# Why Ethereum is materially mispriced, my fair value, and the framework …

Source: https://x.com/dunleavy89/status/2059717202392359118

## Summary

The author argues that Ethereum's fees should not be treated as revenue, since falling fees reflect growing use, and that ETH should be valued as the collateral securing the value on the chain. The article says fees per transaction fell from more than $50 at the 2021 peak to about $0.20, while transaction counts reached more than triple the 2021 level. It puts the value on Ethereum at about $250B, against roughly $72B in staked ETH, and from that gap derives a fair value near $6,900 per ETH versus about $2,070 spot. It argues that Ethereum, unlike Linux or the DTCC, buys its security with its own asset, so ETH's value is tied to the security of the network.

## Article

TLDR

Stop valuing Ethereum on its fees. Fees are friction, and the one number a winning network drives toward zero. ETH fees have fallen from more than $50 per transaction at the 2021 peak to about $0.20 today, while the network now processes more than 3x the transactions. Falling fees are the network winning, not dying.

Proof of stake makes ETH the lock on a vault of assets. Attacking Ethereum means controlling its staked ETH. At a third of the stake you can freeze the chain. At two thirds you can rewrite it. Either way the cost is denominated in ETH itself, and slashing destroys it the moment it is used. Value and security are welded together. No network before staking worked this way.

Ethereum secures roughly $250B today in stablecoins, tokenized assets, layer-2 bridge value, and broader on-chain activity, but the ETH staked to protect it is worth only about $72B. The lock is cheaper than the safe. Fair value sits near $6,900 against roughly $2,070 spot, and scales into the tens of thousands as settlement grows into the trillions.

“Ethereum is Linux” and “Ethereum is the DTCC” both fail for one reason. Those systems borrow their security from outside, from open-source goodwill or from law and member-bank collateral. Ethereum buys its security from inside, in its own asset. That is why ETH has to be valuable and Linux never did.

If ETH fails crypto probably fails.

Fees are not revenue. They are friction.

@TrustlessState set off a firestorm last week, noting he was finally selling his ETH. While I respect David and his decision, I think the frameworks we are using to value ETH and other PoS L1s is outdated. I've discussed this framework on air with @Blockworks (May 2025), @laurashin  (multiple times), and with @scottmelker (multiple times) but the logic doesn't seem to stick (probably my fault), so let's break it down in one place.

New Asset Classes, Require New Valuation Methodologies. Here we present a new fair value model for ETH.

Most people value Ethereum the way they would value a business. They treat the fees the network collects as revenue, watch that revenue shrink, and conclude the token is overpriced. That is backwards, and once you see why, you cannot unsee it.

Every fee is a tax on the exact thing that makes the network valuable, which is people using it. Lower fees mean more activity, more apps, more money settling on the chain. The data already shows it. Fees per transaction have fallen from more than $50 at the 2021 peak to around $0.20 today, and over the same period the network climbed to record transaction counts, more than triple the 2021 level, with layer-2 networks now carrying around 85% of throughput. Cheaper to use, and used far more. A settlement layer that succeeds drives its own toll toward zero.

Ethereum fees per transaction have collapsed while transaction volume has climbed to records. Ethereum is cheaper to use, used far more. L2s now carry around 85% of throughput.

So if fees are the wrong number, what is the right one?

Ethereum is a vault. ETH is the lock.

Stop thinking of Ethereum as a company and start thinking of it as a vault. The vault holds about $160B in stablecoins. Another $20B in tokenized real-world assets, things like Treasuries, money market funds, and private credit. Roughly $35B sitting in canonical bridges to layer-2 networks, which inherit Ethereum’s consensus by design. About $12B in wrapped Bitcoin. And another $20B or so spread across DeFi positions, NFTs, and on-chain treasuries. Call it $250B sitting on the chain, and growing every quarter.

A vault is only as good as its lock. Here is the part almost nobody prices correctly. On Ethereum, the lock is made of ETH.

Under the old proof-of-work system, you secured the network with mining hardware. The locks were bought from an outside store, and their cost had nothing to do with the value of the coin. Proof of stake changed that completely. Now the only way to attack Ethereum is to buy up and control its staked ETH. The lock is built out of the token itself. That single design choice means the security of the vault and the market value of the asset securing it are now the same variable. You cannot pull them apart.

Right now the lock is cheaper than the safe.

Here is the problem the market is ignoring. All the staked ETH protecting Ethereum is worth about $72B today. The value sitting on top of it is worth roughly $250B $250B. The contents of the safe are worth more than double the lock guarding them.

That is an unstable bridge. If what you are protecting is worth more than what it costs to break in, you built the vault wrong. For Ethereum to credibly secure $250B, the value staked to defend it has to be worth more than $250B, not less than a third.

Only about 30% of all ETH is staked. So for the staked slice alone to match the value on the chain, total ETH needs a market cap of a little over three times that value, one divided by 0.30. Today ETH’s market cap is roughly equal to what it secures, about 1x. The framework says it belongs above 3x. Run that on today’s $250B and fair value lands near $6,900 per ETH against roughly $2,070 spot. Before a single new dollar arrives, the framework says ETH is worth more than triple its current price, purely to secure what is already there. This is close to @fundstrat's directional model.

“But Circle can freeze USDC, so it isn’t really tied to ETH.”

This is the objection I get every single time, and it is wrong. Here is why.

The claim: a stablecoin like USDC is not really secured by Ethereum, because if someone attacked the chain, Circle would just freeze the bad addresses and reissue. So their billions do not count toward what Ethereum protects.

Look at what the freeze actually is. Circle’s freeze is a smart contract. It runs on Ethereum. It executes as an Ethereum transaction, against Ethereum’s ledger, and it only works if there is one agreed-upon version of that ledger. The escape hatch is bolted to the very thing it claims to escape. You cannot freeze on the honest chain if a successful attack means there is no longer one honest chain everyone accepts.

And Circle did not have to put USDC on Ethereum at all. They could have run it in a private database with no blockchain involved. They chose Ethereum because its neutrality, its deep liquidity, and the ability to plug into everything else built there are worth more than running their own ledger. The price of that choice is simple. USDC’s integrity now rests on top of Ethereum’s security. You do not get the benefits without the dependency.

The freeze test also asks the wrong question. The question was never whether an attacker can steal the USDC. It is what happens to $150B+ if Ethereum’s consensus breaks. The answer is that it does not get stolen, it gets stranded. Stuck in limbo, on a chain nobody agrees is real, redemptions halted, every loan and trade built on top thrown into chaos. The value is not pocketed by a thief. It is destroyed. And destroyed value is exactly what you size security against.

An attacker does not even need to steal a dollar to profit. Short ETH, short the ecosystem, or simply be a rival chain or a hostile state that wants Ethereum to fail, and breaking the network pays off even with nothing taken on-chain. That payoff grows with how much the world relies on Ethereum, which means the security budget has to scale with the total value on the chain, not the sliver a pickpocket could grab.

If you choose to use Ethereum, you are tied to Ethereum’s security. Every dollar that lives on the chain is consuming that security, freeze button or not. All of it counts.

“Ethereum is just Linux.” Or “Ethereum is the DTCC.”

There is a second objection, the favorite of the smart bears.

The first: Ethereum is Linux (h/t @tulipking) . Foundational, runs everything, worth nothing as an asset. Linux powers most of the internet and Linus Torvalds did not get rich off it. Open-source infrastructure is a free public good, and the money flows to the companies built on top, not to the protocol. ETH, they say, will be the same. Essential, and worthless.

The second: Ethereum is the DTCC, the plumbing behind nearly every US securities trade. In 2024 the DTCC settled $3.7 quadrillion in transactions on about $2.5 billion of revenue and under $500 million of profit. Critical, regulated, and worth a rounding error of what flows through it. Plumbing is cheap even when you cannot live without it, so ETH will clear trillions and capture a thin utility margin, nothing more.

Both analogies are wrong, and for the exact same reason.

Linux and the DTCC borrow their security from outside themselves. Linux is trusted because of an open-source community, a reputation, and decades of eyeballs on the code. The DTCC is trusted because of US law, federal regulators, and the balance sheets of the member banks that own it and post their collateral in dollars and Treasuries. In both cases the thing that makes the system safe sits outside the system. That is exactly why the DTCC can settle a fortune and capture almost none of it. It is a member-owned utility, run at cost by design, and it does not need a valuable token because the trust is supplied by the government and the banks.

Ethereum has none of that. No government enforces it. No member banks backstop it. There is no law that reverses a stolen settlement. The only thing standing between Ethereum and an attacker is the market value of the ETH staked to secure it. Ethereum has to buy its security, in its own asset, on the open market, every single block.

That is the whole difference. Linux is software, and no one is required to own a scarce asset to run it. The DTCC posts its collateral in dollars, external to itself. Ethereum’s collateral is ETH, internal to itself. You cannot commoditize that to zero, because the security is not a line of code, it is a quantity of value that has to be locked up and put at risk. Strip the value out of ETH and you have not built a leaner Linux. You have built an unsecured chain that no one will trust with a dollar.

So the right comparison is not Linux the software or the DTCC the clearinghouse. It is the collateral those systems run on. Nobody values the US dollar by the DTCC’s revenue. You value the clearinghouse’s fees separately, and you value the dollars and Treasuries that collateralize the whole system as the monetary base, worth many trillions. ETH is not the clearinghouse. ETH is the collateral the clearinghouse is built out of. That is the asset you are buying.

Linux never needed a treasury. Ethereum’s security budget is a treasury, and it is denominated in ETH.

Looking Ahead

Now run it forward. This framework does not care about fees or narratives. It asks one question. How much value will settle on Ethereum, and how much must ETH be worth to secure it.

Stablecoins are on track to pass $1 trillion this decade. Tokenized real-world assets are forecast in the trillions by 2030. Add the application activity stacked on top, and the value Ethereum secures grows from $250B today into the trillions. Hold the central multiple steady, a little over three times the value secured, and here is what ETH is worth at each level of adoption.

Cut the multiple if you want the bear version. Adoption is the variable, the multiple is the lever, and the direction is the same in every case.

Implied ETH price as the value secured on Ethereum grows, holding the central security multiple steady.

“This is hopium. The market will never price it this way.”

This is the fairest objection, and you are correct. The framework says what ETH should be worth, not what the market will pay, and there is no arbitrage forcing the gap shut. The central multiple is a free parameter doing a lot of the work. The whole construction is reflexive, with the high-coverage equilibrium not the only one available. And the same logic that says ETH should be higher has been wrong on price for years.  Taking them in order.

On the first, as to what closes the gap: its not arbitrage, it is demand for the asset the whole system is denominated in. As value settles on Ethereum, ETH is what gets posted as collateral, paired against, and staked to earn the network’s base yield. That demand grows with the activity it backs. Reserve assets are not priced on revenue, they are priced on how badly the system around them needs to hold them. Gold is worth more than $18 trillion while producing no cash flow at all. ETH is the reserve asset of onchain finance, and this framework is simply measuring how large that reserve has to be.

On the multiple: my mental model is to treat it as a band, not a target. Parity, where staked ETH equals secured value, sits at roughly 3.3x at the current staking ratio. The defensible range runs from 1.7x at the loose end to 5x at the strict one, where attacking through two-thirds of the stake has to cost the full secured value. Price tracks secured value at some multiple inside that band. Pinning it to one digit is where rigor breaks down, and where reasonable people can disagree without breaking the model.

On the reflexivity: the model does have more than one equilibrium, and nothing deterministically selects the highest one. Today the chain is secure enough at coverage below the floor, because acquiring a third of the stake is illiquid, slashing is brutal, and the social layer can fork an attacker out. That is real, but those defenses decide whether an attack succeeds, not whether coverage is adequate as the stakes climb. At $250 billion secured, thin coverage is tolerable. At two or five trillion in regulated, institutional money, the coverage ratio stops being academic. The gradient that closes the gap strengthens with adoption, monotonically.

Finally, the hardest hitting criticism is the ETH price action these past 5 years. The same logic has implied ETH should be higher for years while it has bled. IMHO the clear reason for the gap staying open is that the secured base was not yet large enough to make coverage anyone’s problem. At $50 billion of stablecoins, thin coverage was an academic note. At $175 billion it starts to itch. At $1 trillion it is the question allocators ask first, and the question whose answer is denominated in ETH. The framework does not promise the gap closes on any timeline. It says the gradient closing it strengthens as adoption grows, and adoption is the variable even the bears mostly grant.

Bitcoin is the usual counterexample, secured by a budget that is a rounding error of its market cap. But Bitcoin mostly secures itself, its own balances. Ethereum increasingly secures other people’s dollars and assets, a categorically heavier obligation. And the mechanism is already visible rather than hoped for. The staked share of supply keeps climbing, regulated products keep accumulating ETH, and the burn keeps pulling coins out of float as activity rises. None of that proves the target, but it is the demand gradient the framework predicts, and it is pointing the right way.

The cash-flow crowd will keep capitalizing the toll and calling ETH overvalued. They have the causality backwards. Activity leads. Security follows. ETH has to be valuable to keep the base safe, and fees are the friction you kill, not the asset you count.