The year 2025 is undoubtedly filled with contradictions and controversies for Ethereum. Despite endorsements from influential figures, various DAOs, 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 appear 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 of narrative consumption.
This perception of being "stuck in the middle" raises 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 reforming prisoners through "love," but reality gave him a harsh slap in the face.
The 1950s in Singapore was an era dominated by secret societies (gangs). Statistics show that there were over 300 active secret society groups at the time, involving more than 50,000 people (about 6% of the resident population), essentially infiltrating various industries in Singapore, leading to numerous social order issues and affecting economic development. The then-leader 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 police the authority to detain individuals they 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 rapid increase in suspects/prisoners led to Changi Prison being overcrowded, nearly reaching a breaking point.
While human rights advocates and law enforcement debated endlessly, then-leader of the Workers' Party, Devan Nair, proposed a "Utopian Prison Model," which was a hybrid model of prison + community + farm, without handcuffs, shackles, high walls, or heavy guards, aimed at allowing prisoners to reform and reintegrate into society 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 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." Thus, 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, it 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). The daily schedule was from 8 AM to 5 PM, after which there was free time, and there were even 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 in the history of human reform."
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 weren't the ones released early; some felt the division of labor was unfair, always doing the hardest work but receiving fewer credits. This discontent 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. In a fit of anger, Dutton sent the striking prisoners back to Changi Prison. This incident pushed the dissatisfaction to its peak.
On July 12, 1963, black smoke rose from the originally peaceful Pulau Senang. The prisoners, after receiving their tools (shovels, machetes, hoes) as usual in the morning, launched indiscriminate attacks on the guards. Armed with hoes and bolos, 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 harbored a grand vision centered around Rollups, believing that by providing L2 (Layer 2) with nearly free Blob data space, L2 would thrive and in turn benefit the mainnet, creating a mutually beneficial utopia.
But history always rhymes. Just as the prisoners of Pulau Senang chose rebellion instead of gratitude, the L2 of 2025 chose not to reciprocate but instead launched a silent "economic plunder" against L1.
Chapter One: The "Awkward" Origin: 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 of 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 historical highs, network protocol revenue plummeted by 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 collapsing business model.
1.2 The "Sandwich Layer" Effect in the Competitive Landscape
In terms of competition, Ethereum also faced dual pressure.
Upper 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 never matched that of BTC, reflecting mainstream capital's lagging recognition of its "digital oil" positioning.
Lower 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 circulation 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 "stuck in the middle" state 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 Two: Regulatory Tone Setting: Legal Reconstruction of Digital Commodities
2.1 "Project Crypto" and the Shift in Regulatory Philosophy
On November 12, 2025, during a speech at the Federal Reserve Bank of Philadelphia, SEC Chairman Paul Atkins officially unveiled a regulatory reset plan called "Project Crypto." 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 by 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 qualifies: 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 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 locking capital, and the rewards they earn are compensation for this service, not passive investment returns.
Service Layer: Only when centralized entities (such as exchanges) provide custodial staking services and promise specific returns does this "service" constitute an investment contract.
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 Three: 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 represents a failed technical scaling solution, an attempt by tech enthusiasts to reshape the business environment and human nature through technology, while the frustrated community hoped that the Fusaka upgrade in December would change the current predicament, but can it?
3.1 The "Revenue Paradox" Post-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 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 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. By the third quarter of 2025, Ethereum's annualized supply growth rate rose to +0.22%, losing the narrative of being a "deflationary asset."
This situation, described by the community as the "parasite" effect, directly led 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. On December 3, 2025, the long-awaited Fusaka upgrade finally arrived.
The core of this upgrade is to "repair" the value capture chain between L1 and L2, in simple terms, L2 must pay tribute to L1.
3.2.1 Core Fix: EIP-7918 (Linking Blob Base Fees to Execution Costs)
The most commercially significant proposal in the Fusaka upgrade is EIP-7918. This proposal fundamentally changed the pricing logic of Blobs.
EIP-7918 introduced a "floor price" mechanism — a price increase. It stipulates that the base fee for Blobs can no longer fall indefinitely to 1 wei. Instead, the minimum price of Blobs will be linked to the L1 execution layer gas price (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, thereby 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 by 15 million times (from 1 wei to a range of 0.01-0.5 Gwei). Although the cost per transaction for L2 users remains low (about $0.01), for the Ethereum protocol, this signifies a thousandfold increase in revenue. The prosperity of L2 directly drives L1's income.
3.2.2 Supply-Side Expansion: PeerDAS (EIP-7594)
To prevent price increases from stifling L2 development, Fusaka simultaneously introduced PeerDAS (Peer Data Availability Sampling).
PeerDAS allows nodes to verify data availability without downloading the entire data block (Blob), only needing to randomly sample a small portion of data fragments. This significantly reduces the bandwidth and storage pressure on nodes (by about 85%).
This technological breakthrough enables Ethereum to greatly 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 established a "volume-price rise" sales model.
3.3 The Closed Loop of the New Business Model
This is the post-Fusaka activated Ethereum business model, 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 storage of 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 -> The amount of ETH destroyed increases -> ETH becomes deflationary/scarce -> Network security improves -> Attracts 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 in 2026 is expected to increase eightfold?!
Chapter Four: 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 commodity, capital asset, and currency attributes, a single valuation model seems inadequate to express the "greatness of ETH." In response, 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 Q1 2025 research report, 21Shares projected Ethereum's trading fee revenue and destruction mechanism using 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 post-Fusaka upgrade provides solid support for the "future revenue growth rate" in the DCF model. Market analysis suggests that concerns about L2 draining revenue to zero are no longer valid; instead, L1's baseline 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 minting stablecoins (like DAI), lending, or trading derivatives, 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 tense supply-demand relationship endows it with 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 being brought 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 logic of "security budget" makes Ethereum's market value positively correlated with the economic volume it carries.
For the promotion of "Trustware," nothing is more convincing than hackers stealing funds and then exchanging the stolen money for ETH, without exception.
Chapter Five: Competitive Landscape: Modular Moats and the 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-level 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 transaction for buying coffee, but on handling "settlement packages" submitted by L2 networks that contain thousands of transactions.
This division of labor is an inevitable evolution in a mature market. 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 such as 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 the "base minting tax" model of the digital economy, but it remains uncertain whether this leap of faith will land in a haystack.
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