Despite a year of notable milestones - Dencun upgrade, Spot Ethereum (“ETH”) ETFs, and a bullish macro environment - Ethereum’s measured progress across key metrics relative to the broader market, including ETH dominance reaching its 2021 lows, has placed it at the center of a value debate.
The Dencun upgrade, a key step in Ethereum’s rollup-centric roadmap, reduced Layer 2 (“L2”) fees via blobs, benefiting L2 users but reshaping Layer 1 (“L1”) fee dynamics. With execution activity shifting to L2s, Ethereum’s reliance on smaller data availability (“DA”) fees has grown, impacting fee collections, burn rates, and the ultrasound money narrative, while putting it in direct competition with alt-DA layers.
Ethereum also faces increasing competition from alt-L1s, which have outpaced it on several year-to-date (“YTD”) growth metrics, and app-chains, most notably Uniswap’s upcoming move to Unichain, potentially altering value distribution further.
This collection of market dynamics has placed Ethereum in multiple competitive arenas - from L2s and alt-DAs to L1s and alt-L1s - all while still requiring a focus on ETH’s value accrual. As a result, Ethereum faces a prioritization dilemma that directly affects value.
Many believe in the scalability and growth of L2s, viewing fee accrual losses as a secondary concern - some focus on competing in the DA space, but perhaps the larger bet is seen with the demand for ETH as non-sovereign money within the L2 economy. Others, however, prioritize the fee economy, maintaining high value decentralized applications (“dApps”) and thereby maximizing value at the L1.
From a value perspective, the key question is whether cash flows generated from transaction fees and MEV, versus the monetary premium from ETH functioning as a gas token, medium of exchange, and collateral asset, will lead to greater value capture in the long term.
Either way, committing to a clear direction will be important - even if it requires balancing scaling through L2s while ensuring Ethereum maintains its appeal as an L1 - since any strategic ambiguity will impact value accrual.
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