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. publicly traded companies have begun to “re-evaluate” Ethereum. SharpLink Gaming plans to invest up to $1 billion in purchasing ETH as a strategic reserve by selling stock; BTCS has also purchased approximately $8.42 million worth of 3,450 ETH. These moves may be sending a clear signal: ETH is transitioning from “on-chain fuel” to “enterprise-level strategic asset.”

From the experimental platform of the developer community, to the infrastructure of DeFi, and to long-term allocation in corporate finance, Ethereum’s role is undergoing a profound transformation. In this wave of value reassessment, how should we understand the technological logic and economic model behind ETH?

Odaily Planet Daily has translated and refined a deep article co-authored by Ethereum early investor, Lido co-founder Konstantin Lomashuk, and Cyber•Fund research director, Princeton mathematician Artem Kotelskiy, titled “Ethereum Roadmap: The Root Chain to Becoming the ‘World Computer.’” 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 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.

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

To understand how ETH arrived at where it is today, we must start with a key turning point—the product-market fit (PMF) of DeFi. This coincided with the bear market from 2018 to 2020, during which protocols such as ERC 20, Uniswap, DAI, Aave, and Compound emerged one after another, gradually evolving Ethereum into a self-custodial, composable, and permissionless financial system foundation. The explosion of DeFi is a natural fit between technological innovation and market demand.

The “DeFi Summer” of 2020 marked the peak of this, with a rapid increase in locked assets, on-chain trading volume surpassing centralized trading platforms for the first time, and the network value of ETH beginning to manifest. However, the high transaction fees that followed also exposed Ethereum’s scalability bottlenecks and laid the groundwork for future technological transformations.

ETH’s Value Turn: From EIP-1559 to The Merge

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

In 2021, EIP-1559 was introduced, completely changing Ethereum’s fee mechanism. The original “priority gas price” model was replaced by the Base Fee, and the portion of the fee 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 for ETH.

The indigo part shows that ETH is beginning to achieve “value return” 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 critically important—it reduced Ethereum’s energy consumption by 8,000 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 is the weekly destruction of ETH, and blue represents the net difference between the two. Long-term belief in the Rollup era: cooperation or parasitism?

Scalability is the core challenge of Ethereum. In the face of the three difficult dilemmas of decentralization, security, and scalability, Ethereum ultimately chose the Rollup solution. Rollup executes 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 “Rollup-centric” scaling approach.

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 upgrading of the main chain are still actively being promoted, with the goal of increasing 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.

Ethereum Current Status Indicators: Crisis and In-depth Factors 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 “Parasitization”

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

According to the data, although this factor exists, its impact on overall revenue is currently small. The total weekly revenue of Rollup is only in the millions of dollars, and its transaction fees are relatively low, partly because the rollup’s sequencer can support gas limits that are significantly higher than those of the mainnet, allowing them to avoid charging users high fees like L1 networks.

What’s more, it’s too early to question that rollups aren’t feeding back to mainnet. In fact, the Ethereum community “unexpectedly” adopted the strategy of providing data availability (DA) space to rollups for free in order to attract as many aggregation layers as possible, which was the right way to build the ecosystem in the early days.

Factor B: The strategic focus of L1 has shifted to DA, and the mainnet construction has been marginalized.

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

To some extent, this bias is true. Ethereum’s “all-in” strategy of betting on rollups in the future to solve the problem of high mainnet fees ignores the potential of L1 itself. Looking back now, as the fragmentation of rollups gradually emerged, and we gradually found feasible L1 scaling paths (such as access lists, zkEVM development), we can see that the strategic underallocation of L1 may be a bit excessive.

It must be admitted, however, that this judgment is based on an aftersight. The rollup route was a pragmatic move to deal with the problem of mainnet congestion at the time, and solutions such as zkEVM were still far away. As a result, it was difficult to allocate resources between L1 and DA at the time.

Furthermore, even if we now have a clear path to increase L1 gas limits by 100 times, achieving a performance of over 10,000 TPS and supporting a comprehensive public chain computing platform will still inevitably require some form of horizontal sharding. In this context, choosing a Rollup-first strategy at that time remains a reasonable decision.

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

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

The rollup sequencers are very efficient in packaging transactions for upload to the mainnet, achieving a very high compression rate, resulting in them consuming far less blob space than the theoretical value. In addition, some user activities during this cycle (such as Meme coin trading) have also been diverted to 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 affecting factors A and B. Once the demand for blob space by Rollup truly exceeds supply, blob fees will enter the market discovery phase, and the overall fee structure of the Ethereum network will undergo a qualitative change.

How to assess 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 technological advantages: a trusted foundation and stability that have been tested over the years, the neutrality and censorship resistance brought about by decentralization, a leading DeFi ecosystem, a high-quality research and developer community, and a robust 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 parts: the discounted value of future 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, to strengthen all three, the key is to maximize the underlying network revenue, which is the foundation of ETH’s value.

Ethereum’s Long-Term Rollup Strategy: Why It’s Right? The Truth Behind the Battle with Solana

The reason why Ethereum firmly chooses the “Rollup-centric” scaling 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 the data availability layer (DA), Ethereum can “wholesale” the security of the main chain to Rollups, helping them build their own chains without having to establish a new trust system.

From the perspective of market demand, users ultimately do not care which chain they are using - they only care about “where transactions are the cheapest and safest.” In the long run, the most rational choice is to be a Rollup, buying security, buying DA, and buying consensus, directly connecting to Ethereum. This will naturally form a market convergence phenomenon: Rollups will build their services around Ethereum’s “neutral ledger” like enterprises, rather than dispersing to other isolated chains.

Ethereum vs Solana

According to the transaction fee revenue in 2024, some believe that Solana has begun to surpass Ethereum in the block space market. However, Solana’s strategy centered around hardware scalability carries significant risks, and the network periodically experiences overload issues. If the blockchain is to realize its full potential, namely the large-scale migration of financial infrastructure onto the chain, Solana will ultimately need to shift towards sharding for scalability, while Ethereum has already far outpaced it in terms of security, Rollup infrastructure, and ecosystem adoption.

What’s more, most of Solana’s on-chain activity comes from the Memecoin craze. At one point, such transactions accounted for more than 50% of its DEX volume, according to the data. But Memecoin is a short-term, zero-sum game phenomenon – and once the craze has passed, so does its “high-income” myth.

In contrast, Ethereum focuses on high-retention scenarios such as DeFi, where these protocols are driven not by rampant 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 staking network globally. This decentralization itself is the strongest moat.

Issues with 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 flaw of Rollup is the lack of default interoperability, which leads to state fragmentation and severely affects the experience of users and developers.

From a business perspective, the key issue is that Ethereum has not clearly communicated the business 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).

Ethereum operates in a highly competitive and fast-changing technology network market, and the winner will enjoy a strong network effect. In this environment, the right strategy is to provide a quality product and quickly expand the user base at a very low or almost no cost, which is also the growth path of most successful tech networks.

Therefore, Ethereum must keep the Data Availability (DA) price low to minimize the entry barrier for Rollups. After the Cancun upgrade, Ethereum provided a capacity of 3 blobs, which, in the short term, resulted in supply exceeding demand, effectively suppressing prices. Although this strategy was not deliberate, it achieved good results.

2. Solve Rollup interoperability to enhance user and developer experience.

Interoperability is the biggest deficiency 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 ERC-7683 second-level medium-scale asset cross-chain exchanges and 2-of-3 OP+ZK+TEE hour-level large-amount asset cross-chain bridges.

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 composability across Rollups is still unclear, with the main value concentrated in trust and liquidity. After addressing interoperability, these two will naturally extend from Ethereum L1 to the Rollup ecosystem.

In terms of trust, Rollup enjoys the highest security guarantees through Ethereum DA, while independent chains have weaker security. The security of Rollup using Ethereum DA is continuously strengthened, and the moat is consistently reinforced.

In terms of liquidity, the institutional-level liquidity of Ethereum L1 is an important factor in the selection of Rollups. After connecting Rollups to Ethereum DA, they can access full ecosystem 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 maximum security and liquidity. Ethereum should strengthen these two advantages and attract institutional clients through branding and trust.

The path of value reflow: from “maximizing fees” to “maximizing value delivery”

When Ethereum expands data availability (DA) to the level of 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 income.

At the mainchain level, the widespread adoption and enterprise adoption of DeFi will be the main driver, and the popularity of Rollups will further amplify this effect. At the same time, Rollups further contribute revenue by paying fees for interoperability and settlement services.

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 Rollup and set a reasonable minimum price so that Rollup can transfer a certain proportion of value to Ethereum.

For example, in the coming years, assuming Rollup occupies the CeDeFi payment market, processing about 10,000 TPS, with annual revenue in the billions of dollars, while Ethereum’s DA supply exceeds 10,000 TPS. At this point, although blob transaction fees will not completely enter market price discovery, if the minimum fee is set to destroy 0.3 cents for each DA transaction, it could bring about 1 billion dollars in annual revenue for ETH holders.

Further covering the high-frequency trading market, such as social, trading, and AI agent coordination, the TPS of Rollup can reach 30,000 levels, bringing DA transaction fee revenue to 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, one should not rush to directly extract value from transactions, but rather maximize support and promote high-value activities in the Ethereum block and blob space. This will not only generate and enhance network effects but also help Ethereum capture the expanding block space market, solidifying its economic foundation. The path for value return is therefore very clear.