2025, ETH will rise from the ashes.

2025 was undoubtedly a year of contradictions and controversy for Ethereum. Despite endorsements from influential figures, various DATs, technical upgrades, and hacker hype, its performance in the secondary market was disappointing. Ethereum found itself in an awkward middle ground: in terms of asset attributes, it seemed to lack the pure commodity attributes and safe-haven consensus of Bitcoin as "digital gold"; in terms of technical performance and fee capture, it faced fierce competition from high-performance chains like Solana and Hyperliquid, whose throughput and fee capture seemed to better align with investor preferences and valuation models. Furthermore, the Dencun upgrade in 2024 failed to restore Ethereum's former glory, instead becoming a nightmare that swallowed its narrative.

This feeling of being "neither here nor there" raises some fundamental questions: Does Ethereum still have a future? What category does it belong to? Does it have a clear and sustainable business model?

After the Fusaka upgrade, can Ethereum prove itself?

Introduction: Two "wall-less" utopian experiments separated by 60 years

I believe many people would not have guessed that Singapore, which has always been known for its strict laws and severe punishments, actually had its own utopian dream in its early years. In fact, Lee Kuan Yew also fantasized about using "love" to reform prisoners, but reality gave him a harsh slap in the face.

Singapore in the 1950s was an era rife with secret societies (gangs). Statistics show that over 300 secret societies were active at the time, involving more than 50,000 people (6% of the population). They infiltrated virtually every sector of Singapore's economy, causing numerous social disorder problems and hindering economic development. Lee Kuan Yew, then leader of the People's Action Party and Singapore's "chief steward," decided to take drastic measures, enacting the shocking Provisional Clauses of the Criminal Code (also known as Bill 55). This provision essentially granted police the power to detain suspects deemed a potential threat to public safety indefinitely without trial.

The plan had an immediate and significant effect on restoring social order, but it was a nightmare for prison management. Due to the sudden increase in the number of suspects/prisoners, Changi Prison was overcrowded and on the verge of collapse.

While human rights activists and the magistrates' office were locked in a heated debate, Devan Nair, then leader of the Workers' Party, proposed a "utopian prison model"—a hybrid of prison, community, and farm. This model, devoid of handcuffs, shackles, high walls, and heavy guard, aimed to reform prisoners and reintegrate them into society through collective labor and community trust. Nair believed that high walls and oppression only fueled the evil in human nature, while trust and freedom were essential for character reshaping.

This seemingly crazy experimental proposal was actually passed in 1960 after heated debate. The location was chosen to be Pulau Senang, a small island of less than 1 square kilometer south of Singapore Island, surrounded by turbulent waters to prevent prisoners from escaping. At the time, Daniel Dutton, the warden of Pulau Senang, firmly believed in the inherent goodness of human nature and thought that as long as they were given trust and dignified labor, criminals could redeem themselves in a "prison without walls." Therefore, there were no walls or barbed wire on the island, and even the guards were not armed.

At the time, Anle Island was a desolate wasteland. However, with the hard work of the first and second batches of prisoners, Anle Island began to take shape. In addition to a canteen, dormitories, and warehouses, it also had running water and electricity. From an outsider's perspective, it was a large community, not a prison. Everyone on Anle Island was required to work and participate in the construction, including the prison guards (Dutton himself ate and lived with the prisoners). Their work hours were from 8 a.m. to 5 p.m., with free time after 5 p.m., and they also had weekends off. As Nair hypothesized, the recidivism rate of prisoners who served in this community environment after their release was only 5%. This remarkable story attracted reports from Western media and even a visit from a United Nations delegation, and was hailed as a "miracle of humankind transforming history."

Just when Dutton thought everything was going well, little did he know that greed and resentment were quietly brewing within the An Le Island community. Some prisoners complained about the excessive workload; some complained about why they weren't the ones released early; some complained about the unequal distribution of labor, always doing the hardest work but receiving fewer credits. This sentiment gradually spread among the prisoners. The catalyst was a weekend rush at the docks 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 brought the discontent to its peak.

On July 12, 1963, black smoke rose from the once peaceful An Lok Island. After receiving their daily tools (shovels, machetes, hoes) that morning, the prisoners launched an indiscriminate attack on the guards. Wielding hoes and machetes, the prisoners rioted, killing Dutton, who firmly believed they would reform, and burning down the houses and canteen they had built themselves. They also burned down their hopes for reintegration into society, and the Singapore government's unwavering belief in the inherent goodness of humanity.

This island, known as "Anle," was originally a world-renowned sociological experiment. Here, hundreds of the most ruthless secret society members transferred from Changi Prison were given unprecedented freedom—however, on this day, idealism turned to ashes in the flames.

In March 2024, Ethereum also launched its own "Anle Island Experiment"—the Dencun upgrade (EIP-4844).

Like Dutton before him, the core developers dismantled the expensive "economic wall" (gas fees) between L1 and L2. With a grand vision of "Rollup-centric", they believed that as long as L2 (Layer 2) was provided with almost free Blob data space, L2 would feed back into the mainnet through a thriving ecosystem, building a mutually beneficial utopia.

But history always rhymes. Just as the prisoners on Anle Island chose rioting instead of gratitude, L2 in 2025 did not choose to give back, but instead launched a silent "economic plunder" of L1.

Chapter One: The Origins of the "Awkwardness": Identity Disorientation in 2025

1.1 The Dilemma of Being Neither Gold nor Tech Stocks

For much of 2025, Ethereum's position in the capital markets has been particularly ambiguous. Investors tend to categorize crypto assets into two extremes: at one end are "digital commodities" as stores of value (such as BTC), and at the other end are "tech stocks" with high growth potential that rely on user traffic for monetization (such as Solana). Ethereum once attempted to occupy both ends simultaneously—both "Ultra Sound Money" and "world computer."

However, the market environment in 2025 ruthlessly stripped away the benefits of this dual narrative.

• The awkward position of ETH as a commodity : Although ETH plays a core role as collateral in DeFi, the dynamic changes in its supply (the repeated switching between inflation and deflation) and the existence of the staking mechanism make it difficult to define it as "digital gold" like BTC. BTC's fixed total supply and energy peg make its commodity attributes rock solid, while Ethereum's complexity makes it appear ambiguous in the eyes of conservative institutions.

• The awkward situation for tech stocks: if viewed as a technology platform, their core metric—revenue—experienced a catastrophic decline in the first three quarters of 2025. August data showed that despite the price of ETH nearing an all-time high, network protocol revenue plummeted 75% year-on-year to a mere $39.2 million. For traditional investors accustomed to valuing companies using price-to-earnings ratios or discounted cash flow models, this is practically a sign of a collapsing business model.

1.2 The "Sandwich Layer" Effect in the Competitive Landscape

In terms of competition, Ethereum has also suffered from pressure from both sides.

• Upside pressure : Continued inflows into BTC ETFs and the strategic reserve narrative of sovereign nations have further solidified BTC's status as a macro asset. In contrast, while Ethereum ETFs have been approved, their inflows have consistently lagged behind BTC, reflecting a lag in mainstream capital's understanding of its "digital oil" positioning.

• The following is a summary of key points : Solana, leveraging its monolithic architecture for extreme performance and low cost, virtually monopolized the growth of payments, DePIN, AI agents, memes, and high-frequency consumer applications in 2025. Data shows that the circulation speed of stablecoins and ecosystem revenue on the Solana chain even surpassed Ethereum's mainnet in some months. Meanwhile, Hyperliquid, with its leading position in the Perp DEX market, attracted numerous whales and traders; HLP's fee capture capabilities even left ETH far behind.

This "neither here nor there" state is the breeding ground for "awkward" arguments. The market can't help but roll its eyes: if Ethereum's value storage is inferior to BTC, its high-performance applications are inferior to Solana, and its fee capture capabilities are inferior to Hyperliquid, where exactly is Ethereum's moat?

Chapter Two: Regulatory Stance: Legal Restructuring of Digital Commodities

2.1 “Project Crypto” and the Shift in Regulatory Philosophy

On November 12, 2025, U.S. Securities and Exchange Commission (SEC) Chairman Paul Atkins, in a speech at the Federal Reserve Bank of Philadelphia, formally unveiled a regulatory reset plan called "Project Crypto." The core objective of this plan is to end the years-long "Regulation by Enforcement" and shift towards establishing a clear classification framework based on economic realities.

In this speech, the Atkins chairman explicitly refuted the notion that "once it's a security, it's always a security" (a direct rebuttal to his predecessor). He introduced "token taxonomy," pointing out that digital assets are liquid and subject to change. A token may be sold as part of an investment contract during its initial offering, but this does not mean that the asset itself is forever bound by the shackles of a security. (Note: This logic is crucial 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 obtain returns, the asset falls outside the jurisdiction of the Howey Test.

Ethereum has over 1.1 million validators and the most widely distributed node network in the world, thus proving that ETH does not fall under the category of securities.

2.2 The Clarity Act for Digital Asset Markets

In July 2025, the U.S. House of Representatives passed the Clarity Act for Digital Asset Markets. This act legally corrected the misconceptions surrounding Ethereum's identity.

• Jurisdiction demarcation : The bill explicitly places assets “originating from decentralized blockchain protocols”—specifically referring to BTC and ETH in the text—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 people without the need for intermediaries and is recorded on a cryptographically secure public distributed ledger."

• The role of banks : The bill allows banks to register as "digital commodity brokers," providing custody and trading services for ETH to their clients. This means that ETH will no longer be considered a high-risk, undetermined asset on banks' balance sheets, but rather a commodity asset similar to gold and foreign exchange.

2.3 Compatibility of Staking Rewards with Commodity Attributes

Under traditional securities law, can an asset that generates interest still be called a "commodity"? Traditional commodities, such as crude oil or wheat, not only do not generate returns when held, but often also incur storage costs. Ethereum's staking mechanism makes it more like equity or bonds.

The regulatory framework for 2025 resolves this cognitive contradiction:

1. Asset Layer : The ETH token itself is a commodity. It serves as the network's gas and security deposit, possessing both utility and exchange value.

2. Protocol Layer : Native protocol-level staking is viewed as a form of "labor" or "service provision." Validators maintain network security by providing computing resources and locking up capital, and their rewards are payment for this service, not passive investment returns.

3. Service Layer : Only when a centralized institution (such as an exchange) provides custodial staking services and promises a specific return does such a "service" constitute an investment contract.

This dichotomy allows ETH to retain its "interest-bearing" characteristics while enjoying the regulatory exemptions of a "commodity." Institutional investors have begun to view ETH as a "productive commodity"—possessing both the inflation-hedging properties of a commodity and bond-like yields. Fidelity, in its report, points out that this unique combination of properties makes ETH an indispensable "internet bond" in investment portfolios.

Chapter 3 The Collapse and Reconstruction of Business Models: From Dencun to Fusaka

Having resolved the identity issue, the next pressing economic question is: Is ETH profitable? Where does its cash flow come from? Where does it go?

With all due respect, the revenue precipitation in the first three quarters of 2025 is a failed technology expansion plan, a fantasy of tech geeks trying to reshape the business environment and human nature with technology, while the helpless community is pinning its hopes on the Fusaka upgrade in December to change the current predicament, but can it still do so?

3.1 Dencun's Upgraded "Income Paradox"

The Dencun upgrade in March 2024 introduced EIP-4844 (Blob Transactions), designed to reduce L2 transaction costs by providing inexpensive data storage. Technically, this was a huge success—L2 gas fees dropped from several dollars to a few cents, greatly boosting the L2 ecosystem. However, from an economic model perspective, it was a "disaster."

The pricing mechanism of the Blob market was initially based entirely on supply and demand. Because the supply of reserved Blob space far exceeded the demand in the early stages of L2, the Blob Base Fee remained at an extremely low level of 1 wei (i.e., 0.000000001 Gwei) for a long time.

This results in L2 networks (such as Base and Arbitrum) charging users high gas fees, but paying negligible "rent" to Ethereum L1. Data shows that Base can generate hundreds of thousands of dollars in revenue on some days, but only pays a few dollars to Ethereum.

Due to the large-scale migration of transactions from the L1 execution layer to L2, and the fact that L2 did not destroy enough ETH through Blob, the burning mechanism of EIP-1559 became ineffective. In the third quarter of 2025, Ethereum's annualized supply growth rate rebounded to +0.22%, losing its narrative as a "deflationary asset."

This situation, where "L2 gets all the benefits while L1 gets nothing," is figuratively called the "parasite effect" by the community, and has directly led to deep doubts from the outside world about the sustainability of Ethereum's business model.

3.2 Strategic Turning Point: Fusaka Upgrade (December 3, 2025)

Fortunately, despite the doubts surrounding Ethereum's business model, the "aloof" developer community did not "stick to its ideals" and sit idly by. On December 3, 2025, the Fusaka upgrade that everyone had been eagerly anticipating finally arrived.

The core of this upgrade lies in "repairing" the value capture chain between L1 and L2. In other words, L2 will have to pay tribute to L1.

3.2.1 Core Fix: EIP-7918 (Blob base cost is tied to execution cost)

The most commercially significant proposal in the Fusaka upgrade was EIP-7918. This proposal completely changed the pricing logic of Blob.

EIP-7918 introduced a "minimum price" mechanism—a price increase. It stipulates that the base fee for a Blob is no longer allowed to fall indefinitely to 1 wei. Instead, the minimum price for a Blob will be linked to the execution layer gas price of L1 (specifically 1/15.258 of the L1 base fee).

This means that as long as the Ethereum mainnet remains busy (e.g., with new token offerings, DeFi transactions, or NFT minting), the L1 gas price will rise, automatically increasing the "floor price" for L2 users to purchase blob space. L2 users will no longer be able to use Ethereum's security at a near-free price.

After the upgrade and activation, Blob's base fee skyrocketed by 15 million times (from 1 wei to the 0.01-0.5 Gwei range). While the cost per transaction remains low for L2 users (approximately 0.01 USD), for the Ethereum protocol, this translates to a thousandfold increase in revenue. The L2 boom is a direct driver of L1 revenue.

3.2.2 Supply-side expansion: PeerDAS (EIP-7594)

To prevent price increases from stifling the development of L2, Fusaka simultaneously introduced PeerDAS (Peer Data Availability Sampling).

PeerDAS allows nodes to verify data availability by randomly sampling a small subset of data fragments, without needing to download the entire data block (Blob). This significantly reduces the bandwidth and storage pressure on nodes (by approximately 85%).

This technological breakthrough allows Ethereum to significantly increase the supply of blobs. After the upgrade, the target number of blobs per block will be increased in stages from 6 to 14 or even more.

By raising the lower limit of the unit price through EIP-7918 and increasing the total sales volume through PeerDAS, Ethereum has successfully built a sales model that "increases both volume and price".

3.3 The Closed Loop of the New Business Model

This is the post-Ethereum business model activated by Fusaka, which can be basically summarized as a "B2B tax model based on security services":

Upstream (L2 network): Base, Optimism, Arbitrum and other L2 networks act as "distributors" to capture end users and process high-frequency, low-value transactions.

Core Products (Block Space): Ethereum L1 sells two core products:

• High-value execution space : settlement proofs for L2, complex DeFi atomic transactions.

• Large data space (Blob) : Used for L2 storage of transaction history data.

Through EIP-7918, L2 must pay "rent" commensurate with the economic value of these two resources. The vast majority of this rent (ETH) is burned, converting into value enhancement for all ETH holders; a small portion is paid to validators, forming staking rewards.

Forward Circulating Spiral:

The more prosperous L2 becomes, the greater the demand for Blobs in L2 becomes, even if the unit price is low, the total supply is large and there is a safety net, leading to increased ETH burning, ETH deflation/scarcity, improved network security, and attracting more high-value assets.

Is the market willing to foot the bill? Yes, according to renowned analyst Yi's estimates, after the Fusaka upgrade, Ethereum's ETH burning rate is expected to increase by 8 times in 2026!

Chapter 4 Valuation System: How to Price "Trusted Components"?

Having clarified the business model, the next question is: how to value this new type of asset? Because Ethereum possesses attributes of a commodity, a capital asset, and a currency, a single valuation model seems insufficient to express the "greatness of ETH." In response, Wall Street elites have offered their perspectives:

4.1 Discounted Cash Flow (DCF) Model: A Technology Stock Perspective

Despite being defined as a commodity, ETH has a clear cash flow, which allows it to be used with the traditional DCF model.

• In its Q1 2025 research report, 21Shares used a three-stage growth model to extrapolate Ethereum's transaction fee revenue and burning mechanism. Even under a conservative discount rate (15.96%), its calculated fair value of ETH reached $3,998; while under a more optimistic assumption (discount rate of 11.02%), the fair value reached as high as $7,249.

• The upgraded EIP-7918 mechanism in Fusaka provides solid support for the "future revenue growth rate" in the DCF model. Market analysts believe that there is no longer any need to worry about L2 revenue draining away and causing income to drop to zero; instead, the guaranteed income of L1 can be linearly derived based on the expected growth scale of L2.

4.2 Currency Premium Model: A Commodity Perspective

In addition to cash flow, Ethereum also enjoys a value that cannot be captured through DCF—the currency premium. This is the value derived from its use as a settlement currency and collateral.

• ETH is the core collateral in the DeFi ecosystem (with a TVL exceeding $100 billion). Whether it's minting stablecoins (such as DAI), lending, or derivatives trading, ETH serves as the underlying anchor of trust.

• The NFT market and L2 gas fee payments are both denominated in ETH.

• With ETFs locking up $27.6 billion as of Q3 2025 and corporate hoarding (such as Bitmine holding 3.66 million ETH), the liquidity supply of ETH is increasingly tight. This supply-demand tension gives it a premium similar to that of gold.

4.3 Pricing of "Trustware"

Consensys introduced the concept of "Trustware" in its 2025 report.

• Ethereum doesn't sell simple computing power (that's what AWS does), but rather "decentralized, immutable finality."

• With RWA on-chain, Ethereum L1 will shift from "processing transactions" to "protecting assets." Its value capture will no longer depend solely on TPS, but on the scale of the assets it protects.

• If Ethereum protects $10 trillion in global assets, even if it only collects a security tax of 0.01% annually, its market capitalization must be large enough to withstand a 51% attack. This logic of a "security budget" makes Ethereum's market capitalization positively correlated with the size of the economy it supports.

For the promotion of "trusted documents," nothing is more convincing than hackers stealing funds and then converting the stolen funds into ETH.

Chapter 5 Competitive Landscape: Modular Moats and the RWA Battlefield

5.1 Ethereum vs. Solana: The Divide Between Wholesale and Retail

The data from 2025 clearly demonstrates the structural differentiation in the public blockchain market:

Solana, similar to Visa or Nasdaq, prioritizes extreme TPS and low latency, making it suitable for high-frequency trading, payments, and consumer applications (DePIN). Ethereum, on the other hand, evolved into SWIFT or the Federal Reserve's settlement system (FedWire). It doesn't focus on processing every single coffee-buying transaction quickly, but rather on processing "settlement packets" containing tens of thousands of transactions submitted by the L2 network.

This division of labor is an inevitable evolution in mature markets. High-value, low-frequency assets (such as tokenized government bonds and large-scale cross-border settlements) still prefer Ethereum because of its higher security and decentralization; while low-value, high-frequency transactions flow to Solana.

5.2 RWA's Dominance

In the RWA (Real-World Application) sector, considered a trillion-dollar future market, Ethereum has demonstrated overwhelming dominance. Despite Solana's rapid growth, Ethereum remains the preferred platform for benchmark projects such as BlackRock's BUIDL fund and Franklin Templeton's on-chain fund.

The institutions' selection logic is clear: for assets worth hundreds of millions or even billions of dollars, security takes far greater priority than speed. Ethereum's proven track record of never experiencing a downtime over a decade constitutes its deepest moat.

Has Ethereum lost its way? In 2025, it made a perilous leap towards a "seigniorage" model for the digital economy. It remains to be seen whether this leap of faith will land on a haystack.