” he answers, “I’ve been in Ethereum since the beginning.”

With Eth price limping along like a wounded dog, a divided community bickering over its direction, and a score of alternative smart contract platforms offering better, faster, cheaper, I ask Alon whether Ethereum still holds that central role today. He pauses:

“Yes, and no. Ethereum, the blockchain, I think it is. The roll-up-centric roadmap proved itself and continues to prove itself. In terms of the scale Ethereum is at, I think the technology is very innovative. They know how to take risks. Obviously, there are blockchains with riskier technology or more cutting-edge technology, but they’re much smaller, so it’s much easier to do. Ethereum is seeing all-time high usage, so that’s good.”

The ‘risky divergence’ between ETH, the token, and ETH, the blockchain

He’s mentioned the worsening disparity between the Ethereum blockchain and its native token a couple of times. I ask him to expand.

“In terms of the token, it’s lagging behind quite significantly, and there’s a divergence happening there, which is quite risky for Ethereum. I can debate until tomorrow the difference between Solana, Cosmos, Polkadot, and Ethereum, and why Bitcoin is lagging behind as a technology. I can debate, but that’s not translating very well to the actual frontiers of adoption right now.”

Indeed. Yet, if Ethereum’s problem is simply about crafting a better narrative, why do projects migrate to other ecosystems in search of more favorable economic models, like Uniswap or dYdX? He’s not phased:

“There will always be projects preferring other blockchains. I think it’s much more of a marketing opportunity than anything else. You can find very cheap transactions on Ethereum.”

He sips his coffee before doubling down:

“The challenges Ethereum has right now are not technological. It’s mostly narrative and a simple question: “Why would the average TradFi user, who doesn’t really understand decentralization or TPS, and doesn’t know how to differentiate between Solana and Cosmos, or Ethereum for that matter, hold Eth? It’s a very big question.”

He explains that traditionally, Ethereum didn’t pay much attention to narratives, marketing, and PR, but times have changed, and it’s becoming impossible to ignore.

“It used to be the case that institutions came to crypto to learn, and then immediately went to Ethereum, because that was the only game in town. Now, if you look at Wall Street today, well, they might understand the concepts of decentralization and self-sovereignty, but they don’t care about it. That’s where the narrative plays a major role. You can’t have conferences on Wall Street where Solana and Cosmos and Polkadot are going on stage and explaining why people should use them, and nobody is talking for Ethereum. It’s coming up with a narrative that is compelling.”

Finding a new raison d’être for Ethereum in the hearts and minds of token holders is no mean feat, particularly in an industry where not everyone is “in it for the tech.” When NGU ceases to deliver and prices bleed steadily down, Alon has his work cut out.

“When you buy Bitcoin, you hold one of 21 million. That’s fine. That’s a good narrative, and Wall Street and TradFi and everyone else really connect to that. The Solana narrative is “we can beat Ethereum.” So the reason to hold SOL is that if there’s a price difference between tokens and SOL wins, it’s better to hold SOL than anything else. Why would you hold ETH?”

As a Bitcoiner first, I confess I’ve been asking the same question for several years, but I don’t say that to Alon. Instead, I await his answer:

“ETH has nobody to win and compete with. They’re already the biggest smart contract platform, so there has to be another expansion. Historically, there were very good reasons to hold ETH. With ICOs, you had to hold ETH in order to get into ICOs. With DeFi, you had to hold ETH to provide liquidity or to trade. There were really good reasons.

What is the reason now? On my end, the reason is to make Ethereum the trust and security layer for the entire internet of value. If we can make that and attract value back to Eth, the token, then there’s a really good reason to hold it.”

What makes Ethereum a good settlement layer compared to other blockchains? Bitcoin’s security is widely renowned, I point out. Alon scoffs:

“Bitcoin has zero capabilities of smart contracting, and so developers basically hacked ways to secure things on Bitcoin. Ethereum has smart contracts, so a lot of those types of use cases simply became contracts on Ethereum. What I’m saying is somewhere in that direction. I believe that the Ethereum validator set has superpowers. It’s the largest, most diverse, and decentralized validator set on earth.

Those validators know how to run high-performance software for a very long time. It has on-chain entities with performance and all of that, plus you see a lot more off-chain components responsible for very significant application services, and so on. If you can have all of those services run using validators on Ethereum and paying them rewards, then you have this stream of revenue and rewards going back to ETH holders.”

Bitcoin, Ethereum, Solana, oh my!

Alon doesn’t miss a chance to share his views on Bitcoin as legacy tech, but what are his thoughts on Solana, which seems to be the institutional investors’ favorite toy? He replies that Ethereum’s “last good competitors” were EOS, but they failed because “their founders did other things.” He says Solana is “basically what EOS should have been if they’d had serious founders,” but:

“In terms of technical capabilities, Solana is taking way more trade-offs than Ethereum. It’s not technically as sound as Ethereum, especially from the decentralization, censorship-resistant, and stability point of view. Nonetheless, they’re doing a lot of other really good work, interacting with developers, promoting themselves, communicating why Solana, et cetera, et cetera, et cetera. Ethereum needs to take some of that into what they’re doing.”

I mention the POV I’ve heard that Ethereum should never have switched to Proof of Stake. Given the nature of Alon’s business, I’m not surprised when he immediately shuts that down. He interjects:

“It was one of the best decisions. The amount of resources required today to maintain Bitcoin is crazy. It’s crazy. It’s like saying, let’s continue having coal-powered plants and cars and not switch to gasoline or electric. Why? Because coal is very robust. Fine, but it’s not a really good answer to anything. There are a lot of things that are robust. It doesn’t mean you don’t need to change technology. I don’t think Bitcoin will ever change to Proof of Stake because Bitcoin is stuck in the past in terms of advancement in technology… Of course, we should have switched. There’s no doubt about it.”

Keepin’ it based

Besides alerting everyone to the problems Ethereum faces, what else is Alon doing to turn the Ethereum ship around? He corrects me:

“Look, there is a challenge here. It’s not a problem. It’s not systemic. It’s a challenge we need to tackle because times have changed, and we have competition.”

What are the based applications that SSV is pioneering?

“Based applications are the name for types of services, protocols, and applications that run on Ethereum validators. It’s basically SSV 2.0. We coined the term based apps. They’re applications that are based in their security on Ethereum validators. That’s why they’re called based.

It’s a type of decentralized application that runs on Ethereum validators and gets functionality and security from them. It can be oracles or bridges, data availability, zk-proofs, AI agents, or whatever type of application you have that is run in a distributed way. Instead of reinventing the wheel and building your own validator set, you can simply tap into the Ethereum and get much better security, much cheaper, and also really connect to Ethereum in a much better way.”

Where do based applications fit into the broader security landscape, and how do they stack up against, say, Eigenlayer? He explains:

“Eigenlayer is similar in the sense that it provides security. The main difference is, Eigenlayer uses capital. We’re using validators from Ethereum. So, in Eigenlayer, you take a bunch of capital, you lock it into a smart contract, and then you have bonded operators. The problem with that is that it’s not scalable, and it’s very expensive because capital is very expensive.

What we decided to do is to go and use the validators themselves, which are 95% cheaper and provide properties that capital doesn’t because they directly represent a portion of the value of Ethereum.”

Suddenly, it’s all starting to make sense. Based applications benefit from the superior level of security the base layer provides, and Ethereum receives compensation, instead of the value being extracted. What’s more, it’s “around 95% cheaper,” Alon says.

“That’s very significant because security is the most expensive component of a decentralized service, and based applications are very aligned with Ethereum because, as I said before, it comes from the point of creating more value back to the holders, so it has that additional dimension… We need to present a way forward, which I think is by prioritizing a way to attract more value back to the token.”

I wish him luck, and we conclude the interview. Despite dunking on Ethereum with as much frequency as Alon badmouthes Bitcoin, I can’t imagine the crypto space without it, and I’d be sorry to see it unravel. The bright side? When you’re ~60% off your all-time highs, the only way you can go is up.