Summary of The Unbundling Of Ethereum by Kyle Samani

This is a summary of The Unbundling Of Ethereum by Kyle Samani published on 24 May 2019.

Executive summary

Ethereum benefits from monetary premium. Its monetary premium is supported mainly by the competitive moat in the form of open finance. Many crypto projects and traditional enterprises are moving away from Ethereum (e.g. gambling, high-performance dapps, projects seeking funding). Until Ethereum 2.0 gets traction in a few years, the speed of this unbundling will increase. Unbundling will create new monetary premiums by competing platforms. This generation will not come at the expense of Ethereum, however, for its network effects in open finance.

1-minute summary

Intro

• Ethereum bundles state of all hosted apps together. This helps it accumulate a premium in ETH valuation over what’s needed to pay for gas fees
• Key enablers of this premium include growth in network security, increased liquidity and network effects
• Despite these factors, because of throughput, latency, and cost constraints; projects migrate onto other blockchains, leading to unbundling of Ethereum

Unbundling by vertical

• Most gambling dapps have moved to Tron. Tron offers a better trade-off between a superior UX (e.g. transaction confirmation time) and trust-minimisation (DPoS vs PoW) or security
• Fundraising via ICO has been a key use case of Ethereum. Binance Launchpad and IEOs are now taking over this market
• STO issuance on Ethereum has not found product/market fit with some projects shutting down and others moving to Tezos. Securities are not bearer assets; hence, they don’t get all the benefit provided by trust-minimisation
• Enterprises are also moving away from Ethereum

Open finance

• Ethereum’s unique moat is open finance. Open finance requires security enabled by Ethereum’s leading security budget and trust-minimisation. This creates a self-reinforcing loop that propels Ethereum forward

Ethereum 2.0

• Although sharding resolves some existing Ethereum limitations, there are still questions remaining on how applications will work across shards. It took 2 years to build the first DeFi dapp on Ethereum 1.0 hence it is likely that it will take as long to build the first open finance dapp on Ethereum 2.0

Building New Bundles

• Until Ethereum 2.0 is released, unbundling will grow in speed
• Kyle argues that unbundling will lead to a monetary premium creation on newer smart contract platforms. It will not come at the expense of Ethereum due to its open finance moat and Bitcoin’s and Ethereum’s historical ability to maintain the monetary premium