Written by: Jacob Zhao & Jiawei @IOSG
On February 3, 2026, Vitalik published an important reflection on Ethereum's scaling roadmap on X. As the reality of Layer 2 evolving towards a fully decentralized form is re-evaluated, and with the mainnet's throughput capacity expected to significantly increase in the coming years, the original idea of "using L2 as the core vehicle for Ethereum's scaling" is no longer valid. Ethereum's strategic focus is returning to the mainnet itself—strengthening its position as the most trusted global settlement layer through institutionalized scaling and protocol-native security mechanisms. Scaling is no longer the sole goal; security, neutrality, and predictability have once again become Ethereum's core assets.
Core Changes:
Ethereum is entering an "L1 Priority Paradigm": With direct expansion of the mainnet and continuously decreasing fees, the original assumption that L2 would play a core role in scaling is no longer valid.
L2 is no longer "branded sharding," but a spectrum of trust: The decentralization of L2 is progressing much slower than expected, making it difficult to uniformly inherit Ethereum's security; its role is being redefined as a network spectrum of different trust levels.
Ethereum's core value is shifting from "traffic" to "settlement sovereignty": The value of ETH is no longer limited to Gas or Blob revenue, but lies in its institutional premium as the world's most secure EVM settlement layer and native currency asset.
Scaling strategies are adjusting towards protocol endogenization: Based on the continuous direct expansion of L1, the exploration of native verification and security mechanisms at the protocol layer may reshape the security boundaries and value capture structure between L1 and L2.
Valuation framework is undergoing structural migration: The weight of security and institutional credibility is significantly increasing, while the weight of transaction fees and platform effects is decreasing; the pricing of ETH 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 (impact on value capture and pricing logic), and deductions (implications for allocation and risk-return).
Return to the Origin: Ethereum's Values
Understanding Ethereum's long-term value lies not in short-term price fluctuations, but in its consistent design philosophy and value orientation.
Trustworthy Neutrality: Ethereum's core goal is not efficiency or profit maximization, but to become a trustworthy and neutral infrastructure—rules are public, predictable, not favoring any participant, and not controlled by any single entity, allowing anyone to participate without permission. The security of ETH and its on-chain assets ultimately relies on the protocol itself, not on any institutional credit.
Ecosystem Priority over Revenue Priority: Ethereum's multiple key upgrades reflect a consistent decision-making logic—actively sacrificing short-term protocol revenue in exchange for lower usage costs, larger ecosystem scale, and stronger system resilience. Its goal is not to "charge tolls," but to become an irreplaceable neutral settlement and trust foundation in the digital economy.
Decentralization as a Means: The mainnet focuses on the highest level of security and finality, while Layer 2 networks exist on a spectrum of varying degrees of connection to the mainnet: some inherit the mainnet's security and pursue efficiency, while others position themselves with differentiated functionalities. This allows the system to serve both global settlement and high-performance applications simultaneously, rather than L2 "branded sharding."
Long-term Technological Path: Ethereum adheres to a slow but certain evolutionary path, prioritizing system security and credibility. From the transition to PoS to subsequent scaling and confirmation mechanism optimizations, its roadmap seeks sustainable, verifiable, and irreversible correctness.
Security Settlement Layer: Refers to the Ethereum mainnet providing irreversible finality services for Layer 2 and on-chain assets through decentralized verification nodes and consensus mechanisms.
This positioning of the security settlement layer marks the establishment of "settlement sovereignty," representing Ethereum's shift from a "confederation" to a "federation," a "constitutional moment" in the establishment of Ethereum as a digital nation, and a significant upgrade to Ethereum's architecture and core.
After the American Revolutionary War, under the terms of the confederation, the 13 states resembled a loose alliance, each printing its own currency and imposing tariffs on one another, with each state free-riding: enjoying common defense while refusing to pay; benefiting from the alliance's brand while governing independently. This structural issue led to a decline in national credit and an inability to unify foreign trade, severely hindering the economy.
1787 was America's "constitutional moment," when the new constitution granted the federal government three key powers: the power to levy taxes directly, regulate interstate trade, and unify currency. However, what truly brought the federal government to life was Hamilton's economic plan in 1790, which involved the federal government assuming state debts, redeeming them at face value to rebuild national credit, and establishing a national bank as a financial hub. The unified market released scale effects, attracting more capital to national credit, and financing infrastructure development. America transitioned from 13 mutually defensive small states to the world's largest economy.
Today's structural dilemma in the Ethereum ecosystem is entirely consistent.
Each L2 is like a "sovereign state," each with its own user base, liquidity pool, and governance token. Liquidity is fragmented, cross-L2 interactions are cumbersome, and while L2 enjoys Ethereum's security layer and brand, it fails to reciprocate value back to L1. Each L2 locking liquidity on its own chain is rational in the short term, but if all L2s do this, it leads to the loss of the core competitive advantage of the entire Ethereum ecosystem.
The roadmap that Ethereum is currently advancing is essentially 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 build differentiated functionalities outside of the EVM, while the EVM part can obtain Ethereum-level security verification through native precompiles. Not connecting is certainly possible, but the cost is losing trustless interoperability with 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 Taxation Power. When all key cross-L2 interactions revert to L1 settlement, ETH re-establishes itself as the settlement hub and trust anchor for the entire ecosystem. Whoever controls the settlement layer captures the value.
Ethereum is transforming the fragmented L2 ecosystem into an irreplaceable "digital nation" through a unified settlement and verification system, which is a historical inevitability. Of course, the process of transformation may be slow, and history tells us that once this transformation is complete, the network effects released will far exceed the linear growth of the fragmented era. The United States transformed 13 small states into the world's largest economy with a unified economic system. Ethereum will also convert the loose L2 ecosystem into the largest security settlement layer, and even a global financial vehicle.
▲ 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 aimed at profit maximization, but an open digital economic infrastructure. Companies pursue maximizing shareholder value, while Ethereum seeks to maximize ecosystem scale, security, and censorship resistance. To achieve this goal, Ethereum has repeatedly actively lowered protocol revenue (such as through EIP-4844 by introducing Blob DA, structurally reducing L2 data publishing costs, and lowering L1 fees from rollup data)—which may appear as "revenue self-destruction" from a corporate perspective, but from an infrastructure perspective, it is sacrificing short-term fees for long-term neutrality premiums and network effects.
A more reasonable understanding framework is to view Ethereum as a global neutral settlement and consensus layer: providing security, finality, and trustworthy coordination for the digital economy. The value of ETH is reflected in multiple structural demands—rigid demand for final settlement, the scale of on-chain finance and stablecoins, the impact of staking and burning mechanisms on supply, and the long-term, sticky capital brought by institutional-level adoption such as ETFs, corporate treasuries, and RWAs.
Paradigm Reconstruction: Finding Pricing Anchors Beyond Cash Flow
At the end of 2025, the Hashed team launched ethval.com, providing a detailed 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 have repurposed its systematic, transparent, and reproducible underlying models (covering revenue, currency, network effects, and supply structure) and reshaped the valuation architecture and weighting logic:
Structural Reconstruction: Mapping the model to the four major value quadrants of "security, currency, platform, revenue," categorizing and summing pricing.
Weight Rebalancing: Significantly increasing the weight of security and settlement premiums, while weakening the marginal contributions of protocol revenue and L2 expansion.
Risk Control Overlay: Introducing a circuit breaker mechanism for macro and on-chain risk perception, making the valuation framework adaptable across cycles.
Eliminating "Circular Reasoning": Models with current price inputs (such as Staking Scarcity, Liquidity Premium) are no longer used as fair value anchors, retaining only their role as indicators for position and risk preference adjustments.
Note: The following models are not intended for precise point predictions but to illustrate the relative pricing direction of different value sources across different cycles.
Security Settlement Layer: Core Value Anchor (45%, Risk Aversion Period Adjustment)
We view the security settlement layer as the most core source of value for Ethereum, assigning it a baseline weight of 45%; during periods of rising macro uncertainty or declining 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 increase TPS, but to create block space that is fully backed by Ethereum itself. Any high-performance execution environment that relies on external trust assumptions does not constitute an expansion of Ethereum itself.
In this framework, the value of ETH primarily reflects the credit premium of a global non-sovereign settlement layer, rather than protocol revenue. This premium is supported by structural factors such as the scale and degree of decentralization of validators, long-term security records, institutional adoption, clarity of compliance pathways, and the protocol-native Rollup verification mechanisms.
For specific pricing, we mainly adopt two complementary methods: Validator Economics (Yield Equilibrium Mapping) and Staking DCF (Perpetual Staking Discounting), which together depict ETH as a "global secure settlement layer" with institutional premium.
Validator Economics (Yield Equilibrium Pricing): Based on the ratio of annual staking cash flow per ETH to the target real yield, we derive the theoretical fair price:
Fair Price = (Annual Staking Cash Flow per ETH) / Target Real Yield
This expression is used to characterize 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): Treating ETH as a long-term asset that sustainably generates real staking yields, we perpetually discount its cash flows:
M_staking = Total Real Staking Cash Flow / (Discount Rate − Long-term Growth Rate)
ETH Price (staking) = M_staking / Circulating Supply
Essentially, this value layer does not benchmark against the revenue-generating capacity of platform companies, but rather resembles the settlement credit of a global clearing network.
Monetary Attributes: Settlement and Collateral (35%, Dominated by Utility Expansion Phase)
We view monetary attributes as the second core source of value for Ethereum, assigning it a baseline weight of 35%, 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 USD," but on its structural role as the native settlement fuel and ultimate collateral asset within the on-chain financial system. The security of stablecoin circulation, DeFi liquidation, and RWA settlement all rely on the settlement layer supported by ETH.
For pricing, we adopt an extended form of the quantity theory of money (MV = PQ), but layer the use cases of ETH to model the demand for money in response to the magnitude differences in circulation speed across different scenarios:
High-Frequency Settlement Layer (Gas Payments, Stablecoin Transfers)
Mtransaction = Annual Transaction Settlement Volume / Vhigh
V_high ≈ 15-25 (based on historical on-chain data)
Medium-Frequency Financial Layer (DeFi Interactions, Lending Liquidations)
Mdefi = Annual DeFi Settlement Volume / Vmedium
V_medium ≈ 3-8 (based on turnover rates of mainstream DeFi protocols)
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 viewed as growth options in Ethereum's valuation, assigned only a 10% weight to explain the nonlinear premium brought about by ecosystem expansion during bull markets. We use a trust-adjusted Metcalfe's model to avoid equally weighting L2 assets of different security levels in the valuation:
Metcalfe's Model: Mnetwork = a × (Active Users)^b + m × Σ (L2 TVLi × 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 revenue as the cash flow floor within Ethereum's valuation system, rather than a growth engine, also assigning it a 10% weight. This layer mainly plays a role during bear markets or extreme risk phases, used to depict the lower limit of valuation.
Gas and Blob fees provide the minimum operating costs for the network and influence the supply structure through EIP-1559. For valuation, we adopt a price-to-sales ratio and fee yield model, taking the conservative value from both as a bottom reference. As the mainnet continues to scale, the importance of protocol revenue relatively declines, with its core role reflected in the safety margin during downturns.
Price-to-Sales Ratio Model (P/S Floor): MPS = Annual Protocol Revenue × P/Smultiple
Price-to-Sales Ratio 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 both): PRevenueFloor = min(PPS, PYield)
Dynamic Calibration: Macro Constraints and Cycle Adaptation
If the previous section established Ethereum's "intrinsic value center," this chapter introduces an "external environment adaptation system" independent of fundamentals. Valuation cannot operate in a vacuum; it must be constrained by three external factors: macro environment (cost of capital), market structure (relative strength), and on-chain sentiment (congestion). Based on this, we construct a regime adaptation mechanism to dynamically adjust valuation weights across different cycles—releasing option premiums during easing periods and retreating to revenue floors during risk-averse periods, thus achieving a transition from static models to dynamic strategies. (Note: Due to space limitations, this article only presents the core logical framework of this mechanism.)
Pathway Conditions for Institutional Second Curve
The previous analysis is based on the internal technical, valuation, and cyclical logic of the crypto system, while this chapter discusses a different level of issue: How will the pricing power, asset attributes, and risk structure of ETH change when it is no longer priced solely by crypto-native funds but is gradually incorporated into the traditional financial system? The institutional second curve is not an extension of existing logic but a redefinition of Ethereum by external forces:
Change in Asset Attributes (Beta → Carry): The spot ETH ETF addresses compliance and custody issues, fundamentally still exposing price; however, the future promotion of Staking ETFs will be the first to introduce on-chain yields into the institutional system through compliant vehicles. As a result, ETH transitions from a "high-volatility asset with no interest" to a "configuration asset with predictable returns," with potential buyers expanding from trading funds to pension funds, insurance, and long-term accounts sensitive to yield and duration.
Change in Usage (Holding → Using): If institutions no longer view ETH merely as a tradable asset but begin to use it as a settlement and collateral infrastructure. Whether it is JPMorgan's tokenized fund or the deployment of compliant stablecoins and RWAs on Ethereum, it indicates that the demand for ETH is shifting from "holding demand" to "operational demand"—institutions not only hold ETH but also complete settlement, clearing, and risk management on it.
Change in Tail Risk (Uncertainty → Pricing): As the regulatory framework for stablecoins (such as the GENIUS Act) is gradually established in the future, along with the increased transparency of Ethereum's roadmap and governance, the regulatory and technical uncertainties most sensitive to institutions are being systematically compressed, meaning that uncertainty is beginning to be priced rather than avoided.
The so-called "institutional second curve" is a change in the nature of demand, providing a real source of demand for the valuation logic of "security settlement layer + monetary attributes," driving ETH from an emotionally driven speculative asset to a foundational asset that simultaneously carries configuration and functional demands.
Conclusion: Value Anchoring in the Darkest Hour
In the past week, the industry has undergone a severe deleveraging baptism, and market sentiment has plummeted to a freezing point, undoubtedly marking the "darkest hour" of the crypto world. Pessimistic sentiment is spreading among practitioners, and as the asset that best represents the spirit of crypto, Ethereum is also at the eye of the storm of controversy.
However, as rational observers, we need to penetrate the fog of panic: What Ethereum is currently experiencing is not a "collapse of value," but a profound "shift in pricing anchors." With the direct advancement of L1 scaling, L2 being redefined as a spectrum of different trust levels, and protocol revenue actively yielding to system security and neutrality, the pricing logic of ETH has structurally shifted to "security settlement layer + native monetary attributes."
Against the backdrop of high macro real interest rates, liquidity not yet easing, and on-chain growth options not yet allowed to be priced by the market, the price of ETH naturally converges to a structural value range supported by settlement certainty, verifiable yields, and institutional consensus. This range is not an emotional bottom but the value center after stripping away platform growth premiums.
As long-term builders of the Ethereum ecosystem, we refuse to be "mindless bulls" of ETH. We hope to cautiously argue our predictions through a rigorous logical framework: only when macro liquidity, risk appetite, and network effects simultaneously meet the trigger conditions of market states will higher valuations be re-included by the market.
Therefore, for long-term investors, the key question now is no longer anxiously asking "Can Ethereum still rise?" but rather to clearly recognize—In the current environment, which layer of core value are we buying at a "floor price"?
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