Written by: danny
The year 2025 is undoubtedly filled with contradictions and controversies for Ethereum. Despite the endorsements from influencers, various DATs, numerous technical upgrades, and hacker promotions, the performance in the secondary market has been disappointing: Ethereum finds itself in an "awkward" middle ground: in terms of asset attributes, it seems to lack the pure commodity properties and safe-haven consensus of Bitcoin as "digital gold"; in terms of technical performance and fee capture, it faces fierce competition from high-performance chains like Solana and Hyperliquid, which seem to align better with investors' preferences and valuation models. Moreover, the Dencun upgrade in 2024 did not restore Ethereum's former glory but instead became a nightmare that consumed the narrative.
This perception of being "stuck in the middle" has sparked a soul-searching question: Does Ethereum still have a future? What category does it belong to? Does it possess a clear and sustainable business model?
After the Fusaka upgrade, can Ethereum redeem itself?
Introduction: Two "Wall-less" Utopian Experiments 60 Years Apart
I believe many people would not expect that Singapore, known for its strict laws, once had its own "utopian" dream in its early years. In fact, Lee Kuan Yew once fantasized about using "love" to reform prisoners, but reality gave him a harsh slap.
The 1950s in Singapore was an era dominated by secret societies (gangs). Statistics show that there were over 300 active secret society groups at that time, involving more than 50,000 people (about 6% of the resident population), essentially infiltrating various sectors of Singapore, leading to numerous social order issues and impacting economic development. The then "chief steward" of Singapore, Lee Kuan Yew, decided to take drastic measures and enacted the shocking "Criminal Law (Temporary Provisions) Act" (also known as Bill 55) — this plan essentially granted the police the authority to detain individuals deemed a threat to social security for extended periods without trial.
The effect of this plan on social order was immediate, but it became a nightmare for prison management. The sudden influx of numerous suspects/prisoners led to Changi Prison being overcrowded, nearly reaching a breaking point.
While human rights advocates and law enforcement debated endlessly, then-Workers' Party leader Devan Nair proposed a "Utopian Prison Model," a hybrid model of prison + community + farm, without handcuffs, shackles, high walls, or heavy guards, aimed at allowing prisoners to reform through collective labor and community trust. Nair believed that high walls and oppression would only provoke the worst in human nature, and that trust and freedom could reshape character.
This seemingly crazy experimental proposal surprisingly passed after intense debate in 1960, with the location set on Pulau Senang, a small island less than 1 square kilometer south of Singapore, surrounded by turbulent waters to prevent escapes. At that time, the prison warden of Pulau Senang, Daniel Dutton, firmly believed in the goodness of human nature, thinking that as long as trust and dignified labor were provided, criminals could redeem themselves in the "wall-less prison," so there were no walls, no barbed wire, and even the guards were not armed.
At that time, Pulau Senang was desolate, but with the hard work of the first and second batches of prisoners, the island began to take shape, with a canteen, dormitories, warehouses, and even running water and electricity. To outsiders, it looked like a large community rather than a prison. Everyone on the island had to work and participate in construction, including the guards (Dutton himself lived and ate with the prisoners), with working hours from 8 AM to 5 PM, after which there was free time, and weekends off. Just as Nair hypothesized, the recidivism rate of prisoners serving in this community environment was only 5% after "release," and this "success story" attracted coverage from Western media and even visits from a United Nations inspection team, hailed as a "miracle of human transformation history."
Just when Dutton thought everything was going well, he was unaware that "greed" and "discontent" were quietly brewing within the Pulau Senang community. Some prisoners complained that the work was too hard; others wondered why they were not among those released early; some complained about unequal division of labor, always doing the hardest work but receiving fewer credits. This sentiment gradually spread among the prisoners. The tipping point was a weekend dock work incident in July 1963, when several carpenters refused to work because it was the weekend, and in a fit of anger, Dutton sent the striking prisoners back to Changi Prison. This incident pushed the discontent to its peak.
On July 12, 1963, black smoke rose from the once peaceful Pulau Senang. After receiving their usual tools (shovels, machetes, hoes) in the morning, the prisoners launched indiscriminate attacks on the guards. Armed with hoes and parangs, the prisoners rioted, killing Dutton, who believed they would reform, and burned down the houses, canteen, and more that they had built with their own hands, along with their hopes of reintegration into society and the Singapore government's belief in the goodness of human nature.
This island, known as "Pulau Senang," was originally a globally watched sociological experiment. Here, hundreds of the most notorious secret society members transferred from Changi Prison were given unprecedented freedom — yet, on this day, idealism turned to ashes in the flames.
In March 2024, Ethereum also launched its own "Pulau Senang experiment" — the Dencun upgrade (EIP-4844).
Core developers, like Dutton of the past, dismantled the expensive "economic walls" (Gas fees) between L1 and L2. They held a grand vision of being "Rollup-centric," believing that by providing L2 (Layer 2) with nearly free Blob data space, L2 would thrive and feed back into the mainnet, creating a mutually beneficial utopia.
But history always rhymes. Just as the prisoners of Pulau Senang chose rebellion instead of gratitude, L2 in 2025 chose not to feed back but to launch a silent "economic raid" on L1.
Chapter 1 "Awkward" Origins: Identity Crisis in 2025
1.1 The Dilemma of Being Neither Gold Nor Tech Stocks
For most of 2025, Ethereum's positioning in the capital market appeared particularly vague. Investors tend to classify crypto assets into two extremes: one end as "digital commodities" (like BTC) serving as value storage, and the other as "tech stocks" (like Solana) with high growth potential relying on user traffic for monetization. Ethereum once attempted to occupy both ends — being both "Ultra Sound Money" and "the World Computer."
However, the market environment in 2025 ruthlessly stripped away the benefits of this dual narrative.
The Awkwardness as a Commodity: Although ETH plays a core collateral role in DeFi, its dynamic supply changes (the back-and-forth switch between inflation and deflation) and the existence of the Staking mechanism make it difficult to be simply defined as "digital gold" like BTC. The fixed total supply and energy anchoring of BTC solidify its commodity attributes, while Ethereum's complexity makes it appear ambiguous in the eyes of conservative institutions.
The Awkwardness as a Tech Stock: If viewed as a tech platform, its core metric — revenue — saw a catastrophic decline in the first three quarters of 2025. Data from August showed that despite ETH's price nearing an all-time high, network protocol revenue plummeted 75% year-on-year, amounting to only $39.2 million. For traditional investors accustomed to valuing based on price-to-earnings ratios or cash flow discount models, this was a clear signal of a business model collapse.
1.2 The "Sandwich Layer" Effect in the Competitive Landscape
In terms of competition, Ethereum also faced dual pressure.
Upward Pressure: The continuous inflow of BTC ETFs and the narrative of sovereign nations' strategic reserves further solidified BTC's position as a macro asset. In contrast, although Ethereum ETFs were approved, the scale of capital inflow has never been comparable to BTC, reflecting mainstream capital's lagging recognition of its "digital oil" positioning.
Downward Impact: Solana, with its extreme performance and low costs brought by its monolithic architecture, nearly monopolized the growth of payment, DePIN, AI Agent, meme, and high-frequency consumer applications in 2025. Data showed that the turnover speed of stablecoins on the Solana chain and ecosystem revenue even surpassed that of the Ethereum mainnet in certain months. Meanwhile, Hyperliquid attracted numerous whale users and traders with its leading position in Perp dex, and its fee capture ability left ETH in the dust.
This state of being "neither here nor there" is a breeding ground for the "awkward" narrative. The market can't help but roll its eyes: If value storage is inferior to BTC, high-performance applications are inferior to Solana, and fee capture ability is inferior to Hyperliquid, where exactly is Ethereum's moat?
Chapter 2 Regulatory Direction: Legal Reconstruction of Digital Commodities
2.1 "Project Crypto" and the Shift in Regulatory Philosophy
On November 12, 2025, U.S. SEC Chairman Paul Atkins unveiled a regulatory reset plan called "Project Crypto" in a speech at the Federal Reserve Bank of Philadelphia. The core goal of this plan is to end years of "Regulation by Enforcement" and shift towards establishing a clear classification framework based on economic realities.
In this speech, Chairman Atkins explicitly refuted the notion that "once a security, always a security" (essentially slapping the previous administration in the face). He introduced the "Token Taxonomy," pointing out that the attributes of digital assets are fluid and subject to change. A token may be sold as part of an Investment Contract during its initial issuance phase, but that does not mean the asset itself is forever burdened with the shackles of being a security. (Note: This logic is very important for Ethereum.)
The SEC believes that when a network's level of decentralization reaches a certain threshold, such that holders no longer rely on a centralized entity's "Essential Managerial Effort" to derive profits, the asset falls outside the jurisdiction of the Howey Test.
With over 1.1 million validators and the most widely distributed node network globally, Ethereum is thus confirmed: ETH does not fall under the category of securities.
2.2 The CLARITY Act
In July 2025, the U.S. House of Representatives passed the "Digital Asset Market Clarity Act" (CLARITY Act). This act legally completed the "rectification" of Ethereum's identity.
Jurisdictional Demarcation: The bill explicitly places assets "originating from decentralized blockchain protocols" — specifically referring to BTC and ETH — under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
Definition of Digital Commodities: The bill defines digital commodities as "any fungible digital asset that can be exclusively owned and transferred between individuals without relying on intermediaries and is recorded on a cryptographically secure public distributed ledger."
Role of Banks: The bill allows banks to register as "digital commodity brokers," providing custody and trading services for ETH. This means that ETH on a bank's balance sheet will no longer be viewed as a high-risk, indeterminate asset, but rather as a commodity asset similar to gold and foreign exchange.
2.3 Compatibility of Staking Returns with Commodity Attributes
According to traditional securities law: Can an asset that generates interest still be called a "commodity"? Traditional commodities like crude oil or wheat do not generate returns by mere possession and often incur storage costs. Ethereum's staking mechanism makes it more akin to equity or bonds.
The regulatory framework of 2025 resolved this cognitive contradiction:
Asset Layer: The ETH token itself is a commodity. It serves as the network's Gas and security collateral, possessing both utility value and exchange value.
Protocol Layer: Native protocol-level staking is viewed as a form of "labor" or "service provision." Validators maintain network security by providing computational resources and capital lock-up, and the rewards they earn are compensation for this service, rather than passive investment returns.
Service Layer: This "service" only constitutes an investment contract when centralized entities (like exchanges) provide custodial staking services and promise specific returns.
This dichotomy allows ETH to retain its "yield-generating" characteristics while enjoying regulatory exemptions as a "commodity." Institutional investors began to view ETH as a "Productive Commodity" — possessing both the anti-inflation properties of a commodity and the yield characteristics of bonds. Fidelity noted in its report that this unique combination of attributes makes ETH an indispensable "internet bond" in investment portfolios.
Chapter 3 The Collapse and Reconstruction of the Business Model: From Dencun to Fusaka
Having resolved the identity issue, the next pressing economic question arises: Is ETH profitable? Where does its cash flow come from? Where does it go?
With all due respect, the cliff-like drop in revenue in the first three quarters of 2025 was a failed technical scaling solution, an attempt by tech enthusiasts to reshape the business environment and human nature through technology, while the helpless community hoped that the Fusaka upgrade in December would change the current predicament, but could it?
3.1 The "Revenue Paradox" After the Dencun Upgrade
The Dencun upgrade in March 2024 introduced EIP-4844 (Blob transactions), aiming to reduce L2 transaction costs by providing cheap data storage space. Technically, this was a huge success — L2's Gas fees dropped from several dollars to mere cents, greatly promoting the prosperity of the L2 ecosystem. However, from an economic model perspective, it was a "disaster."
The pricing mechanism of the Blob market was initially entirely based on supply and demand. Due to the reserved Blob space supply far exceeding the early demand from L2, the Blob's Base Fee remained at an extremely low level of 1 wei (i.e., 0.000000001 Gwei) for a long time.
This led to L2 networks (like Base, Arbitrum) charging users high gas fees, but paying negligible "rent" to Ethereum L1. Data showed that Base could generate hundreds of thousands of dollars in revenue on certain days, but only paid a few dollars in fees to Ethereum.
As a large number of transactions migrated from the L1 execution layer to L2, and L2 did not destroy enough ETH through Blob, the EIP-1559 destruction mechanism became ineffective. In the third quarter of 2025, Ethereum's annualized supply growth rate rebounded to +0.22%, losing the narrative of being a "deflationary asset."
This situation, where "L2 eats the big meat while L1 drinks the northwest wind," was vividly referred to by the community as the "parasite" effect, directly leading to deep skepticism about the sustainability of Ethereum's business model.
3.2 Strategic Turning Point: Fusaka Upgrade (December 3, 2025)
Fortunately, in the face of doubts about ETH's business model, Ethereum's "aloof" developer community did not "stick to ideals" and ignore the situation. The long-awaited Fusaka upgrade finally arrived on December 3, 2025.
The core of this upgrade was to "repair" the value capture chain between L1 and L2, in simple terms, L2 had to pay tribute to L1.
3.2.1 Core Repair: EIP-7918 (Linking Blob Base Fees to Execution Costs)
The most commercially significant proposal in the Fusaka upgrade was EIP-7918. This proposal fundamentally changed the pricing logic of Blobs.
EIP-7918 introduced a "floor price" mechanism — a price increase. It stipulated that the base fee for Blobs would no longer be allowed to fall indefinitely to 1 wei. Instead, the minimum price of Blobs would be linked to the Gas price of the L1 execution layer (specifically, 1/15.258 of the L1 Base Fee).
This means that as long as the Ethereum mainnet remains busy (for example, with new token launches, DeFi transactions, or NFT minting), the L1 Gas Price will rise, automatically raising the "floor price" for L2 to purchase Blob space. L2 can no longer use Ethereum's security at nearly free prices.
After the upgrade was activated, the base fee for Blobs skyrocketed 15 million times (from 1 wei to a range of 0.01-0.5 Gwei). Although the transaction cost for L2 users remained low (about $0.01), for the Ethereum protocol, this meant thousands of times in revenue growth. The prosperity of L2 directly drove L1's income.
3.2.2 Supply-Side Expansion: PeerDAS (EIP-7594)
To prevent price increases from stifling L2's development, Fusaka simultaneously introduced PeerDAS (Peer Data Availability Sampling).
PeerDAS allows nodes to verify data availability without downloading the complete data block (Blob), only needing to randomly sample a small portion of data fragments. This greatly reduces the bandwidth and storage pressure on nodes (by about 85%).
This technological breakthrough enables Ethereum to significantly increase the supply of Blobs. After the upgrade, the target number of Blobs per block will be gradually increased from 6 to 14 or even more.
By raising the price floor through EIP-7918 while increasing the total sales volume through PeerDAS, Ethereum successfully built a sales model of "simultaneous increase in quantity and price."
3.3 The Closed Loop of the New Business Model
This is the post-activation business model of Ethereum after Fusaka, which can be summarized as a "B2B tax model based on security services": upstream (L2 networks): Base, Optimism, Arbitrum, and other L2s act as "distributors," responsible for capturing end users and processing high-frequency, low-value transactions.
Core products (block space): Ethereum L1 sells two core commodities:
High-Value Execution Space: Used for L2 settlement proofs and complex DeFi atomic transactions.
Large Capacity Data Space (Blob): Used for L2 to store transaction history data.
Through EIP-7918, L2 must pay "rent" for these two resources that matches their economic value. Most of this rent (ETH) is destroyed, converting into value enhancement for all ETH holders; a small portion is paid to validators, forming staking returns.
Positive feedback loop:
The more prosperous L2 becomes -> the greater the demand for Blobs from L2 -> even if the unit price is low, the total volume is large and has a floor price -> the amount of ETH destroyed increases -> ETH becomes deflationary/scarce -> network security improves -> attracting more high-value assets.
Is there a market willing to pay? Yes, according to renowned analyst Yi's estimates, after the Fusaka upgrade, the ETH destruction rate for Ethereum in 2026 is expected to increase by 8 times?!
Chapter 4 Valuation System: How to Price "Trustware"?
After clarifying the business model, the next question is: How to value this new type of asset? Since Ethereum possesses attributes of commodities, capital assets, and currencies, a single valuation model seems inadequate to express the "greatness of ETH." In this regard, Wall Street elites have provided their insights:
4.1 Discounted Cash Flow (DCF) Model: Tech Stock Perspective
Although defined as a commodity, ETH has clear cash flows, allowing it to apply traditional DCF models.
In a research report from Q1 2025, 21Shares used Ethereum's transaction fee revenue and destruction mechanism to project a three-stage growth model. Even under a conservative discount rate assumption (15.96%), the calculated fair value of ETH reached $3,998; under a more optimistic assumption (discount rate of 11.02%), the fair value soared to $7,249.
The EIP-7918 mechanism after the Fusaka upgrade provides solid support for the "future revenue growth rate" in the DCF model. Market analysis suggests that there is no longer a need to worry about L2 draining income to zero, but rather, L1's guaranteed income can be linearly derived based on the expected growth scale of L2.
4.2 Currency Premium Model: Commodity Perspective
In addition to cash flow, Ethereum also enjoys a portion of value that cannot be captured by DCF — the currency premium. This is the value derived from being a settlement currency and collateral.
ETH is the core collateral in the DeFi ecosystem (with a TVL exceeding $100 billion). Whether for minting stablecoins (like DAI), lending, or derivatives trading, ETH serves as the foundational trust anchor.
The NFT market and L2 gas fee payments are all denominated in ETH.
With the locking of ETFs (reaching $27.6 billion by Q3 2025) and the accumulation of corporate treasuries (such as Bitmine holding 3.66 million ETH), the liquidity supply of ETH is increasingly tightening. This tension in supply and demand grants it a premium similar to gold.
4.3 Pricing of "Trustware"
Consensys introduced the concept of "Trustware" in its 2025 report.
Ethereum does not sell simple computing power (which is what AWS does), but rather "decentralized, immutable finality."
With RWA on-chain, Ethereum L1 will shift from "processing transactions" to "protecting assets." Its value capture will no longer rely solely on TPS, but rather on the scale of the assets it protects.
If Ethereum protects $10 trillion in global assets, even if it only charges a 0.01% security tax annually, its market value must be large enough to withstand a 51% attack. This "security budget" logic makes Ethereum's market value positively correlated with the economic scale it supports.
For the promotion of "Trustware," nothing is more convincing than hackers stealing funds and then exchanging the stolen funds for ETH, without exception.
Chapter 5 Competitive Landscape: Modular Moat and RWA Battlefield
5.1 Ethereum vs. Solana: The Divide Between Wholesale and Retail
Data from 2025 clearly shows the structural differentiation in the public chain market:
Solana is akin to Visa or Nasdaq, pursuing extreme TPS and low latency, suitable for high-frequency trading, payments, and consumer-grade applications (DePIN). Ethereum, on the other hand, has evolved into a system like SWIFT or the Federal Reserve's settlement system (FedWire), focusing not on quickly processing every coffee purchase transaction, but on handling "settlement packages" submitted by L2 networks that contain thousands of transactions.
This division of labor is an inevitable evolution in mature markets. High-value, low-frequency assets (such as tokenized government bonds and large cross-border settlements) still prefer Ethereum due to its higher security and decentralization; while low-value, high-frequency transactions flow to Solana.
5.2 Dominance of RWA
In the realm of RWA, which is seen as a future trillion-dollar market, Ethereum demonstrates strong dominance. Despite Solana's rapid growth, Ethereum remains the preferred base for benchmark projects like BlackRock's BUIDL fund and Franklin Templeton's on-chain fund.
The logic behind institutional choices is clear: for assets worth hundreds of millions or even billions of dollars, security takes precedence over speed. Ethereum's decade-long track record of validation and uptime constitutes its deepest moat.
Has Ethereum lost its way? In 2025, it made a daring leap to a "base minting tax" model for the digital economy, but whether this leap of faith will land on a haystack remains uncertain.
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