#Ethereum has long demonstrated its ability to host a wide range of applications and assets, but the investment potential of its native token, #ETH , is becoming increasingly complex. Due to key protocol changes, such as hard forks that activate EIP-1559 and EIP-4844, investors are starting to question how Ethereum’s growing adoption will impact the long-term value of ETH.
Even as the platform expands, the relationship between its growth and the demand for ETH – and consequently its price – is no longer as straightforward as it once seemed.
EIP-1559 Revolution: Connecting Utility with Token Value
The introduction of EIP-1559 in 2021 brought in a burning mechanism that removed most transaction fees from circulation. This established a direct relationship between Ethereum's usage and the supply of ETH. As users paid for transactions on the network, the burning mechanism reduced the supply of ETH, creating deflationary pressure and driving the price upwards.
According to a 2023 CoinShares model, under optimal conditions where Ethereum generated $10 billion annually in transaction fees, ETH could reach a value of up to $8,000 by 2028. However, this optimism faded with the introduction of the Dencun hard fork and the rise of Layer-2 (L2) solutions, which impacted the fee structure and thus the potential of ETH.
The Rise of Layer-2: A Double-Edged Sword
Layer-2 platforms were designed to scale Ethereum by moving transactions from the main chain (L1) to faster and cheaper networks. Initially, L2 solutions complemented L1, helping the network handle more transactions without overloading the base chain – functioning as a pressure release valve during times of high usage.
However, with the introduction of “blob space” in 2024, L2s were able to settle transactions on L1 at a much lower cost, reducing the need for expensive L1 fees. As more activity moved to L2, the burning of ETH, which was designed by EIP-1559, began to decline, weakening the deflationary pressure on the ETH supply.
The Future: Reviving Burn Rates or Adapting to a New Reality
Despite these challenges, there are potential ways forward to restore demand for L1 transactions and, subsequently, the value of ETH.
One path is the development of high-value use cases that rely on the security and reliability of L1, though this seems unlikely in the near future. Another option is that L2 adoption grows so rapidly that the sheer volume of transactions compensates for the lower fees – but this would require exceptional growth in L2 beyond short-term expectations.
The most likely, and perhaps most controversial, solution would be to reprice blob space to increase settlement fees for L2. While this would restore some of L1’s usage, it risks disrupting the L2 economy, which has been key to Ethereum’s recent success and strengthened its ability to compete as an ecosystem against alternative platforms (such as Solana, Binance Chain, etc.).
Uncertain Future for ETH
While L2 has scaled Ethereum, it has also disrupted the mechanisms that link ETH’s value to its utility. For investors, this means that the future of ETH depends on how Ethereum balances innovation with maintaining a sound economic policy.
For now, ETH's investment case remains uncertain, and the risks are high as the Ethereum community decides on its path forward.
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