Psychology, perception drive ETH's momentum as much as technical fundamentals, research

A new study commissioned by the Ethereum Foundation has found that the psychological perception of the blockchain network is just as important as other factors like its market prices and technical fundamentals.

The report, released under the name “Project Mirror,” was conducted by We3.co researchers Valeria Salazar and Jill Gunter, who interviewed more than 60 individuals, including members of EF, regulators, investors, traders, analysts, and builders, between March and June this year.

According to the study, the period in between was Ethereum’s “worst crisis” in years, due to its dismal price action, which saw it trade between $1,600 and $2,500, hitting a three-year low in April. The researchers described the market downtrend as a psychological breaking point for many in the community, at a time when other networks were experiencing all-time high prices and heightened activity.

Project Mirror: Ethereum lost its dominance after creating smart contracts

In a chart showing how community members viewed Ethereum while it was under pressure, the research noted that stagnating prices and uncertainty over the foundation’s leadership left investors and developers questioning the ecosystem’s long-term competitiveness.

When Ethereum launched as the first smart contract platform, the ERC-20 standard allowed developers to create thousands of tokens for its Layer-1 chain. At the time, builders had limited options, so they had to deploy on Ethereum or not deploy at all. 

Every major advance in crypto seen on decentralized exchanges, even NFTs, was built on Ether first. But according to the research, surging adoption led to network congestion and soaring transaction fees. Simple transfers became expensive, while complex decentralized finance transactions could cost hundreds of dollars.

Blockchain developers then decided to build Layer 2 (L2) scaling solutions, such as Arbitrum and Optimism, which offered much cheaper and faster transactions, all embedded within Ethereum’s security. 

Competing blockchains studied Ethereum’s limitations, and Solana focused on transaction speed, while Avalanche emphasized customizability, areas where Ethereum was lagging behind.

Five perceived tension points on Ethereum

The research identified five issues that have shaped people’s perceptions of Ethereum, but found that its most pertinent problem was public communication. Most of the interviewed community members said Ethereum has become “a platform with many meanings and no unifying mental model.”

Developers were pleased with Ethereum’s technical talent and the strength of its virtual machine (EVM), but admitted to being frustrated with the uncertainty surrounding the Foundation’s leadership role. Some members still equate Ethereum with the Foundation itself or with the broader developer community.

Without a clear definition, participants said Ethereum felt less like a product and more like an abstract idea.

“We’re a little bit in between narratives right now. I don’t have a sense for what direction it’s going to take hold,” one Web3-focused venture capital investor told the researchers.

ETH price is affecting the blockchain’s success  

The second-most-mentioned issue, as mentioned in the study, was ETH’s market performance, characterized by a flat trading range, which has led many to interpret the ecosystem as stagnating. Even as technical progress continued, the absence of price growth was seen as a failure to evolve.

Other networks’ surging token prices amplified this perception. The study noted that newer ecosystems attracted capital, attention, and developers through strong market performance. Ethereum, as credible as it appears, lacks an explanation for why its price was not moving.

“The price of Ethereum does matter,” one decentralized finance app builder told the researchers. “At the end of the day, if Ethereum’s currency is not performing, then it’s not as economically attractive a place to build.”

A decentralized autonomous organization leader surmised Ethereum was “has been eating a really clean diet, but all the people eating junk are getting more buff.”

Project Mirror also identified that Ethereum’s base layer does not have a clear message about what Layer 1 represents, which researchers said could be important to the ecosystem, yet extremely “uninspiring.”

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.