Original Title: "IOSG Weekly Brief | Ethereum Repricing: From Rollup-Centric to 'Security Settlement Layer' #313"
Original Author: Jacob Zhao, Jiawei, IOSG Ventures
On February 3, 2026, Vitalik published an important reflection on Ethereum's scalability roadmap on X. As the reality of the difficulty in evolving Layer 2 to a fully decentralized form is reassessed, and as the mainnet's own throughput capacity is expected to significantly increase over the next few years, the original assumption of "using L2 as the core carrier for Ethereum scaling" is no longer valid. The strategic focus of Ethereum is returning to the mainnet itself - through institutionalized scalability and internally secure mechanisms, it strengthens its position as the most trusted global settlement layer. Scalability is no longer the only goal; security, neutrality, and predictability have again become Ethereum's core assets.
Core Changes:
· Ethereum is entering an "L1 Priority Paradigm": With the direct expansion of the mainnet and continuously decreasing fees, the original assumption that L2 would play a core scaling role is no longer valid.
· L2 is no longer "branded shards," but a spectrum of trust: The decentralization of L2 is progressing far slower than expected, making it difficult to unify inheritance of Ethereum's security, and its role is being redefined as a network spectrum of different trust levels.
· The core value of Ethereum is shifting from "traffic" to "settlement sovereignty": The value of ETH is no longer limited to gas or blob income, but instead derives from its institutional premium as the safest EVM settlement layer and native currency asset.
· Expansion strategies are being adjusted towards internalization within the protocol: Based on continuous direct expansion in L1, the exploration of native verification and security mechanisms in the protocol may reshape the security boundaries and value capture structure between L1 and L2.
· The valuation framework has undergone structural migration: The weight of security and institutional credibility has significantly increased, while the weight of transaction fees and platform effects has decreased; ETH pricing is shifting from a cash flow model to an asset premium model.
This article will analyze the paradigm shift and valuation reconstruction of Ethereum's pricing model based on facts (technological and institutional changes that have occurred), mechanisms (impacts on value capture and pricing logic), and inferences (implications for allocation and risk-return).
Return to Origin: Ethereum's Values
Understanding Ethereum's long-term value is not about short-term price fluctuations, but about its consistent design philosophy and value orientation.
· Trustworthy neutrality: Ethereum's core goal is not efficiency or profit maximization, but to become a set of trustworthy and neutral infrastructure - rules are open, predictable, not favoring any participants, and not controlled by a single entity; anyone can participate without permission. The security of ETH and its on-chain assets ultimately relies on the protocol itself, not on any institutional credit.
· Ecological priority over income priority: Ethereum's multiple key upgrades reflect a consistent decision logic - actively giving up short-term protocol income to gain lower usage costs, larger ecological scale, and stronger system resilience. Its goal is not to "charge tolls," but to become an indispensable neutral settlement and trust base in the digital economy.
· Decentralization as a means: The mainnet focuses on the highest level of security and finality, while Layer 2 networks occupy varying degrees on the connection spectrum: some inherit the mainnet's security and pursue efficiency, while others position themselves for value with differentiated functions. This allows the system to serve both global settlement and high-performance applications simultaneously, rather than L2 "branded shards."
· Long-term technological path: Ethereum adheres to a slow and certain evolutionary path, prioritizing system security and credibility. With the transition to PoS and subsequent enhancements in scalability and confirmation mechanisms, its roadmap seeks sustainability, verifiability, and irreversibility of correctness.
· Security Settlement Layer: Refers to the Ethereum mainnet providing irreversibility (Finality) services for Layer 2 and on-chain assets through decentralized verification nodes and consensus mechanisms.
This Security Settlement Layer positioning marks the establishment of "settlement sovereignty," representing Ethereum's shift from "confederation" to "federation," forming a "constitutional moment" for the establishment of Ethereum as a digital nation and serving as an important upgrade to Ethereum's architecture and core.
After the American War of Independence, under the confederate terms, the 13 states functioned like a loose alliance, each printing their own currency, collecting tariffs from one another, with each state free-riding: enjoying collective defense while refusing to pay; enjoying the alliance's brand while governing themselves. This structural problem decreased national credibility and hindered unified foreign trade, severely stifling the economy.
1787 was America's "constitutional moment," when the new constitution granted the federal government three crucial powers: the power to tax directly, the regulation of interstate trade, and the creation of a single currency. However, it was Hamilton's economic plan in 1790 that truly brought the federal government to life, assuming state debts, recompensing them at face value to rebuild national credit, and establishing a national bank as the financial center. The unified market released economies of scale, and national credit attracted more capital, allowing infrastructure construction to gain financing capacity. The United States transformed from 13 defensively organized small states into the world's largest economy.
Today's Ethereum ecosystem's structural dilemmas are perfectly analogous.
Each L2 is like a "sovereign state," each with its own user base, liquidity pools, and governance tokens. Liquidity is fragmented, cross-L2 interactions are filled with friction, and L2 enjoys Ethereum's security layer and brand without giving back to L1's value. Each L2 locking liquidity on its own chain seems rational in the short term, but if all L2s do the same, the core competitive advantage of the entire Ethereum ecosystem is lost.
Ethereum's current roadmap essentially serves as its constitution and the establishment of a central economic system, which is the establishment of "settlement sovereignty":
· Native Rollup Precompile = Federal Constitution. L2s can freely construct differentiated functions outside of EVM, while the EVM part can obtain Ethereum-level secure verification via native precompiles. Not connecting is, of course, possible, but at the cost of losing trustless interoperability within the Ethereum ecosystem.
· Synchronous Composability = Unified Market. Through mechanisms like native Rollup precompiles, trustless interoperability and synchronous composability between L2s and between L2 and L1 are becoming possible, directly eliminating "interstate trade barriers," and liquidity is no longer trapped on individual islands.
· L1 Value Capture Reconstruction = Federal Taxing Power. When all critical cross-L2 interactions return to L1 settlements, ETH re-emerges as the settlement hub and trust anchor for the entire ecosystem. Whosoever controls the settlement layer captures the value.
Ethereum is transforming the fragmented L2 ecosystem into an irreplaceable "digital nation" with a unified settlement and verification system, which is a historical necessity. Of course, the process of change may be slow, but history tells us that once this transformation is completed, the released network effects will far exceed the linear growth of the fragmented era. The United States transformed 13 small states with protectionist policies into the world's largest economy. Ethereum is also set to transform the loose L2 ecosystem into the largest security settlement layer and even a global financial medium.
▲ Ethereum Core Upgrade Roadmap and Valuation Impact (2025-2026)
Valuation Misconception: Why Ethereum Should Not Be Viewed as a "Tech Company"
Applying traditional corporate valuation models (P/E, DCF, EV/EBITDA) to Ethereum is fundamentally a category error. Ethereum is not a company aiming for profit maximization; it is a set of open digital economic infrastructure. Corporations aim to maximize shareholder value, whereas Ethereum aims to maximize ecological scale, security, and resistance to censorship. To achieve this, Ethereum has actively suppressed protocol income multiple times (such as through EIP-4844 which introduced Blob DA, structurally lowering L2 data publishing costs and decreasing income from rollup data in L1) - which from a corporate perspective may seem like "self-destructive revenue," but from an infrastructure perspective, it is a trade-off of short-term fees for long-term neutrality premium and network effects.
A more reasonable understanding framework is to view Ethereum as a global neutral settlement and consensus layer: providing safety, finality, and trustworthy coordination for the digital economy. The value of ETH is reflected in multiple structural demands - the rigid demand for final settlement, the scale of on-chain finance and stablecoins, the impact of staking and burning mechanisms on supply, as well as the long-term, sticky capital brought by institutional-level adoption such as ETFs, corporate treasury, and RWA.
Paradigm Reconstruction: Finding Pricing Anchors Beyond Cash Flow
At the end of 2025, the Hashed team launched ethval.com, providing a comprehensive set of reproducible quantitative models for Ethereum, but traditional static models struggle to capture the dramatic shifts in Ethereum's narrative in 2026. Therefore, we reused its systematic, transparent, and reproducible underlying models (covering revenue, currency, network effects, and supply structure), reshaping our valuation framework and weighting logic:
1. Structural Reconstruction: Mapping the model to the four main value quadrants of "security, currency, platform, income," categorizing and summing up pricing.
2. Weight Rebalancing: Significantly increasing the weight of security and settlement premium, while weakening the marginal contribution of protocol income and L2 expansion.
3. Risk Control Overlay: Introducing a circuit breaker mechanism for macro and on-chain risk perception, making the valuation framework adaptable across cycles.
4. Removing "Circular Reasoning": Models that incorporate current price inputs (such as Staking Scarcity, Liquidity Premium) are no longer treated as fair value anchors but retained only as indicators for position and risk preference adjustment.
Note: The models below are not used for precise point predictions, but to illustrate the relative pricing direction of different value sources in various cycles.
Security Settlement Layer: Core Value Anchor (45%, Risk Hedge Adjustment)
We regard the Security Settlement Layer as Ethereum's core source of value, assigning it a 45% baseline weight; during phases of heightened macro uncertainty or reduced risk appetite, this weight is further increased. This judgment stems from Vitalik's latest definition of "truly scaling Ethereum": the essence of scaling is not to enhance TPS, but to create block space fully endorsed by Ethereum itself. Any high-performance execution environment relying on external trust assumptions does not constitute an extension of the Ethereum body.
Within this framework, the value of ETH mainly reflects the credit premium of a global non-sovereign settlement layer, rather than protocol income. This premium is supported by factors like the scale and decentralization degree of validators, long-term security records, institutional-level adoption, clarity of compliance pathways, and the endogenous Rollup verification mechanisms in the protocol.
For specific pricing, we primarily use two complementary methods: Validator Economics (Yield Equilibrium Mapping) and Staking DCF (Perpetual Staking Discounting), together characterizing the institutional premium of ETH as a "global security settlement layer."
· Validator Economics (Yield Equilibrium Pricing): Based on the annualized staking cash flow per ETH relative to a target real yield, deriving a theoretical fair price:
Fair Price = (Annual Staking Cash Flow per ETH) / Target Real Yield
This expression is used to illustrate the equilibrium relationship between yield and price, serving as a directional relative valuation tool rather than an independent pricing model.
· Staking DCF (Perpetual Staking Discounting): Considering ETH as a long-term asset that sustainably generates real staking yields, applying perpetual discounting to its cash flows:
M_staking = Total Real Staking Cash Flow / (Discount Rate − Longterm Growth Rate)
ETH Price (staking) = M_staking / Circulating Supply
Essentially, this value layer does not benchmark the income capacity of platform companies, but resembles the settlement credit of a global clearing network.
Currency Attributes: Settlement and Collateral (35%, Utility Expansion Period Dominates)
We regard currency attributes as the second core source of value for Ethereum, assigning it a 35% baseline weight, becoming the main utility anchor during neutral markets or phases of on-chain economic expansion. This judgment is not based on the narrative of "ETH equals the US dollar," but on its structural role as the native settlement fuel and ultimate collateral asset of the on-chain financial system. The security of stablecoin circulation, DeFi settlements, and RWA settlements all depend on the settlement layer supported by ETH.
For pricing, we use an expanded form of the quantity theory of money (MV = PQ), but layer modeling the usage scenarios of ETH to address the significant differences in circulation speed within different contextsLayered Currency Demand Model:
High-frequency Settlement Layer (Gas payment, stablecoin transfer)
· M_transaction = Annual Transaction Settlement Volume / V_high
· V_high ≈ 15-25 (referencing historical on-chain data)
Medium-frequency Financial Layer (DeFi interactions, lending settlements)
· M_defi = Annual DeFi Settlement Volume / V_medium
· V_medium ≈ 3-8 (based on mainstream DeFi protocol turnover rates)
Low-frequency Collateral Layer (staking, re-staking, long-term locking)
· M_collateral = Total ETH Collateral Value × (1 + Liquidity Premium)
· Liquidity Premium = 10-30% (reflecting compensation for liquidity sacrifice)
Platform / Network Effects: Growth Options (10%, Bull Market Amplifier)
Platform and network effects are seen as growth options in Ethereum’s valuation, assigned only a 10% weight to explain the nonlinear premium brought on by ecosystem expansion during bull markets. We employ a trust-adjusted Metcalfe's model, avoiding equal valuation for L2 assets with different security levels:
· Metcalfe's Model: M_network = a × (Active Users)^b + m × Σ (L2 TVL_i × TrustScore_i)
· Platform/Network Effect Valuation Price: ETH Price(network) = M_network / Circulating Supply
Revenue Assets: Cash Flow Floor (10%, Bear Market Support)
We view protocol income as the cash flow floor in Ethereum's valuation framework, rather than a growth engine, also assigning it a 10% weight. This layer particularly functions in bear markets or extreme risk phases, to characterize the lower bound of valuation.
Gas and blob fees provide the network's minimum operating costs and influence supply structure through EIP-1559. For valuation, we employ the revenue multiple and fee yield models, taking the conservative value from either as a reference for the baseline. As the mainnet continues to expand, the importance of protocol income relatively declines, with its core function reflected in the security margin during downturns.
· Revenue Multiple Model (P/S Floor):M_PS = Annual Protocol Revenue × P/S_multiple
· Revenue Multiple Valuation Price: ETH Price (PS) = M_PS / Circulating Supply
· Fee Yield Model:M_Yield = Annual Protocol Revenue / Target Fee Yield
· Fee Yield Valuation Price: ETH Price(Yield) = M_Yield / Circulating Supply
· Cash Flow Floor Pricing (taking the minimum of the two): P_Revenue_Floor = min(P_PS , P_Yield)
Dynamic Calibration: Macro Constraints and Cycle Adaptation
If the previous sections established the "intrinsic value center" of Ethereum, this chapter introduces a set of "external environment adaptation systems" that operate independently of fundamentals. Valuation cannot run in a vacuum; it must be constrained by the macro environment (cost of capital), market structure (relative strength), and on-chain sentiment (crowding) as three external constraints. Based on this, we have constructed a Regime Adaptation mechanism to dynamically adjust valuation weights across different cycles - releasing option premiums in loose periods, retreating to revenue floors in risk-averse periods, thereby achieving a transition from static models to dynamic strategies. (Note: limited by length, this article only presents the core logical framework of this mechanism.)
Institutional Second Curve's Conditional Path
The prior analyses are based on internal technological, valuation, and cyclical logic within the crypto system, while this chapter addresses a question at a different level: How will the pricing power, asset attributes, and risk structure of ETH change as it is progressively incorporated into the traditional financial system, no longer solely priced by crypto-native capital? The institutional second curve is not merely an extension of existing logic but is an exogenous force re-defining Ethereum:
· Changes in Asset Attributes (Beta → Carry): Spot ETH ETFs address compliance and custody issues, fundamentally still exposing prices; whereas the future advancement of Staking ETFs brings on-chain yields into institutional frameworks through compliant vehicles for the first time. ETH thus transitions from "a high-volatility, zero-yield asset" to "a yield-generating allocative asset," expanding potential buyers from trading funds to pensions, insurance, and long-term accounts that are sensitive to yield and duration.
· Changes in Usage Models (Holding → Using): If institutions no longer view ETH merely as a tradeable asset but start using it as a basis for settlement and collateral. Whether through JPMorgan's tokenized funds or compliant stablecoin and RWA deployments on Ethereum, this shows that demand for ETH is shifting from "holding demand" to "operational demand" — institutions not only hold ETH but utilize it for settlements, clearings, and risk management on it.
· Changes in Tail Risk (Uncertainty → Pricing): As the regulatory framework for stablecoins (such as the GENIUS Act) gradually solidifies in the future, along with enhancements in the transparency of Ethereum's roadmap and governance, the regulatory and technological uncertainties most sensitive to institutions are being systematically compressed, indicating that uncertainty is starting to be priced in rather than avoided.
The so-called "institutional second curve" represents a change in the nature of demand, providing a real demand source for the valuation logic of "security settlement layer + currency attributes," driving ETH from a speculation-driven asset to a foundational asset that simultaneously carries allocative and functional demands.
Conclusion: Value Anchoring in the Darkest Hour
In the past week, the industry has undergone drastic deleveraging, with market sentiment dropping to freezing temperatures; this is undoubtedly the "darkest hour" of the crypto world. Pessimism is spreading among practitioners, and as the asset most representative of the spirit of crypto, Ethereum is also at the eye of the storm of controversy.
However, as rational observers, we need to penetrate through the fog of panic: what Ethereum is currently experiencing is not a "collapse of value," but a profound "shift in pricing anchors." As L1 expansion directly proceeds, L2 is redefined as a spectrum of networks with different trust levels, and protocol income actively gives way to system security and neutrality, the pricing logic of ETH has structurally shifted to "security settlement layer + native currency attributes."
In a backdrop of high macro real interest rates, liquidity not yet loosened, and on-chain growth options not yet allowed to be priced by the market, ETH's price naturally converges to a structurally valued range supported by settlement certainty, verifiable yields, and institutional consensus. This range is not an emotional bottom; rather, it is the value center after stripping away platform growth premiums.
As long-term builders of the Ethereum ecosystem, we refuse to be "blind bulls" for ETH. We hope to cautiously argue our predictions, relying on rigorous logical frameworks: only when macro liquidity, risk appetite, and network effects simultaneously meet the trigger conditions of market states will higher valuations be reassessed by the market.
Therefore, for long-term investors, the key question now is no longer anxiously asking, "Can Ethereum still rise?" but to clearly recognize - under the current environment, what layer of core value are we buying at "floor price"?
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