Is the FUD even real?

In this episode, hosts Alysia and Ellie tackle Ethereum FUD (fear, uncertainty, and doubt) head-on by rolling a special "Ethereum FUD" die—a special piece of swag that Espresso Systems produced for ETHDenver 2025—and discussing common criticisms of Ethereum. 

They cover everything from fee structures and L2 scaling solutions to fragmentation concerns and Ethereum's overall direction, diving into whether the FUD is valid or simply misconceptions and providing a balanced perspective on the challenges and design decisions facing Ethereum as it evolves.

Key topics covered:

Fees Too Low - Discussion of the criticism that low Ethereum fees indicate lack of usage and declining demand

Parasitic L2s - Debate over whether Layer 2 solutions help or harm Ethereum by potentially siphoning value from L1

Fragmentation - Analysis of liquidity and ecosystem fragmentation across multiple L2 chains

No North Star - Examination of claims that Ethereum lacks clear direction compared to competitors like Solana

Validator Economics - How fee levels impact validator profitability and network security

Product Market Fit - Challenges of finding sustainable use cases for blockchain technology

User Experience vs. Decentralization - Trade-offs between ease of use and maintaining decentralized principles

Composable is a bi-weekly podcast exploring crypto's building blocks. Hosted by Alysia and Ellie, and brought to you by Espresso.

Find us on X:
Composable — @composablepod
Alysia — @alysiatech
Ellie — @ellierdavidson

Transcript

"Whomever can unlock traditional finance using blockchain will have a really big advantage..." 

"How are you going to create an economy around something that's just far too expensive to use? It just will not thrive. On top of us still trying to find a product market fit..."

"Real things take years to build, but you need to keep people's attention during that entire time and it's really hard..."

From Alysia Tech and Ellie Davidson, welcome to Composable, a podcast that takes you deep into the tech behind about three's building blocks. Every episode, we dive into one key question about how crypto works today and the design space for how it might look in the future.

Composable is an Espresso Pod, a production of Espresso Systems. All opinions expressed by Composable's hosts and podcast guests are solely their own views. This podcast is for informational purposes only and should not be taken as investment, legal or technical advice.

I can't believe it's episode 13 and in this episode, we are going to address Ethereum FUD the time has come. Yes, so we have this Ethereum FUD dice that Jill from espresso made a while back and we're going to roll it and kind of give our opinions about each one. So the original idea was Bitcoin FUD dice and this was made by Nick Carter a long time ago and they just have common criticisms that people have of Bitcoin.

So the Ethereum FUD dice are the same, but for Ethereum, they're all of the kind of meme-able criticisms that people say about Ethereum that may or may not be true. We will see. Let's get into the FUD.

Let's roll the first one. Okay. So I have the dice.

I'm about to roll it. Okay. So the first one that we got is fees too low.

Fees too low. Okay. This one is a surprising piece of FUD, right? Because I don't think people automatically think about fees being low, a bad thing.

And here we have some tweets talking about it. So for example, you know, this person said, okay, each transaction fees have fallen to nine cents, the lowest it has ever been. And I think that was actually tweeted today or sometime then this other person is saying it's not fair to criticize ETH both for having too high and too low of fees.

And I couldn't relate anymore. So where does this rhetoric come from? Fees too low? This rhetoric comes from the idea that if fees are really low on the Ethereum blockchain, that must mean that no one is using it and it's losing users to L2s and to other L1s. And this is a sign that Ethereum is dying.

So that is the FUD behind Ethereum fees are too low. Interesting. I mean, and in some ways, somebody would say, well, maybe L2s have been successful because that was kind of the point, but maybe not on Ethereum.

Like, did we expect the fees to remain high on Ethereum while we had low gas fees on L2s? Or do we expect to have low gas fees as a result of taking some of the load off of Ethereum? Like, what did we actually expect with fees on Ethereum and L2s? Yeah, I mean, I think you would expect that the fees on Ethereum are always going to be higher because that's the point of an L2. Right. Ethereum just can't handle all of the transaction volume that all of these L2s have combined with the L1. 

But I guess it's really hard to say, like, how expensive should fees be? Who knows? I don't know. They shouldn't be too high, but they also shouldn't be too low. I don't know. 

I feel like it's just one of those things that has, like, no answer and people will just always complain about it one way or the other. A hundred percent. It's like people complaining about the weather.

It's too hot. It's too cold. Like Mike said in this tweet, right? But I think also when I think about being a validator, now, I, myself, I have run an Ethereum node, but not for profit. 

But let's say I had a data center or, you know, I just running Ethereum nodes, whether on AWS or something, I'm paying for those nodes to be run. So since the validators are actually getting paid in the fees and if the fees are too low and it's not profitable for you to become a validator, that could actually be a bad thing. Like, even when the Bitcoin halving happens, I do see some tweets, like some funds being created around Bitcoin as well, because they're like, okay, if the fees become too low for validators, because now each block releases less Bitcoin, so exactly a half of the previous amount, then maybe validators are no longer making the profits that they'd like. 

And then they decide to leave the Bitcoin ecosystem or the Ethereum ecosystem. And then that, you know, reduces the decentralization in the case of Bitcoin, reduces the hash rate. So like I saw that kind of energy as well, the fees too low. 

And I think that is definitely valid. And even in L2s, like if you're running an L2, as if you operate an L2, then the fees needs to be high enough to cover the cost of running a sequencer. Now, I don't know how much it costs to run a sequencer. 

That information I don't think is public, but, you know, I think that is definitely something that every blockchain ecosystem thinks about how to reward validators or key players in the system that keep it operational. Yeah, a hundred percent. And so I guess that's one part of the nuance that you described. 

Another part of the nuance here is that, in my opinion, fees, like fees react to different things. So for example, this past, or actually over a year ago, blobs were released. And this affects things because now it's, in theory, it should be cheaper for rollups to post data to the L1. 

You know, this reduces L1 costs as well to some extent. So I think that I'm not an economist, but my point is that fees are very dynamic. And to a certain point, they're just always going to go up and down within like a certain range, just due to like protocol upgrades, economics, like all of these things. 

But it's not really meaningful, I guess, or we don't know if it's meaningful. I think we're too quick to say, oh, fees are too low. Yeah, definitely. 

And I think people who are more of the investor type, they definitely look at fees a lot, because if they're investing into Ethereum and the ETH itself is not being used at the same rate as it was being used, I say, in the DeFi boom, which is when fees were very high, then, you know, the utility of the ETH, they can say, okay, well, the demand is going down, so therefore, you know, what are my bags doing? So I think that's probably where some of the rhetoric comes from, because the idea of ETH being deflationary is something that investors really care about and really hope for. So I think, like you mentioned with the blob space and the fact that we now have, or we, as in like L2s, now have a way to post their transaction data to Ethereum in a very smaller size, therefore costing them less galats fees is not necessarily seen as a good thing to invest in. And I think because we have so many different archetypes of people involved in the blockchain space, like it's very impossible to satisfy everyone at the same time.

Yes, I agree. And to that point, we have so many like different groups in the blockchain space, and they're all have different price sensitivity. So for example, there are users of which I am one sometimes that say the Ethereum L1 is too expensive, I'm going to go use an L2.

But then there's other times where I'm like, eh, it's not that bad, like I'll use it anyway. And I guess the issue is that we just have so many mix of these people that have different price sensitivities, and it would consider different gas prices low or too high to affect their behavior. It's just kind of hard to make a sweeping generalization about fees in general.

Yeah, I think you opened up another con there, because if you think about the product market fit of blockchain technology, and who actually would benefit from using it, a lot of the times, it's like, you know, these massive countries that have a large population, not everyone has access to a lot of funds to be able to participate in the blockchain space. So therefore, fees being low is a good thing if we think about what blockchain is meant to solve. So what are we doing, guys? Wait, so what do you think? Is this part real or not? I think it's totally, totally not real. 

Yeah, Ethereum fees being low are generally a good thing. Yeah, I'd say the same thing. We need a scaling theorem, guys.

Get with it. Okay, so about to do another rule. And we got, oh, parasitic L2s.

Ooh, okay. That's actually a great follow up. Oh, okay. 

So parasitic L2s. Yeah, this is a really good segue from the last dice rule. The history behind this is, are L2s parasitic to Ethereum? There is kind of two camps here.

One camp is that L2s help scale Ethereum. They're beneficial to Ethereum. They're using Ethereum security. 

They are part of the Ethereum ecosystem. Then there's the FUD, which is that they're parasitic. And this says that L2s are taking users away from Ethereum as the L1. 

And this is degrading the value of the L1. L2s are taking away value and they aren't putting any value back into Ethereum. So they're kind of getting this security for a very low cost because all that they're paying for is DA. 

So that's kind of like the history behind the FUD. And this was a pretty controversial topic. I mean, it still is, but when it was coming up a few months ago, people had pretty strong opinions about whether L2s are parasitic or not. 

And so I guess I'll ask you, what do you think the nuance is in there? I think we needed L2s to be able to encourage people to continue to use the Ethereum ecosystem. And when we first started off in the blockchain space, we had Bitcoin and then we had Ethereum. People were using Ethereum a lot in the DeFi boom because now you had more utility than just buying the asset to store value. 

So that was brilliant. People were doing different things, gaming, et cetera, NFTs. We heard about all of it.

But then now we enter a situation where the fees, like you said, it was, you know, was it a hundred dollars for you to remove your position from Uniswap? Yeah. Yeah. Back in 2021, at one point it was like over a hundred dollars for me to unwind my position in Uniswap. 

And so I couldn't do it because it was not worth it. Yeah, exactly. And I doubt you made that much in fees, right? So how are you going to create an economy around something that's just far too expensive to use? It just will not thrive on top of us still trying to find a product market fit. 

So I do think L2s had to happen. I think the reason why people find L2s to be parasitic is because people still in general believe not only in Ethereum, but also in ETH as a cryptocurrency. Like a lot of people want ETH to have a lot of value, just like how Bitcoin has a lot of value. 

So that's why I find that even if you do have a technical reason as to why you may prefer Ethereum over L2s. For me personally, I would love to use Ethereum a lot more because I feel like it's more secure. It has a more decentralized validated set. 

So for that reason, I would love to put Ethereum to have lower gas fees so I can feel comfortable using it or I can afford using it. It's not what comfort is about. The money. 

And if L2s are finding a way to take off some of the activity and then make it possible for those who do have to use Ethereum, because maybe the NFT is on Ethereum that they would like to use, then that's perfect. So I would say it is definitely nuanced. I think for technical reasons, scaling Ethereum by L2s was the most feasible at the time.

Maybe now and also in the future, there will be better solutions where L2s become less relevant. But even then, I think people still see a use case for blockchains that are maybe more specific for certain scenarios, just like there's LensChain, which is meant to be for social media. So I think that it being parasitic might probably be a VC POV, more so than a technical POV and even a user friendly POV. 

But yeah, I would say I disagree. I don't want to say it's FUD, I could understand it, but for me personally, I disagree with that FUD. Yeah, I totally agree with you. 

I think that, yeah, I can see the argument that people make. And like you said, it's really about the argument of ETH being money and wanting to be this store of value. And I think that that's related to L2s, but they're kind of separate things.

So for example, if an L2 charges all of its fees, like its gas fees, you could imagine that maybe some of that flows back to the L1. But does all of it flow back to the L1? Well, no, because you're not actually increasing the value of ETH. All of it just depends on the parameters of the system, I think. 

Like we can't say whether or not the ETH value from L2 flows back to the L1 unless we know more information about the parameters of the system. But I agree with you. I think that the L2 roadmap was the right choice at the time. 

And I think that not only have L2s given users this cheaper experience, but I think they've also really pushed forward a lot of technology, like ZK, technology, consensus, protocols. All of these things were able to be pushed forward because L2s had a reason to go do it, and they had funding to go do it. And the EF themselves, I absolutely love the EF, but it's like probably you can't do everything yourself.

So I think I agree with you. I think it's mostly fun. I could see maybe some particular L2s being parasitic to the L1, but I think in general L2s bring users into the entire Ethereum ecosystem more than they take out. 

So that's my point. Yeah, I love that take. Perfect. 

Another rule. I wish you had a dice too, so you can remember. I know. 

I really ran out before I got one. Fragmentation. Fragmentation. 

Fragmentation is such a meme at this point. What do people say when they talk about fragmentation? Well, they're talking about L2 fragmentation and usually liquidity fragmentation. The idea behind liquidity fragmentation is that you have all of these L2s plus Ethereum, and they all have their own liquidity. 

If I want to use liquidity on a different chain, it's this whole cumbersome process of bridging. It's really inefficient. I have to lock up my capital, and really it would just be better if all of the liquidity could just be accessible all in one place. 

That would be the most efficient thing for the money. The more liquidity you have, the better price discovery that you can get, and generally it's better for users in general. The idea is that with all this fragmentation, we're hurting users. 

It's a terrible UX. It's a terrible user experience, and we need to fix this. Yeah, so that's the history. 

I think if you go back, even now, if you go on almost every single blog post that talks about liquidity fragmentation, the first line is always Ethereum was great, but then it couldn't scale. Then came the L2s, and then we had fragmentation between the L2s, and insert solution to fix fragmentation. That's how they all start. 

I do think that liquidity fragmentation is definitely a problem. I think that there's different levels that we can solve it at, and I don't think all of the fragmentation needs to be solved at the most rigorous level. For example, the most ideal solution would be to have everything on one chain, so have everything on Ethereum. 

That's the most ideal solution, but that might not be very practical. Well, some people might argue with that, but is it practical to have Ethereum support all of the transaction load that we expect in the future, and all of the DA load that we expect in the future? Probably not. This is why you have L2s, but then it gets tough, because the reason you have liquidity fragmentation is because you can't do real-time updates between different L2s. 

An L2 produces a block, and if someone wants to use that block to do something on a different L2, there's always going to be some time delay, and in that time delay, you always lose some amount of efficiency. There's going to be some amount of price change, et cetera. You always have slippage that way, and that's not good.

In my opinion, I think that we can have a spectrum of liquidity fragmentation solutions, so I think some solutions we really do want perhaps much more concentrated liquidity, and maybe something like Uniswap, but they have Unichain. It makes sense to bring all the liquidity together. I think for other things, you want liquidity that's easily accessible, but it doesn't necessarily need to be instantly accessible, so I think a really good example of this are intent bridges, like we talked about last time, because intent bridges allow users to have access to the liquidity, and then behind the scenes, the solvers are actually rebalancing that liquidity, and so that's a situation where the users get a great user experience, and they get everything they want, and then the risk and capital inefficiency of rebalancing is on these sophisticated parties, and so is it really that bad, then, if liquidity is fragmented, if the users end outcome, is that they get a great bridging experience? I don't know. 

I don't think so. Anyway, that was a long rant. What do you think, Alicia? No, that was great. 

You touched so many great points, just to piggyback on the last one that you said, which is, is it such a bad experience if they have access to these intent bridges, which makes bridging so much easier, and they don't have to worry about actual bridge mechanics? But I think I've heard someone say the best bridge is no bridge, and the fact that you still have to go to an intent bridge protocol, so you have to be very intentional about using an intent bridge. You have to know that that's what you want to do, so it still isn't great, and I think fragmentation and L2s are something that kind of goes together, right? Like, if you didn't have L2s, would you have fragmentation? But I would argue you can still have fragmentation on Ethereum. So, for example, everyone uses the ERC-20 token, but if someone was using a different standard for representing that kind of asset, then that would be fragmentation, and that means two apps wouldn't be able to speak together, even though they're doing fundamentally the same thing. 

Or, you know, if you have a wrapped asset, and then the other protocol doesn't accept that particular wrapped asset, so the liquidity could be fragmented even on Ethereum. So, but people, we had standards, and it was just a lot easier to organize, because there were just EIPs, which in and of itself is like a beast, but now we have the cross chain activity, which is what L2 brings. So I think the fragmentation arguments, I think this one is a little bit stronger than the others, in my opinion, because if you go to a chain like Solano, you're like fragmentation wear. 

Like, you know, like you don't have L2s, so therefore the fragmentation argument is not that strong. But it is, again, just related to the history of Ethereum being the first smart contract blockchain, and therefore having to scale wasn't as easy as someone who comes around later like a Solano, and then create a different solution. And mind you, they are sacrificing various things, like they are sacrificing some levels of decentralization to be able to be fast, so that they don't need L2s.

So, you know, I think like the fragmentation argument is definitely worthwhile. And I feel like people think a lot about the users, but not so much about developers. I think that we don't really have any or many interesting cross chain experiences, because it's kind of hard to build interesting cross chain experiences. 

And as we know, with bridges, there are so many exploits that happen, which is the fundamental, like that's the quintessential cross chain app, which is a bridge makes sense, we want to move value from A to B. But it's not easy to build. It's complicated, different trust systems, and not every chain participating is very clear with trust systems. So I think we not just have fragmentation in liquidity, we have fragmentation of security, we have fragmentation of like apps and communicating with apps. 

Like people might not realize if you go on an L2, the security assumptions that you have might be different compared to Ethereum, only because you're like, oh, it's an EVM, like what could be so different? I mean, plenty, apparently. So yeah, I think the fragmentation one, I would say it's stronger. The intensity of the FUD depends on the use case depends on the PMF. 

Like if the point of us using blockchain technology is to have open financial systems is to have a way to easily transact value, then perhaps it's not so much of a FUD because, I mean, you can't do it, just pick your chain and be smart about it and use a bridge when you need to. Like it's not that deep. But if, you know, we are thinking about just from like a blockchain first perspective, like we live and breathe a blockchain, I feel like when you are like properly deep in a blockchain ecosystem, then you start thinking about the efficiency of these blockchain ecosystems and the fact that the fragmented liquidity definitely decreases efficiency. 

So from that perspective, I would say, yeah, this FUD, more or less. Yeah, I would agree with that. And maybe a second part to this FUD is that people, it's, is this fragmentation like solvable or not? So I think you have people in the camp of that, you know, this fragmentation is completely solvable, have synchronous composability between every single chain and it'll be perfect.

And that's obviously not the case, or at least I strongly believe that that's not going to be the case. And then I think you have other people who are just like, oh, it's not ever solvable at all. But I think the truth is somewhere in the middle. 

I think that there's a lot of, there's a lot of different parts to solving fragmentation. So there's things like the wallet experience, which, you know, account abstraction is looking to solve, like there's wallets out there that aim to completely abstract away all of these chains for users. You know, then there's things like Espresso and these cross-chain messaging protocols that help actually facilitate that cross-chain communication. 

And then you have things, you know, like proof systems that are going to help prove these like state transitions across chains. Anyway, the point is that there's a lot of different layers to solving fragmentation. But yeah, I would say fragmentation is a very real like problem in Ethereum. 

Yeah. Okay, guys, you have it. The fragmentation FUD is actually a bit real.

Okay, so another rule. Okay, so this one is No North Star. All right, No North Star. 

So this was FUD recently. And the idea is that there's nothing specifically that Ethereum is targeting to be the best at. They're kind of trying to, you know, scale, but also offer decentralization, you know, also offer this asset of ETH, which is supposed to be worth money. 

A lot of this FUD was especially in contrast to Solana, which is very clear about its goal, which is just to have a really fast blockchain. Solana just has different priorities, but they're very clear about their priorities and what they want. And the idea is that Ethereum, it doesn't have a clear roadmap, it, you know, it's not really clear about what its goal is, etc. 

So that's the history behind the FUD. I will actually say that this FUD has gone a little bit differently. Because since this FUD came up, there have been a lot of changes. 

And so for example, the EF has had this very transparent roadmap, and they very much like clarified the purpose of Ethereum. And so I would say that this FUD, to be honest, I don't know if it was really true in the first place, to be honest, but I would say even now it's not true. Because over the past several months, we've just seen a lot of like leadership from the EF coming out and clarifying all of these things. 

What do you think? Interesting. I just want to ask you about that. You said that the EF has recently come out and like clarified the FUD or, or maybe just talk more about what the Ethereum North Star is, like what did it say? So according to Vitalik, Ethereum's goal is to scale to millions while preserving openness, censorship, resistance and privacy. 

The Ethereum North Star has also been described in the past to be the world's computer. And these are the North Stars. I think it's interesting to compare it, like what are the North Stars with other chains? So for example, I'd say, well, Bitcoin clearly is not trying to be the world's computer.

It's trying to be a store of value. Solana, in a way, in my opinion, is trying to be the world's computer, but maybe it doesn't focus as much on censorship resistance, on privacy, on decentralization, etc. So anyway, that's what Ethereum's North Star is. 

It is to scale to millions while preserving openness, censorship, resistance and privacy according to Vitalik. Okay. Okay. 

Well, I actually kind of missed this fault. I didn't notice it happening, but if the idea is that we're confused about what Ethereum is actually doing, I can appreciate that to some degree. I think even defining yourself as a world complete computer means you can do everything. 

So it's kind of where that people would be confused when they aren't actually trying to do everything. But I do think it's kind of interesting where I feel like, okay, DeFi had us run and that was interesting, but also there were a lot of scams that happened and there was a point in time where I feel like Ethereum or the EF, I might be wrong, but it felt like they kind of distanced themselves from DeFi, like they didn't necessarily want to promote that kind of app creation on it. And maybe this was just me from the tweets I was reading, but that was the vibe I was getting. 

And I was very confused because I'm like, okay, yeah, there are a lot of scams. We could find other ways to fix it. But I actually think like this is like PMF, like automating money transfers. 

So then they kind of went into the whole privacy stuff a lot and then scalability. And it's like, they just went further away from the user. And I think that's my personal gripe. 

And I don't know if it like aligns with the no-not-star narrative. I think Solana trying to be the fastest blockchain may not necessarily directly speak to the user, even though it still is like you start trying to be the world computer, but a fast blockchain is something that's definitely more user-friendly. So I mean, I get it. 

I think it just, I don't know, it's kind of weird. Like I work for an infrastructure company right now, and I feel like there are lots of user problems that I don't think about actively. And I think I personally think the not-star should incorporate the user problems to some. 

So in some ways, Ethereum not having a not-star, I don't think is a fair critique, but if you look directly at the foundation and what they talk about, maybe I would see why people might feel that way. But on the flip side, I do know they have these initiatives to fund people who are actually doing things in communities. I don't know if it's called like onboard the next billion or something like that. 

And it's something that happens every year, and they give out these grants, people who are doing all sorts of cool stuff with blockchain, like farming and this or the other. So I can't say they're not, you know, like looking into that. But yeah, I just think it's like a lot of things trying to be solved at the same time, it does get confusing. 

But it kind of is what it is. Because no one is critiquing AI when you have people creating a bunch around them stuff, like, are you trying to be an assistant, like figure it out, like, no one is confused. People are like, yeah, I appreciate the fact that you're doing all these different things. 

So I think it's a bit unfair to criticize Ethereum for doing multiple things at the same time. Yeah, I really like what you said where it's about how it relates to the user. And for example, in the example you just gave with AI, it's really clear how that stuff helps the user like, Oh, I have an AI generate images for me. 

Oh, that's great. I have an AI be a personal assistant. Oh, that's great. 

And I think that the problem isn't that Ethereum doesn't have a North Star, I think that it is just sometimes difficult to communicate to a regular user why that should matter to them. So, for example, of course, we want censorship, resistance and decentralization and all of these things. But why does that matter to an average user? You know, really, I mean, also to myself, like if I'm just transferring someone, a couple of USDC, I just want it to be fast and easy. 

If I'm talking about large amounts of money, or if I'm talking about whistleblowing, or I'm talking about all of these things, yeah, that's different. And I would need to go to Ethereum for that. But yeah, I just think we need maybe as a community, we need to do a better job of explaining why this should matter to users in the first place, because I don't think it's clear why any of that stuff matters. 

And instead, you could just go to, you could go to an L2 that has a centralized sequencer that, you know, doesn't have a real proof system, relies on a multi-sig, and you have a great experience and see what users do. So, you know, we see this with bridges all of the time, users use the bridges that are fastest, they do not really care about the security of those bridges. So, yeah, at TLDR, I think we matters to regular users and how it affects them.

Yeah, I totally agree. I think maybe Ethereum's, the thing is we needed users in Web3 to basically test the product and see that it worked. But I think maybe some protocols like Ethereum, and I could be totally wrong, so if someone please call me out, but maybe they care more about the infrastructure side of things. 

And maybe the founders of Solano slash the people who are super involved in the community care more about the user side of things. And I think that is okay, but because Ethereum is a blockchain all across the world.

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