Original author:Vitalik

Compiled by | Odaily Planet Daily (@OdailyChina); Translator | Asher (@Asher_ 0210)

Last night, Vitalik posted on the X platform, stating that Ethereum should focus more on the value storage attributes of ETH. The support provided by fee burning for valuation is limited, and an excessive pursuit of burning might undermine the network's decentralization and resistance to capture, while value storage better aligns with Ethereum's strengths in security, privacy, and stability. The EIP-1559 and its burning mechanism should still be retained, but even if the long-term amount burned is less than 10% of the newly issued amount, there is no need to be disappointed, as ETH's value has other sources.

Fee burning has never provided a truly solid valuation floor

The valuation of fee-burning tokens usually relies on net present value theory, which simplifies to: Market cap = Value of fees burned annually ÷ Discount rate. Assume a token burns $1 billion worth of coins annually and can maintain this stability long-term. If the discount rate is 4%, it means people think today's $1 billion is equivalent to $1.04 billion a year later, thus this asset should have a valuation of about $25 billion.

According to this logic, $25 billion could form a natural valuation floor: when the price is below this level, investors buy the token and sell part year by year, maintaining their proportion of the total supply while achieving returns above the market benchmark.

Between 2021 and 2023, Ethereum removed a significant amount of ETH through fee burning. However, the problem is that this has never constituted a real reliable floor. At that time, most of the burning came from uses within the crypto ecosystem. If the ETH price were to drop to one-tenth of its original value, the income generated from these usages would also decline, as participants' spending power diminishes. Whether it was the NFT rush that burned around $180 million in fees in a single day or more common lending activities, this problem exists. Only when the income has support from demand outside the crypto market does this so-called valuation floor become more convincing.

As the real-world asset (RWA) economy grows, today's Ethereum is indeed better positioned to obtain such external support. However, mature and stable businesses also find it difficult to recreate the scenario of consuming massive fees in a single day during a speculative frenzy.

What costs might Ethereum pay for burning?

If it decides to rely on fee burning to support ETH's current market cap of about $270 billion, Ethereum would effectively need to operate like a world-class large enterprise, roughly the size of L'Oréal. How do truly large enterprises maintain their positions long-term?

First, they need to continuously invest. According to AI estimates, L'Oréal's annual R&D spending is about 0.58% of its market cap. If Ethereum adopted the same ratio, the funds of the Ethereum Foundation would quickly be exhausted, thus requiring annual internal funding support of about 700,000 ETH, while validator earnings would decrease by about two-thirds. This is just for R&D; the expenses for maintaining competitiveness are far beyond that.

Second, they need to actively govern. In the face of technological and cultural changes, enterprises must make clear choices—what markets to enter, which products to develop, and how to meet the demands of new users. Along this path, Ethereum would need to maintain a high level of interventionist governance long-term.

Continuous allocation of large funds and enhanced governance will bring political issues and will hardly help Ethereum increase its level of decentralization and resistance to capture. The aforementioned funds and income figures are estimates under this hypothesis.

Moreover, pursuing fee burning, to some extent, means pursuing higher gas prices. This may exclude some users, including those who most need privacy and security guarantees. Maximizing "price × usage" is a different optimization objective from allowing as many people as possible to use the network within safe resource limits.

As a value storage asset, the most important metric is survival

When I ask people what they value most about Ethereum, the most common answer is decentralization and CROPS, namely censorship resistance and anti-capture, open source, privacy, and security. These attributes are equally valuable to institutions. Individuals may view privacy as an abstract concept, but for institutions, privacy involves practical needs such as risk management and data protection compliance; security and running their own nodes are the same. For ETH holders, the focus depends on the purpose of holding it: if they hope Ethereum keeps up with financial trends and collects fees from it, they may expect a strong leader who continually embraces new opportunities and adjusts the protocol; but if the primary reason for holding ETH is value storage, the primary measure is whether the network can survive long-term.

This means Ethereum needs to make prudent compromises regarding security, seriously addressing the changes brought by quantum computing and AI. After the core protocol is completed, it should gradually stabilize, allowing more innovation to shift to the upper layers, and set higher thresholds for new functions that increase protocol complexity and new reward mechanisms that might be controlled by interest groups. Users should also be able to safely and privately store their assets, with the assurance that transactions will not be blocked by block builders. Multi-signatures, privacy tools, privacy account abstractions, and FOCIL, among other initiatives, are all aimed at serving these goals. Reducing dependence on infrastructure service providers is equally important: I can currently run a node on my laptop, with syncing taking less than six hours and occupying about one-eighth of the hard disk space, performing better than in 2019.

Value storage and application growth also have a strong synergy. The richer the RWA and decentralized assets natively issued on L1, the more one can do by holding ETH: securely and trustlessly exchanging for other assets, or participating in more activities by collateralizing ETH, all of which can enhance the utility of holding it. There are still trade-offs between these uses and decentralization; for instance, shortening block intervals may create centralization pressures, but overall conflicts are smaller than a blind pursuit of maximizing fees. From a societal perspective, Ethereum's significance lies in enabling more people and applications to obtain decentralization, privacy, and security guarantees; from a holder's perspective, the value storage attributes of ETH stem from these guarantees.

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