Crypto leader Justin Sun, President of Liberland and Founder of Tron, recently tweeted, “What exactly happened to Ethereum?” His question has sparked discussion in the crypto community. Yet, key responses explain the challenges Ethereum is currently facing.

Before Ethereum’s recent upgrade, Layer 2 (L2) networks were major buyers of ETH. They used it for transactions and token burns, reducing Ethereum’s overall supply and strengthening the network. This system supported projects like Celestia and Avail, helping Ethereum maintain deflationary appeal. But now things have changed.

What exactly happened to Ethereum?
— H.E. Justin Sun 🍌 (@justinsuntron) March 12, 2025

A Shift in the Market Post-Upgrade

After the upgrade, the dynamics shifted. Now, L2s are selling more ETH than they buy, increasing Ethereum’s overall supply instead of shrinking it, making it less attractive as a deflationary asset. Investors are concerned because this alteration weakens the network’s stability.

It’s been death since the blob upgrade. Before the blob upgrade, the L2s were huge buyers of ETH through token burn. Since the blob upgrade, the L2s net sell ETH. The ETH supply is going up. It was going down before.
— Solanasaurusrex.sol (@Christo86383094) March 12, 2025

ETH has transitioned to a proof-of-stake (PoS) system, yet it still grapples with high transaction fees and slow scalability. PoS aimed to enhance Ethereum’s efficiency but hasn’t resolved these significant issues. Conversely, newer L2s like Starknet offer cheaper and faster transactions, putting Ethereum at a disadvantage.

Another critical issue is decentralization. Under its previous proof-of-work (PoW) regime, Ethereum was more decentralized and secure. However, transitioning to PoS has diminished that independence. It’s caught between its old PoW legacy and its new PoS structure, without fully committing to either.

No clear vision.
Either PoW for sovereignty and decentralization OR PoS with very low fees and scalability.
But right now they have a foot in both camps which makes the protocol too costly compared to L2s like Starknet and not very decentralized like it was with PoW.
— Tom Megati (@TomMegati) March 12, 2025

Ethereum’s effort to balance both segments isn’t yielding positive results. It remains more expensive than competing L2s yet less decentralized than it used to be. This ambiguity confounds users and undermines Ethereum’s market position.

Justin Sun’s inquiry underscores significant concerns. The recent upgrade, increasing ETH supply, and lack of a definitive strategy have all created challenges. With continuing issues of high fees and inadequate scalability, Ethereum must make a choice:

• Should it prioritize being highly decentralized and sovereign?
• Or should it focus on lower fees and improved scalability?

Vitalik pic.twitter.com/wDvXoRKfeI
— Robin Nakamoto (@RobinNakamoto) March 12, 2025

Until Ethereum clarifies its direction, its struggles are likely to persist.