ethereum Venture Capitalists Turning to Layer-2 Assets as Exit Strategy

A crypto user, known as R89Capital, suggests that ethereum venture capitalists (VCs) are aware that investing in the largest smart contract platform will not yield the desired “multiples” they seek. Instead, VCs are reportedly considering ethereum layer-2 assets as a means to exit the market and sell off “Ponzi tokens.”

ethereum VCs Moving Away From ETH Towards “Ponzi” Tokens?

The user theorizes that one reason why ETH may not experience significant price surges like emerging tokens is its relatively large market cap. As of October 31, ethereum‘s market cap stands at over $215.8 billion, making it the second-largest cryptocurrency after bitcoin (BTC). Coins with higher market caps are generally more challenging to manipulate and have often witnessed greater institutional adoption compared to emerging tokens.

ethereum price on October 31| Source: ETHUSDT on Binance, TradingView” width=”1233″ height=”592″/>
ethereum price trends to the upside on the daily chart | Source: ETHUSDT on Binance, TradingView

This market dynamic is partially due to the liquidity, brand recognition, and adoption that projects with higher market caps generally possess. While these coins are more accessible for purchase on secondary markets due to their higher levels of liquidity, they tend to exhibit less volatility compared to low market cap tokens.

Low market cap tokens, on the other hand, are often held speculatively for their potential upsides, particularly during trending markets. These tokens tend to attract profit-seeking speculators, regardless of the platform they are issued on, rather than being driven by underlying fundamentals.

R89Capital suggests that VCs, seeking to recover their investments, are promoting Ponzi tokens on general-purpose layer-2 platforms. They then proceed to sell these tokens for ETH on layer-2 decentralized exchanges or popular ramps like Binance or Coinbase before ultimately exiting the market for USD.

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The ethereum Technical Debt: Scaling Challenges

However, R89Capital does not mention specific layer-2 projects that fall under the Ponzi token category. Nonetheless, they attribute ETH‘s price cap to ethereum‘s technical debt.

Over the years, ethereum developers have introduced new products and scaling solutions, such as transitioning to a proof-of-stake system and adopting layer-2 solutions. However, scaling remains a challenge that impacts user experience, especially during periods of token price rallies.

In bull markets, it is not uncommon for gas fees on ethereum to surge, discouraging deployment and prompting some transactions to migrate to competing platforms like Solana or layer-2 scaling solutions such as Base or Optimism.

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