Ethereum in 2025: From Confusion to New Meaning

The year 2025 has become a period of profound reinvention for Ethereum. Amid campaigns by prominent personalities, various application development strategies, technical innovations, and occasional hints of hacking, market performance has not met expectations. Ethereum is positioned in an ambiguous space that is difficult to define: as an asset, it lacks the pure commodity features and monetary consensus that Bitcoin possesses; as a platform, it faces direct competition from high-performance networks like Solana and Hyperliquid, which are more attractive to investor models due to throughput and fee capture mechanics. The Dencun upgrade in 2024 did not lead to the anticipated recovery but instead created new challenges to narrative consistency. This ambiguous position has raised existential questions: Is Ethereum still sustainable? Where does it truly belong? Does it still have a clear business model? Can it survive in a post-Fusaka world?

Introduction: Utopia and Reality

Perhaps it is not widely known that Singapore, despite its reputation for strict governance, once harbored its own utopian dreams. Lee Kuan Yew once envisioned transforming prisons through “love,” but reality taught him a harsh lesson. In the 1950s, Singapore was out of control due to organized gang activities—over 300 active groups with 50,000 members (6% of the population), affecting all sectors of the economy.

Lee Kuan Yew decided to implement the Criminal Law Temporary Provisions Act—giving police the power to detain suspected threats without trial. Effective in restoring security, but prisons overflowed. Devan Nair, leader of the Workers’ Party, proposed a “utopian prison model”—a combination of prison, community, and farming without walls, high fences, or armed guards, aiming to transform people through collective labor and community trust.

This idea was realized in 1960 on Pulau Senang, a small island off Singapore. Warden Daniel Dutton believed that humans are inherently good, and through trust and honorable work, even criminals could change. No walls, barbed wire, or weapons. The recidivism rate was only 5%—called a “miracle in human transformation history” by the media.

However, in July 1963, the experiment spiraled out of control. When a carpenter refused to work on the weekend, tensions that had long been hidden erupted. Prisoners rioted, Dutton was killed, and the buildings they had constructed were burned down. The island of “Senang” became a symbol of how idealism can fail against human nature.

In March 2024, Ethereum launched its own “Pulau Senang experiment”—the Dencun upgrade along with EIP-4844. Like Dutton’s removal of the “economic wall” (Gas fees) in the system, Ethereum core developers eliminated the high costs between L1 and L2. They believed that with cheap Blob data space, prosperity would return to the mainnet and foster a win-win ecosystem.

But history repeated itself. Just as prisoners did not thank but rebelled, in 2025, L2 protocols did not return wealth to L1 but instead “seized” its economy. Layer 2 networks are earning hundreds of thousands of dollars daily, while Ethereum L1 only receives a few dollars from Blob rentals.

Ethereum’s Purpose: Commodity or Technology Stock?

The main problem in 2025 is Ethereum’s identity crisis in capital markets. Investors are accustomed to categorizing crypto assets into two buckets: “digital commodity” for store of value (like Bitcoin) and high-growth “tech stock” for user monetization (like Solana). Ethereum has tried to be both—“Ultra Sound Money” and “World Computer.” But the market environment of 2025 is unforgiving to this dual narrative strategy.

As a Commodity: Although ETH is core collateral in DeFi, its variable supply (inflation and deflation) and staking mechanisms make it hard to consider as “digital gold.” Bitcoin’s fixed supply and energy backing are solid commodity traits, while Ethereum’s complex economy hampers institutional adoption from traditional finance.

As a Tech Platform: Viewing Ethereum as a tech company, the key revenue metric drastically declined in the first three quarters of 2025. In August, despite ETH reaching an all-time high price, network protocol revenue dropped 75% year-over-year, to just $39.2 million. For P/E or discounted cash flow valuation users, this signals a clear deterioration of the business model.

Competition exerts double pressure. From above, inflows into Bitcoin ETFs and the sovereign reserve narrative bolster BTC as a macro asset. From below, Solana has gained near-monopoly in payments, DePIN, AI agents, and consumer apps—sometimes with faster stablecoin velocity and ecosystem revenue than Ethereum mainnet. Hyperliquid has become a leader in Perps, capturing fees more effectively than ETH. This “out of reach above, out of reach below” situation has triggered the “identity crisis” narrative in the market.

Regulatory Recognition: The Turning Point

The breakthrough came with regulatory clarity. In November 2025, SEC Chairman Paul Atkins announced the “Project Crypto” regulatory reset. Its goal was to end “Regulation by Enforcement” and establish a clear classification framework based on economic reality.

He critically endorsed the “once a security, always a security” doctrine and launched the “Token Taxonomy,” stating that the characteristics of digital assets can change. An asset initially sold as a security does not necessarily always remain a security. When a network is sufficiently decentralized and not dependent on a centralized entity for Essential Managerial Effort, the asset is no longer subject to the Howey Test.

Ethereum, with 1.1 million validators and the largest node network, is clearly not a security.

The CLARITY Act passed by the US House in July 2025 further clarified the status. It placed decentralized blockchain assets—specifically Bitcoin and Ethereum—under CFTC jurisdiction as commodities. The law permits banks to register as “digital commodity brokers” offering ETH custody and trading, meaning ETH is no longer a high-risk undefined asset on balance sheets but a commodity asset like gold or foreign exchange.

This regulatory breakthrough opened doors for institutional capital that had long awaited legal clarity.

Business Model Revolution: From Dencun Crisis to Fusaka Solution

The core problem is economic: Dencun broke Ethereum’s revenue model.

EIP-4844 introduced Blob transactions, aiming to lower L2 costs via cheaper data storage. Technically, it succeeded—reducing L2 Gas fees from several dollars to a few cents. But economically, it was disastrous.

The Blob market is supply-demand driven. Since Blob supply exceeds L2 demand, the base fee remains at 1 wei. Although L2 networks (Base, Arbitrum, Optimism) generate hundreds of thousands of dollars daily, they pay only a few dollars to Ethereum for data space.

By Q3 2025, Ethereum’s annualized supply growth rate reached +0.22%—losing the “deflationary asset” narrative long cherished by the community. This situation of “L2 profits, L1 hunger” was called the “parasitic effect,” leading to a deep realization that the business model must be restructured.

Fusaka Upgrade: The Long-Awaited Fix

On December 3, 2025, the Fusaka upgrade arrived unexpectedly. Its core mission was to fix the value capture chain in the L1-L2 relationship—simply put, L2 must pay L1.

EIP-7918: The Commercial Heart of the Upgrade

The most significant proposal was EIP-7918, which changed Blob pricing. It introduced a “floor price” mechanism—price support level. The Blob base fee can no longer fall below 1 wei. Instead, the minimum price is tied to the L1 execution Gas price (1/15.258 of the L1 Base Fee).

This means that even if the Ethereum mainnet is busy with activity, the L1 Gas Price will rise, and so will the “floor price” of Blob purchased by L2. L2 can no longer practically use Ethereum security for free.

Upon activation, the Blob base fee increased by 15 million times (from 1 wei to 0.01-0.5 Gwei). For L2 users, it remains cheap—($0.01 USD per transaction)—but for the protocol, this is a thousands-fold increase in revenue.

PeerDAS: Enabling Supply-Side Growth

To prevent the price hike from being too burdensome, PeerDAS (EIP-7594) was introduced simultaneously. It allows nodes not to download entire data blocks but to sample small portions to verify availability, reducing bandwidth pressure by 85%.

Thanks to this, Ethereum can increase Blob supply. After the upgrade, the target Blob count per block rose from 6 to 14 or more.

Through EIP-7918 (price floor) and PeerDAS (volume increase), Ethereum has developed a “simultaneously higher price and higher volume” sales model that is sustainable and efficient.

The New Business Model Architecture

Post-Fusaka, Ethereum functions as a “B2B security-service tax model”:

Upstream Layer (L2 Networks): Base, Optimism, Arbitrum, and others as distributors, acquiring end users and processing high-frequency, low-value transactions.

Core Product (Block Space): Ethereum L1 sells two main services:

• High-value execution space for L2 settlement proofs and complex DeFi transactions
• Large-capacity data space (Blob) for storing L2 transaction history

With EIP-7918, L2 must pay “rent” proportional to economic value. Most of this rent (ETH) is burned, increasing the value for all ETH holders; a small portion goes to validators as staking yield.

The positive feedback loop: More L2 growth → Higher Blob demand → More ETH burned even with a floor price → More deflationary/scarce ETH → More secure network → Attracting more high-value assets

According to analyst Yi, ETH burn rate could increase by 8x in 2026 after Fusaka activation?!

Valuation Framework: How to Price “Trustware”?

After clarifying the business model, the next question is valuation. Since ETH has multiple attributes (commodity, capital asset, currency), a multi-lens approach is needed.

Discounted Cash Flow (DCF) Model: Although classified as a commodity, its cash flows are clear. In Q1 2025, 21Shares used transaction fee revenue and burn mechanisms in a three-stage model. With a conservative discount (15.96%), fair value is $3,998; with an optimistic (11.02%), it reaches $7,249. EIP-7918 provides a strong foundation for “future income growth” projections.

Monetary Premium Model: ETH also has additional value as a settlement currency and collateral—beyond DCF. ETH is core collateral in DeFi ($10 billion+ TVL), essential for stablecoin minting (DAI), lending, and derivatives. The NFT market and L2 Gas are denominated in ETH. ETF lock-up ($2.76 billion in Q3 2025) and corporate treasury accumulation reduce liquid supply, creating a premium similar to gold.

“Trustware” Pricing Logic: In a Consensys report, the “Trustware” concept was introduced—Ethereum is not just selling computing power (like AWS) but “decentralized, immutable finality.” During RWA onboarding, it becomes a “asset protection” layer against “transaction processing.” If it can protect $10 trillion assets globally and even a 0.01% annual security tax, the market cap should be sufficient to prevent 51% attacks. This “security budget” logic is supported by a positive correlation with economic scale.

Competition Landscape: Modular Moat and RWA Battlefield

Data from 2025 clearly shows structural differentiation: Solana is like Visa or Nasdaq—pursuing highest TPS, lowest latency, suited for high-frequency trading and consumer apps. Ethereum has become the SWIFT or FedWire—focusing not on every small transaction but on “settlement bundles” from L2 with thousands of transactions.

The division of labor is a natural evolution. High-value, low-frequency assets (tokenized bonds, large settlements) still prefer Ethereum for its superior security. Low-value, high-frequency transactions go to Solana.

In the RWA sector, anticipated to be a trillion-dollar market, Ethereum remains the leader. With flagship projects like BlackRock BUIDL and Franklin Templeton on-chain funds, Ethereum is the primary base layer. For assets worth hundreds of millions or billions, security outweighs speed. Ethereum’s decade-long uptime record is its deepest moat.

Conclusion: Ethereum’s Path Forward

2025 has been a transformative year for Ethereum—from an identity crisis to regulatory clarity, from a broken business model to a sustainable architecture. The Fusaka upgrade was not just a technical enhancement but an economic restructuring that redefined value capture mechanics across the entire ecosystem.

This is not Pulau Senang going up in flames. Ethereum continues to advance, adapt, and innovate. The dawn of a new era has begun.