After the wealth effect disappears—the myth or tragedy of decentralization

Ethereum is shifting towards L1 scaling and privacy, and the DTCC, the backend engine of the US stock market, with $100 trillion in assets, is migrating to the blockchain, seemingly heralding a new and exciting wave in crypto. However, the profit logic of institutions and retail investors is completely different. Institutions possess extremely strong resilience in terms of time and space; a ten-year investment cycle and leveraged arbitrage with minimal spreads are far more reliable than retail investors' fantasies of a thousandfold return in a year. In the coming period, it is highly likely that we will simultaneously witness the spectacle of on-chain prosperity, institutional influx, and retail investor pressure. Please don't be surprised. The complete disappearance of BTC spot ETFs and DAT, the four-year BTC cycle and altcoin season, and the South Koreans' "abandoning crypto for stocks" have repeatedly verified this logic. After 10/11, CEXs, as the last line of defense for project teams, VCs, and market makers, have officially entered their garbage time. The greater their influence on the market, the more conservative the approach, which will erode capital efficiency. The lack of value in altcoins and the memes posted by the editor are just episodes in a predetermined path crushed by their own weight. Migrating to on-chain is an unavoidable move, but it will be slightly different from the free and prosperous world we imagine. We originally intended to use the wealth effect to compensate for the numbness that followed the loss of our belief in decentralization, hoping that we wouldn't lose both freedom and prosperity. Today will be the last time I discuss concepts like decentralization and cypherpunk; the old stories about freedom and its betrayal are no longer keeping pace with the relentless march of time. Decentralization: The Birth of the Pocket Computer DeFi is not built on the ideas and entities of Bitcoin, and never has been. Nick Szabo created "smart contracts" (1994) and Bit Gold (first proposed in 1998, perfected in 2005), and inspired core concepts such as Bitcoin's Proof-of-Work (PoW) and timestamp recording. He once affectionately called Bitcoin a pocket computer and Ethereum a general-purpose computer, but in 2016, The DAO... Following the incident, Ethereum decided to roll back the transaction records, and Nick Szabo began to become a critic of Ethereum. During the ETH bull run of 2017-2021, Nick Szabo was considered an outdated and stubborn figure. On the one hand, Nick Szabo genuinely believed that Ethereum surpassed Bitcoin, achieving better decentralization; at that time, Ethereum fully implemented PoW and smart contracts. On the other hand, Nick Szabo believed that Ethereum reformed the governance system from a trustless perspective, with the DAO mechanism enabling efficient interaction and collaboration between strangers globally for the first time. We have outlined the actual meaning of decentralization: Technical disintermediation -> pricing cost + transaction consensus; Governance trustlessness -> trust minimization. (Image caption: Image description: Decentralization structure; Image source: @zuoyeweb3) Image source: @zuoyeweb3

• Decentralization: Relying on computational work as proof of individual participation in Bitcoin production, without relying on gold or governments;

• Trustlessness: Relying on social relationships, opening up to the outside world under the principle of minimizing trust, creating network effects.

While Satoshi Nakamoto was influenced by Bit Gold, he remained noncommittal about smart contracts. While retaining the possibility of complex operations through opcode combinations, his overall approach revolved around peer-to-peer payments.

This is also what Nick Szabo said in PoW ETH.

Vitalik at least resisted. Before surrendering to the data center blockchain model in 2025, although he switched to the PoS model, he still tried his best to ensure the existence of individual nodes.

Although PoW is equated with computing power + electricity consumption to determine its basic production cost, in the early days of the cypherpunk movement, the combination of proof-of-work and timestamps was used to confirm transaction time, thereby forming an overall consensus and developing mutual recognition on this basis.

Therefore, Ethereum's switch to PoS will fundamentally remove individual nodes from the production system. Coupled with the "cost-free" ETH accumulated from ICOs, and nearly 10 billion US dollars of VC investment in the EVM + ZK/OP L2 ecosystem, a huge amount of institutional costs have been accumulated, which can completely destroy ETH.

DAT is seen as a form of OTC exit for institutions. After the failure of disintermediation at the technical level, although it controlled the node explosion, it also led to mining pool clusters and hash power competition. Ethereum went through several iterations of L1 (sharding, sidechains) -> L2 (OP/ZK) -> L1, ultimately effectively embracing large nodes. It must be objectively pointed out that Bitcoin lost the "personalization" of smart contracts and hash power, while Ethereum lost the "personalization" of nodes, but retained the ability of smart contracts and ETH to capture value. Subjectively, Bitcoin achieved minimal governance but heavily relied on the "conscience" of a few developers to maintain consensus. Ethereum ultimately abandoned the DAO model and turned to a centralized governance model (theoretically not, but in practice, Vitalik...). It can control the Ethereum Foundation, and the Ethereum Foundation can guide the direction of the Ethereum ecosystem. This isn't about belittling ETH to inflate BTC's value; from a wealth effect perspective, early investors in both have been successful. However, from a decentralized practice perspective, there's no sign of either changing course. Bitcoin will almost never support smart contracts; the Lightning Network and BTCFi are still focused on payments. Ethereum retains smart contracts but abandoned the PoW pricing benchmark, and beyond trustlessness/trust minimization, it has chosen to build a centralized governance system—a historical regression. Its merits and demerits are for future generations to judge. The Middleman Economy: The Fall of the World Computer

“As long as there is organization, there will inevitably be internal strife; as long as there is unity, there will inevitably be a center, and then bureaucracy will naturally arise.

In terms of token pricing mechanisms, there are two types: narrative and demand. For example, Bitcoin's narrative is application-oriented—peer-to-peer electronic cash, but people's demand for Bitcoin is digital gold. Ethereum's narrative is "world computer," but people's demand for ETH is application-oriented—gas fee.

In terms of token pricing mechanisms, there are two types: narrative and demand. For example, Bitcoin's narrative is application-oriented—peer-to-peer electronic cash, but people's demand for Bitcoin is digital gold. Ethereum's narrative is "world computer," but people's demand for ETH is application-oriented—gas fee.

In terms of token pricing mechanisms, there are two types: narrative and demand ... The wealth effect is more favorable to the PoS mechanism. Participating in Ethereum staking requires ETH, and using Ethereum's DeFi also requires ETH. ETH's value capture capability, in turn, enhances the rationale for PoS. Driven by real-world needs, Ethereum's decision to abandon PoW is correct. However, on a narrative level, the transaction volume x Gas Fee model is highly similar to SaaS and Fintech, failing to align with the grand narrative of "computing everything." Once users who don't use DeFi leave, ETH's value cannot be sustainably supported. Ultimately, if no one uses Bitcoin for transactions, someone will always want to use Ethereum to calculate everything.

Decentralization ≠ wealth effect, but after Ethereum switched to PoS, ETH has been implicitly considered as a wealth effect.

Decentralization: The Future of Financial Computing

“From the Second International to LGBT, from the Black Panther Party to Black Panthers, from Bitcoin to Ethereum.

After The DAO incident, Nick Szabo began to hate everything about Ethereum. After all, Satoshi Nakamoto has largely disappeared from the public eye, but Ethereum's performance cannot be said to be bad. I am not schizophrenic, criticizing Ethereum and then praising V.

Compared to Solana and HyperEVM Among next-generation public chains, Ethereum remains the best player in balancing decentralization and wealth effect. Even Bitcoin's biggest flaw is its inherent lack of support for smart contracts. As a 10-year-old chain, ETH and Ethereum have transformed from "opponents" to "official opponents," needing to periodically revitalize decentralization and cypherpunk, and then continue striving for the realistic future of financial computing. Even Minerva's owl can only take flight at night; the debate over wealth effect and decentralization will be buried in Königsberg. The truly cruel historical practice has already buried both narratives together.