Where does the value of ETH come from? A comprehensive analysis from asset logic to business strategy.

Author: Konstantin Lomashuk, Artem Kotelskiy

Compiled by: Dingdang, Odaily Planet Daily

Editor's note: Recently, U.S.-listed companies have begun to "re-understand" Ethereum. SharpLink Gaming plans to invest up to $1 billion in ETH as a strategic reserve through the sale of shares; BTCS has also purchased 3, 450 ETH for about $8.42 million. These developments may be sending a clear signal that ETH is transforming from "on-chain fuel" to "enterprise-grade strategic asset".

From the experimentation platform for the developer community, to the infrastructure of DeFi, to the long-term allocation of corporate finances, Ethereum's role is changing profoundly. In this wave of revaluation, how do we understand the technical logic and economic model behind ETH?

Odaily Planet Daily has translated and refined the in-depth article "Ethereum Roadmap: The Root Chain to Become the 'World Computer'" co-authored by early Ethereum investor, Lido co-founder Konstantin Lomashuk, and Cyber•Fund research director, Princeton Mathematics PhD Artem Kotelskiy. This article systematically outlines the development trajectory of Ethereum, protocol evolution, scaling paths, and its positioning in the Rollup era, attempting to answer a key question: Why is ETH worth being 'held for the long term'?

Note: Due to the length of the original text, the translator has made some reductions and optimizations to improve readability without affecting the original meaning.

DeFi: The first product-market fit (PMF) found on Ethereum.

Since its inception, Ethereum has been dedicated to creating a globally shared, trustless computing platform. After ten years of development, it has evolved from an early technical experiment into the core foundation of decentralized finance (DeFi), blockchain space markets, and on-chain application ecosystems.

But to understand how ETH got to where it is today, we have to start with a key inflection point – DeFi's Product Market Fit (PMF). At that time, it coincided with the bear market of 2018-2020, and with the emergence of ERC 20, Uniswap, DAI, Aave, Compound and other protocols, Ethereum gradually evolved into a self-custodial, composable, permissionless financial system underneath. The explosion of DeFi is a natural fit between technological innovation and market demand.

The "DeFi Summer" of 2020 marked the culmination of this, with a rapid increase in staking volumes, on-chain trading volume surpassing centralized exchanges for the first time, and the value of ETH's network beginning to emerge. However, the ensuing high transaction fees have also exposed the bottleneck of Ethereum's scalability and laid the groundwork for the future transformation of the technical route.

The Value Turning Point of ### ETH: From EIP-1559 to The Merge

If DeFi has showcased the practical value of Ethereum, then the two upgrades EIP-1559 and The Merge have provided the logic for the long-term value of ETH.

In 2021, EIP-1559 was introduced, fundamentally changing the fee mechanism of Ethereum. The original "priority gas price" model was replaced by the Base Fee, and the portion of the fees paid by all users no longer goes to miners but is instead directly burned. This means that the more active the network is, the more ETH is burned, reducing inflationary pressure and strengthening the value support of ETH.

The indigo part indicates that ETH is starting to achieve "value repatriation" through the burning mechanism.

In September 2022, Ethereum completed a historic and significant upgrade: the consensus mechanism switched from Proof of Work (PoW) to Proof of Stake (PoS), marking the official implementation of "The Merge". This transformation was technically challenging yet crucial—it reduced Ethereum's energy consumption by 8000 times and lowered the annual issuance rate required for network security from 4% to less than 1%.

After this, the "net inflation rate" of ETH turned negative for a considerable period.

Green represents the weekly issuance of ETH, orange represents the weekly destruction of ETH, and blue represents the net difference between the two.

Long-term beliefs in the Rollup era: Cooperation and Parasitism?

Scalability is the core challenge of Ethereum. Faced with the three challenges of decentralization, security, and scalability, Ethereum ultimately chose the Rollup solution. Rollups execute transactions off-chain, only writing state changes and data to the main chain, which ensures the security of the main chain while significantly increasing transaction throughput.

This also transforms Ethereum from a pure "execution platform" into a "security layer + data availability layer", forming a scalability route centered around "Rollups".

However, Rollup is not only a technological change, but also changes the logic of ETH's value flow. In the past, users paid fees directly to the main chain, but now most transactions are completed through rollups, and the demand for direct transactions on the main chain is reduced. Rollups earn revenue by reselling block space, but since the Cancun upgrade, their direct fees on the main chain have been significantly reduced, leading to "parasiticism" discussions. In fact, Rollup is more of a "business extension" of Ethereum, relying on the security and data services of the main chain to bring more users and transactions.

Although the transaction demand on the main chain has decreased, the expansion and upgrade of the main chain are still actively advancing, aiming to increase the processing capacity by a hundredfold or even a thousandfold in the coming years, providing stronger security and data support for L2. Rollups and the main chain together form a complementary ecosystem, both dividing labor and collaborating, laying the foundation for the sustainable development of Ethereum in the future.

! [Where does ETH value come from?] Full analysis from asset logic to business strategy](https://img.gateio.im/social/moments-990337e2987a67f457590b123919771e)

Ethereum Current Status Indicators: Crisis and In-depth Factor Analysis

Since the collapse of FTX in 2022, the crypto industry as a whole has maintained growth, but ETH has significantly underperformed Bitcoin (BTC) and Solana (SOL). ETH prices are highly correlated with Ethereum network fees, and fee growth has been sluggish since 2022, especially compared to the performance of Solana in the 2018-2022 cycle and this cycle, and the revenue pressure is obvious. There are three main reasons:

Factor A: Rollup "Parasitism"

Although Rollups profit from user transaction fees, they have not yet provided sufficient value back to the Ethereum mainnet.

From the data, this factor exists, but currently has a relatively small impact on overall revenue. The total weekly revenue of Rollup is only in the millions of dollars, with low transaction fees, partly because the Rollup's sequencer can support gas limits far exceeding those of the mainnet, so they do not need to charge users high transaction fees like L1 networks.

More importantly, it is still too early to question whether rollups have given back to the mainnet. In fact, the Ethereum community has "unexpectedly" adopted a strategy of providing data availability (DA) space to rollups for free, in order to attract as many aggregation layers as possible. This kind of "subsidy" is the correct way to build the ecosystem in the early stages.

Factor B: The strategic focus of L1 shifts to DA, and the mainnet construction is marginalized

Since the launch of the Rollup roadmap, Ethereum's strategy and user growth focus have almost entirely leaned towards rollups, while the expansion and maintenance of the mainnet have been relatively neglected.

This bias is indeed true to some extent. Ethereum, in addressing the issue of high mainnet fees, chose to bet its future on Rollups, a strategy that overlooks the potential of L1 itself. Looking back now, as the fragmentation issues of Rollups gradually emerge and we have gradually found viable L1 scaling paths (such as access lists and the development of zkEVM), it seems that the strategic under-specification of L1 may have been a bit excessive.

However, it must be acknowledged that this judgment is based on a retrospective perspective. The Rollup approach was originally a pragmatic move in response to the congestion problem on the mainnet, while solutions like zkEVM were still a long way off at that time. Therefore, it was difficult to reasonably allocate resources between L1 and DA.

In addition, even if we now have a clear path to increase the L1 gas limit by 100 times, some form of horizontal sharding is still inevitable to achieve performance above 10,000 TPS and support a comprehensive public chain computing platform. Against this backdrop, it was still a reasonable decision to opt for the rollup-first strategy at that time.

Factor C: The DA demand for Rollup has not yet surpassed the DA supply of the mainnet

This is the most critical yet overlooked deep issue: the demand for data availability space (DA) by Rollup has not yet substantially exceeded the supply of Ethereum.

Rollup's sequencers are very efficient at packaging and uploading transactions to mainnet, with extremely high compression ratios, resulting in them consuming far less blob space than theoretical. In addition, some user activities (such as meme coin transactions) have also been diverted by Tron and Solana.

Before the Pectra upgrade (May 7, 2025), Ethereum's DA supply was about 210 TPS at 3 blobs per block. Until November 2024, this supply will exceed market demand. Even if demand has since risen, the price of blob gas shows that its price has not increased significantly, indicating that demand has not outpaced supply. Recently, Pectra doubled its blob target to 6 blocks, and the DA supply has increased again, far exceeding the actual demand.

Therefore, factor C is actually the fundamental variable that influences factors A and B. Once the demand for blob space for rollups truly exceeds the supply, blob fees will enter the market discovery stage, and the overall fee structure of the Ethereum network will undergo a qualitative change.

How to evaluate the value of ETH? The business logic of Ethereum

Is ETH ultimately a productive asset or a currency? We firmly believe that ETH should primarily be a productive asset and only secondarily a currency.

The reason is that Ethereum's strongest moat comes from its technical advantages: the trust foundation and stability that have been tested for many years, the neutrality and censorship resistance brought by decentralization, the leading DeFi ecosystem, the high-quality R&D and developer community, and the strong network activity guarantee mechanism. Ethereum is the truly unstoppable "global computer".

Second, as a productive asset that relies on technology adoption, the monetary value of ETH can be stabilized and strengthened. While it's easier for ETH as a currency to cross the technology iteration cycle, the safest path is to build Ethereum as a technology platform to ensure that its economic model is sustainable, and then the monetary attributes will naturally emerge. Conversely, "speculating ETH as a currency" alone will not build a solid foundation.

In short, the price of ETH consists of three components: the discounted future value of transaction fees, the currency premium (as a store of value, medium of exchange, and even unit of account), and the speculative premium (which includes cultural and meme value). Although the latter two have a significant impact, the key to strengthening all three is to maximize the underlying network revenue, which is the foundation of ETH's value.

Ethereum's Long-term Rollup Strategy: Why It's Correct? The Truth About the Competition with Solana

The reason Ethereum firmly chooses the "Rollup-centric" expansion route is very clear: it is the only architectural design that can balance security, scalability, and neutrality.

From a technical supply perspective, Ethereum is currently the most secure and decentralized smart contract platform. Through the validating bridge and data availability layer, Ethereum can "wholesale" the security of the main chain to Rollups, helping them build their own chains without having to rebuild a trust system.

From the perspective of market demand, users ultimately don't care which chain they are using—they only care about "which chain is the cheapest and safest to transact". In the long run, the most rational choice is to be a Rollup, buy security, buy DA, buy consensus, and directly connect with Ethereum. This naturally leads to a market convergence phenomenon: Rollups will build their services around Ethereum's "neutral ledger" like enterprises, rather than being dispersed across other silo chains.

Ethereum vs Solana

Based on fee income in 2024, there are those who believe that Solana has begun to overtake Ethereum in the block space market. However, Solana's hardware-focused strategy is risky, and the network is periodically overloaded. Solana will eventually need to move to shard scaling if blockchains are to reach their full potential by migrating financial infrastructure on-chain at scale, and Ethereum is already leading the way in security, rollup infrastructure, and ecosystem adoption.

More importantly, most of the on-chain activity on Solana comes from the Memecoin craze. Data shows that such transactions once accounted for over 50% of its DEX trading volume. However, Memecoins are a short-term, zero-sum game phenomenon - once the hype fades, their "high-income" myth is hard to sustain.

In contrast, Ethereum focuses on high-stickiness scenarios such as DeFi, where these protocols are driven not by fervent speculation, but by the on-chain migration of real financial activities.

The most significant and important difference: Solana's validator nodes are centralized, while Ethereum has the most diverse network of stakers globally. This decentralization itself is the strongest moat.

Problems with the Rollup Strategy

If the Rollup route is correct, Ethereum's long-term future is bright. Why is the ETH price performing poorly?

From a technical perspective, the biggest drawback of Rollup is the lack of default interoperability, which leads to state fragmentation and severely impacts the experience of users and developers.

From a business perspective, the key issue is that Ethereum has not clearly communicated the commercial strategy for Rollup.

• Short-term adoption strategy: How to drive the rapid growth of Rollup?
• Long-term moat: Why won't Rollup turn to other data availability platforms?

Rollup's business strategy: expansion, differentiation, and moat

1. Ethereum should prioritize expansion and continuously provide sufficient and low-cost data availability (DA)

The technology network market where Ethereum operates is highly competitive and changes rapidly, and the eventual winner will enjoy strong network effects. In this environment, the correct strategy is to provide high-quality products and rapidly expand the user base at very low or even nearly free prices, which is also the growth path for most successful technology networks.

Therefore, Ethereum must keep the data availability (DA) price low and minimize the access threshold for Rollups. After the Cancun upgrade, Ethereum provided a capacity of 3 blobs, leading to a short-term supply exceeding demand, effectively suppressing prices. Although this strategy was not intentionally designed, it achieved good results.

2. Solve Rollup interoperability to enhance user and developer experience

Interoperability is the biggest shortcoming of Ethereum in the Rollup era. Fragmentation severely affects users and developers, and solving interoperability is key to unifying the experience, narrowing the gap with integrated chains, and building a liquidity moat.

The community is actively promoting solutions such as the ERC-7683 second-level medium-scale asset cross-chain exchange and the 2-of-3 OP+ZK+TEE hour-level large asset cross-chain bridge.

3. Differentiation Strategy and Moat Construction

Ethereum needs to differentiate itself in DA services to attract marginal Rollup customers while building a moat to lock in ecosystem clients.

The key moat comes from three major network effects: trust, liquidity, and composability. Currently, the demand for cross-Rollup composability is still unclear, with primary value concentrated in trust and liquidity. These two aspects will naturally extend from Ethereum L1 to the Rollup ecosystem after solving interoperability.

In terms of trust, Rollup enjoys the highest security guarantee through Ethereum DA, while the security of independent chains is relatively weak. The security of Rollup using Ethereum DA is continuously enhanced, and the moat is constantly reinforced.

In terms of liquidity, the institutional-level liquidity of Ethereum L1 is an important factor in choosing Rollups. After connecting to Ethereum DA, Rollups can access the entire ecosystem's institutional liquidity, significantly improving capital efficiency and forming a solid moat.

Therefore, the market will drive the use of Rollup with Ethereum DA to achieve the highest security and liquidity. Ethereum should strengthen these two advantages and attract institutional clients through branding and trust.

The path of value reflux: from "maximizing fees" to "maximizing value carrying"

When Ethereum expands data availability (DA) to millions of TPS (such as through solutions like 2D PeerDAS), and the Rollup ecosystem is voluntarily and firmly bound to Ethereum DA, Ethereum will gain significant fee revenue.

At the main chain level, the widespread adoption of DeFi and enterprise applications will become the main driving force, while the popularity of Rollups will further amplify this effect. At the same time, Rollups will also incur costs for interoperability and settlement services, further contributing to revenue.

At the DA level, the key to achieving a sustainable economy lies in raising the minimum blob price. The specific approach is to monitor the overall income of the Rollup and set a reasonable minimum price, so that the Rollup transmits a certain proportion of value to Ethereum.

As an example, in the next few years, let's say Rollups dominate the CeDeFi payments market, processing about 10,000 TPS and generating billions of dollars in annual revenue, while Ethereum DA supplies more than 10,000 TPS. At this point, blob transaction fees won't fully enter market price discovery, but setting a minimum fee of 0.3 cents per DA transaction burned could generate about $1 billion in annual revenue for ETH holders.

Further cover the high-frequency trading market, such as social, trading, and AI agent coordination, with Rollup's TPS reaching 30,000 levels. The resulting DA transaction fee revenue will exceed 10 billion USD, while the transaction cost remains below one cent.

This type of revenue is affected by the price of ETH and other factors, and the minimum price needs to be dynamically adjusted, which is expected to be determined by community consensus, similar to today's gas limit mechanism. In the future, it is necessary to further study the optimal pricing strategy of blobs, such as refining the connection with the Ethereum L1 fee market. In addition, as Ethereum transitions to zkEVM or RISC-V, new technologies such as SNARK infrastructure will help improve the efficiency of fee capture.

The key is that, at the current stage, we should not rush to extract value directly from transactions, but should maximize support and promote high-value activities in Ethereum blocks and blob space. This will not only generate and enhance network effects but also help Ethereum seize the expanding block space market and solidify its economic foundation. Therefore, the path for value return is very clear.