On November 8, a statement posted by Ethereum co-founder Vitalik Buterin on social platform X sent shockwaves through the crypto market. He stated plainly that rather than continuing to cling to the traditional logic of “fee burn supports value,” Ethereum (ETH) should be repositioned as a “Store of Value” (SoV). This was not merely a rhetorical tweak, but a public revision of the “Ultrasound Money” narrative that had dominated ETH’s valuation framework over the past five years. Behind this shift lies a structural contradiction Ethereum is facing: network activity and transaction volume continue to climb, and the cost of using the network has fallen sharply, yet the resulting revenue and burn of its native token have plunged. With the deflationary mechanism once seen as a price anchor struggling to support a market capitalization of around $260 billion, ETH urgently needs a new valuation anchor. Vitalik’s answer is to shift the focus from “transaction fuel” to “collateral for financial infrastructure.”
The core logic behind this shift in narrative lies in redefining ETH’s economic properties as an underlying asset. Traditional valuation models rely on users paying gas fees and the system burning ETH, thereby increasing returns for holders through scarcity. The new model instead emphasizes Ethereum’s role in providing secure, neutral, and reliable financial infrastructure, making ETH a core ecosystem asset that people are willing to hold long term, stake, and use as collateral. Bitmine Chairman Tom Lee agrees, noting that ETH differs from tokens such as HYPE or LIT, whose models depend on distributing cash flows; rather, it is a pure and trusted form of collateral. In practice, this means ETH’s value no longer depends solely on the frequency of on-chain transactions, but also on its stability as foundational capital for financial activity. For example, users can stake ETH to earn rewards for securing the network, or use it as collateral in decentralized lending markets such as Aave to access liquidity. Data from The Block shows that, as of now, the share of ETH staked has reached 36.36% of the circulating supply, up significantly from 29.91% a year earlier. This indicates that a large amount of ETH is shifting away from short-term speculation and into long-term lockup, where it helps secure the network—an initial confirmation of its new positioning as a “store of value.”
However, the transmission of value from “usage” to “holding” is not automatic, and ETH faces the serious challenge of a “value gap.” Although Ethereum is solidifying its position as financial infrastructure, high usage of the infrastructure does not necessarily translate into net buying demand for its native token. Research by Ethereum Institutional indicates that in the first ten months of this year, stablecoin transfers on Ethereum mainnet totaled as much as $25.8 trillion, surging 61% year over year. Data from DeFiLlama further shows that total value locked (TVL) in mainnet DeFi is around $42 billion, stablecoin market capitalization exceeds $135 billion, and the scale of real-world assets (RWA) has reached $15 billion. These macro figures look prosperous, but value distribution at the micro level has shifted fundamentally. Take an institution issuing $1 billion in tokenized Treasury bonds on Ethereum: the collateral consists of real-world Treasury bonds, returns come from coupons, settlement is completed through USDC, and only a small amount of ETH is needed for gas fees. This means that even as the value of assets hosted on-chain continues to grow, ETH’s ability to capture value will be weakened if business logic does not depend on ETH itself being consumed or purchased. More concerning still, ETH’s burn mechanism has become almost ineffective. Vitalik once estimated that, at a 4% discount rate, supporting the current market capitalization would require burning about $10.4 billion in transaction fees every year—far beyond what is realistic. In fact, around 1.48 million ETH were burned in 2022, compared with only about 13,000 so far this year (worth roughly $27.3 million at current market prices), a decline of over 99% by token count. Since February last year, ETH has shifted from net deflation back to net inflation, with the inflation rate continuing to rise. In the face of the data, the deflationary promise of “ultrasound money” is showing signs of fatigue.
Another major source of value diversion is the rise of Layer 2 (L2) networks and the application layer. According to DeFiLlama, fees generated by applications on Ethereum had already surpassed those generated by the mainnet itself in 2024. So far this year, the mainnet has earned around $152 million in fees, while application-layer fees have reached as much as $2.529 billion—a difference of more than 16 times. L2s are the clearest example of value diversion: their business models directly capture most of the value from transaction fees. Take leading L2 Base as an example. It relies on Ethereum for underlying settlement, but charges end users transaction fees and then pays Ethereum for data publication and settlement costs. The difference makes up the L2’s on-chain gross profit. Data from growthepie shows that over the past 30 days, the top three Ethereum L2s generated a combined on-chain profit of around $5.71 million, with Base contributing $2.49 million. By comparison, their combined settlement fees paid to Ethereum mainnet amounted to only around $48,000, and Base’s share was even less than $18,500. This means that most of the value from transaction fees stays with L2s instead of turning into returns for ETH holders. The longer-term concern is a shift in users’ perceptions: when users carry out all their on-chain activities through L2s such as Base and Arbitrum, the brands and services they associate with those activities will gradually belong to the L2s, rather than to Ethereum mainnet.
Despite these challenges, lower transaction fees could also give rise to new growth opportunities. The deployment of scaling technologies has reduced the per-transaction cost, making previously uneconomical use cases—such as high-frequency payments by AI agents and micropayments—viable. Tom Lee believes that ETH’s shift toward a store of value will enable it to capture value during the coming tokenization and AI supercycle. Vitalik’s remarks seem more like a proactive effort to manage expectations: acknowledging that the deflationary narrative has failed, while instead emphasizing ETH’s long-term value as a core form of collateral for financial infrastructure. The key going forward is not whether ETH can continue generating high gas fees, but whether it can prove that, even as transaction fees get cheaper, it remains essential foundational capital for on-chain financial activity and is therefore worth holding over the long term. The market will need to watch whether a higher staking ratio can offset inflationary pressure, and whether mechanisms for channeling value back from the L2 ecosystem can gradually be established.
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