Arweave TX
xh3b4sd
You don't want money in the bank. You want money in the system. - xh3b4sd
There is often the argument that ETH is not used for anything meaningful. And I always find it somewhat irritating to hear such statements. First, meaning is subjective. What you and I find meaningful, given our very own world view, may be very different. And second, the statement that ETH isn't used in quite meaningful ways is simply not true. This week we are going to look at all the different ways in which ETH is used across the onchain economy. And doing that, we are going to look at all the different ways in which ETH accrues value by increasing its own utility function. Today ETH has a market cap of roughly 200 billion USD. This in itself is a respectable size for any system to command. And not only are 200 billion USD very respectable, but also is ETH criminally undervalued, considering that the world economy will become ever more onchain.
The native unit of account within the Ethereum ecosystem is ETH the asset. The gas price for block and blob space alike is denominated in ETH. That means transaction settlement and data availability are two main drivers of ETH's value accrual. About 75% of DEX liquidity is denominated in ETH or ETH derivatives. So the deepest liquidity pools do naturally evolve around ETH as the base trading pair. Ethereum derives its economic security from staked ETH, which is subject to slashing upon dishonest behaviour. And with that, all of Ethereum's crypto economic security guarantees are denominated in ETH too. Those security guarantees are further being exported via restaking, which expands Ethereum's real estate even more by enabling versions of economic activity that are not fully expressed onchain.
The native medium of exchange within the Ethereum ecosystem is then also ETH the asset. All ETH denominated products and services as described above require ETH to change hands. In a world of account abstraction, user operations may be executed by paying for gas with any token, or maybe even without the user knowing about any transaction cost whatsoever. But none of that changes the fact that Ethereum validators receive ETH for transaction inclusion and that economic security is denominated in ETH after all. It is often interpreted as a negative, that user's don't need to hold or know about ETH in the first place when using the onchain economy. But account abstraction is a superpower in this regard, because it allows ETH to permeate through all layers of society without anyone having to really worry about it. Contrary to popular belief, rollups and stablecoins are not parasitic. They are Ethereum's trojan horses, because they allow for the expansion of Ethereum's real estate, far and wide. Imagine we would force everyone to hold ETH in order to use the chain. That kind of pipe dream would be dead on arrival. Account abstraction or not. ETH transfers are so significant, they do typically show up in the top 3 of the burn leaderboard.
ETH is the store of value for Ethereans, people who believe in the future of the onchain economy. Any store of value must retain the value provided for long periods of time. Admittedly, ETH was not able to maintain purchasing power so far over several significant time frames. And that turned ETH into a speculative asset that most people do not believe in. The numbers we know today don't lie. But it is my belief that the numbers of tomorrow, the numbers of the coming years and decades, will prove ETH to be an economically relevant store of value with significant upside potential, exactly because major aspects of the world economy will become ever more tokenized.
An often overlooked aspect of Ethereum's modularity is that companies like Coinbase participate in the network in order to process their own business specific transactions efficiently. The economic activity in the Coinbase case is that trades of digital assets have to be settled on Ethereum. That specific business activity generates so much value for Coinbase that they are running thousands of validators in order to guarantee inclusion of the transaction flow that they generate. The value driver for ETH in this case is then the extension of Ethereum's real estate through real world business use cases. The integration between the offchain and the onchain world is a real positive sum aspect in a future that becomes ever more onchain. Coinbase doesn't participate in network validation for the staking rewards. I would argue that Coinbase would run the same amount of Ethereum validators even if they would yield zero additional capital, simply because network participation enables Coinbase's core business of operating a digital assets exchange.
Staking pools and distributed validator platforms do arguably provide their services for the yield, which is the amount of staking rewards issued by the Ethereum network. We often hear comparisons about the centralization of Bitcoin and Ethereum through the coordination of pooled resources. The truth of the matter though is that Bitcoin operates a far more centralized network than Ethereum does, for two critical reasons. One, three or four mining pools control the vast majority of hash power. And two, a mining pool is the colocation of GPUs, which are all stored and operated inside the same building. The decentralized protocols enabling staking pools on Ethereum are on the other hand used by a myriad of different staking operators, all having different preferences for geographies and software stacks. Staking might appear to represent a centralizing force, but the actually implemented mechanism design of staking providers like Lido and Rocket Pool are true facilitators of decentralized staking primitives, all of which bind enormous amounts of ETH for the long term. Think of it this way: staking pools are Ethereum's permafrost.
Rollups are the native scaling solution for Ethereum. We are building networks of networks. And in all of crypto, we did it first. Every rollup is running a dedicated onchain economy secured by Ethereum. Rollups are another superpower of Ethereum, because they allow for credibly neutral settlement of cryptoeconomic activity, based on the operational preferences that any given business use case may require. The validator set of your rollup can be permissioned or permissionless. The scalability properties of your rollup can be adjusted to your specific needs. Rollups are free to chose their preferred virtual machine and gas token. And rollups are free to chose their regulatory and privacy policies for the transactions that they themselves want to facilitate. Ethereans do certainly prefer ETH to be used as gas token on rollups. That is one aspect of what we call Ethereum alignment. But we should argue that a thousand flowers rather bloom, instead of prescribing top down purity tests. Ethereum needs to lean into the competitive market and favour 100 smaller rollups over 2 big ones. In any event, rollups expand Ethereum's real estate and export ETH as money. Whether you agree with it or not. This is facts.
ETH is the most pristine collateral all across DeFi. And with that we should also mention that DeFi originated on Ethereum, and that 95% of DeFi happens on top of Ethereum. No memecoin washtrading on Solana can change that. The reason for this dominance is because ETH is credibly neutral onchain money. If it's your keys, then it's your ETH. In Aave alone there are about 25 billion USD supplied in collateral, of which almost half is denominated in ETH and ETH derivatives. ETH the asset is part of the DeFi money lego complex. Its usage and utility will only increase from here, while both of these aspects perpetuate one another all across the cryptographically enabled world economic.
Smart contract blockchains enable new primitives for internet native applications. And all of those expand Ethereum's real estate. Today we can already see several social media platforms and gaming ecosystems, all building more accessible and equitable consumer apps on top of the credibly neutral substrate that is powered by ETH. Onchain native businesses like Farcaster and Zora increase the amount of ETH in user wallets and the provenance of ETH in every additional block space secured. Tokenization is the latest darling of traditional finance. BlackRock has over 2 billion USD of short term treasury notes tokenized on Ethereum. The majority of the stablecoin complex is settled on Ethereum too. All of those use cases expand ETH's economic real estate, which means that all of those use cases add to ETH's value accrual.
We can already see several state and business treasuries that treat ETH as a viable capital asset. Those institutions have realized how the future will most likely look like. DAOs and pension funds alike, they all carry the spirit of the strategic ETH reserve. And none of those entities cares about the toxic noise on crypto twitter. Because Ethereum is built by those with skin in the game. Not those who only complain about the efforts of others.
Onchain has become more than just money. Onchain can be about finance and speculation, but more so it can be about community, content, tickets, branding, collecting and every other possible permutation of production and consumption in an interconnected world that becomes ever more digital. Real world businesses have only recently started to integrate with Ethereum on more serious terms. In the past, business were simply not allowed to operate onchain for bogus regulatory reasons. But US corporations got the green light now to integrate with public blockchains. And many of them want to do it because Ethereum allows them to create more value for their business. Merging traditional businesses with the onchain economy will expand Ethereum's footprint by orders of magnitude. All of those expansions open up many different supply sinks for ETH to be utilized at the end of the day. And the emerging properties of this very onchain economy will be so much larger than the sum of its parts.
27.6 trillion USD in stablecoin volume was processed globally in all of 2024. And 95% of that volume was settled on Ethereum. It goes without saying, but, there is no second best.
I put together all the different ways in which ETH is actually accruing value. You think price is bad? You think ETH is undervalued. You are probably right. But if we wouldn't have 20 different things going for us, it would be so much worse. Time to appreciate what we already have and roll up our sleeves. https://powerlaw.systems/memo-w16-apr-2025
🚨SOLANA just flipped ETHEREUM in staking market cap! • Solana: $56.7B | 65% staked • Ethereum: $56.2B | 29% staked But here’s what most people miss: Ethereum staking is about to explode. Why? One word: Pectra 👇🧵 ⸻ 1. Big unlock for big stakers 🔷 EIP-7251 raises validator cap from 32 → 2048 ETH 🔷 Whales and institutions can stake more with less infra 🔷 Rewards now compound on the full balance ⸻ 2. Staking becomes seamless 🔷 EIP-6110: deposits recognized in minutes 🔷 Less waiting = more participation from retail and funds ⸻ 3. Yields go up — automatically 🔷 Auto-compounding boosts effective APY 🔷 No manual restaking needed 🔷 Better returns, same effort ⸻ If ETH staking hits 40%: 🔷 48M ETH staked 🔷 At $1,980 = $95B staking market cap → That’s +69% from today → Clean flip of Solana ⸻ Pectra isn’t just a protocol upgrade. It’s a capital unlock that could reshape ETH’s entire economic layer. Don’t fade the shift.
Interesting perspective. Pectra’s effecting on eth’s staking tvl was an oversight for me, I’ll look more into this
I think some of the takes here miss the mark for what is actually relevant. It is true that Pectra will improve staking economics. The same amount of stake requires far fewer resource, making it more capital efficient. The question we have to ask n the research side is how much economic security is "enough". We don't want to have more than 30% of ETH staked for various reasons. Staked ETH doesn't increase Ethereum's utility function, which is where the actual value accrual takes place. And further, more staking increases centralization risks while at the same time reducing real yield. At a certain point the amount of economic security becomes less important. Because what really matters is the quality of this security, and what it actually secures.
Absolutely the goal isn’t just “more stakers,” but smarter capital efficiency and a healthy balance between yield, decentralization, and utility. Pectra may boost staking mechanics, but we still need to ask: what’s the optimal security threshold before yield compression backfires? Excited to see how this will play out! Nevertheless I believe initially it will lead to a higher Ethereum staking rate!
In terms of higher staking participation, my hunch would be that staking ETFs will generate more demand than Pectra, simply because the ETFs cater to a new market audience, while Pectra is only relevant for those already staking. I think I am with you on the issuance debate. What I have said early on was that any changes to the supply curve have to take into account how much economic value we actually have to secure. Because only if you know how much your house is worth, only then can you calculate the insurance to cover it. So unless we are finding a way to issue rewards based on the objectively derived economic security required, I am against it. I am against all "Jerome Powell" style issuance changes, because this thing is far larger and far too important for applying just another guess.
I spoke with the Ethereum Foundation research team during ETHCC about this very topic — particularly the idea of reducing staking rewards. In my view, this is clearly a negative measure for the demand side of ETH. There seems to be a lack of sensitivity in understanding what the core sources of demand for ETH actually are — and in the end, these are what define its price. I’m not sure I would frame it strictly as a "security" issue — that’s another debate — but what’s clear is that a significant drop in price negatively impacts the broader ecosystem. There was no serious analysis of how Dencun affected demand, and now once again, we’re seeing very little reflection on the potential market impact of critical upgrades like Uniswap V4 and the launch of Unichain. In this context, I believe that disincentivizing staking — even if it’s for ostensibly valid reasons — is ultimately a harmful decision for the Ethereum ecosystem unless it's backed by a rigorous analysis of its downstream effects.
Reducing incentives without fully modeling demand-side behavior could unintentionally weaken ETH’s price floor. We need security, yes but also a thriving asset economy that supports the entire ecosystem.
On the demand side I would frame it differently. Blob space increased Ethereum's real estate. If anything, Dencun flushed out speculation based on some funny DCF type of thinking, which frankly doesn't work well for public blockchains anyway. Crypto's forward P/E ratios are completely retarded. Ethereum has all the fundamentals. Price is short term noise to me. On the issuance curve I would agree with you. We can chose to maximize or minimize certain aspects of the system. Instead of artificially minimizing supply, we should focus on maximizing demand. There is only one supply mechanism. But there are dozens, if not hundreds of demand mechanisms, most of which we have probably not even discovered, less understood.
https://mirror.xyz/valuecrypto.eth/bVGKKuE6HGwE6gCTIngkH2OjXysLVEYC-8a3FGBPx8A
Nice