Ethereum co-founder Vitalik Buterin has made the case that ETH should be valued as a store of value rather than as a token priced on the fees it burns.
In his view, the burn story was never as strong as it looked, and chasing it could undermine the blockchain’s decentralization.
Why Fee Burning Is Not Enough to Value ETH
In a series of posts on X, Buterin outlined the reasons for changing the way investors and the Ethereum community think about ETH’s value, first challenging the economic argument behind fee burning, which uses the net present value (NPV) model to estimate the worth of a token based on the fees removed permanently from circulation.
Under this approach, a network that each year burns tokens worth $1 billion, with a 4% discount, could theoretically support a $25 billion valuation, he explained.
“If the valuation drops lower than that, then someone could buy an asset expected to pay $1 per year forever for less than $25 (by buying some tokens, and then selling >4% of their supply each year so their share of the total pie remains the same), and so by buying the asset you reliably beat the market,” Buterin wrote.
But according to him, Ethereum’s earlier fee-burning activity, especially between 2021 and 2023, did not fully meet the conditions he described above, with much of the demand coming from crypto-related activities. This meant that a sharp drop in the price of ETH could also reduce a user’s ability to pay transaction fees.
Ethereum currently has a fully diluted market cap of over $260 billion, according to CoinGecko, and for Buterin, justifying such a market cap through burns would make the network a corporation on the scale of L’Oreal, which he placed at number 55. An AI-generated estimate he shared puts L’Oreal’s R&D at roughly 0.58% of market cap every year, and to match that, he says, would take about 700,000 ETH in annual protocol funding, which would cut validator revenue by two-thirds.
In such a situation, he thinks governance will have to be “highly interventionist,” with optimizing for burns to some degree resulting in higher gas prices, which he says could price out users who need privacy and security most.
ETH Slips as ETF Outflows Continue
Buterin was not calling for an end to fee burning, as he explicitly supported keeping EIP-1559 and its burn mechanism but added that the community shouldn’t be disappointed if fee burning indefinitely stays below 10% of Ethereum’s breakeven level.
CROPS, his shorthand for censorship and capture resistance, open source, privacy, and security, is what he says people value the most about Ethereum. Therefore, for someone holding the ETH token, these qualities translate into the ability to keep assets safe and accessible, even with technology changing.
“If your primary reason to hold ETH is as an SoV, then you will be judging ETH by SoV-ish metrics,” he stated. “And what is the first and most important SoV-ish metric? To survive.”
This comes with ETH trading above $2,100, having lost nearly 5% of its value in 24 hours per CG, as well as dipping by more than 7% in the last week. The story is the same across longer periods, including an 8% drop across two weeks and a nearly 15% plunge in the past 30 days, with ETH staying nearly 37% lower than where it was 12 months ago. At the same time, spot ETFs anchored to the token saw a sixth straight week of outflows when about $365 million left the funds last week.
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