ETH 2025: From Identity Crisis to Strategic Revival

The Paradox That Suffocated the Market: When a Blockchain Doesn’t Know Who It Is

If you ask traders in 2025 what the problem with Ethereum is, the answer is not unified. Some say it doesn’t compete as a store of value like Bitcoin; others argue it lacks Solana’s speed for retail applications; still, others note it doesn’t capture fees like Hyperliquid. The result? An uncomfortable middle ground, what analysts have called the “gray zone embarrassment.”

Numbers confirm this widespread perception. In Q3 2025, despite ETH’s price nearing all-time highs, protocol revenues plummeted 75% year-over-year, reaching only $39.2 million. For institutional investors accustomed to traditional valuation models (P/E, DCF), this is a warning sign: does Ethereum’s business model still work?

From above, Bitcoin continues to attract massive inflows via ETFs and geopolitical narratives of strategic reserve. From below, Solana has nearly monopolized growth in high-frequency segments—payments, DePIN, AI Agents, memes, and consumer applications. In the middle, Ethereum found itself trapped in an identity limbo.

The Historical Lesson: When Trust Turns into Rebellion

To understand Ethereum’s real problem in 2025, it’s worth recalling a little-known episode from Singapore’s history: the Pulau Senang experiment.

In the 1960s, Singapore faced a public order crisis with over 300 active gangs and 6% of the population involved. Authorities responded with harsh measures that led to overcrowded prisons. At this point, the leader of the Workers’ Party proposed a utopian idea: a prison without walls, barbed wire, or armed guards. The idea was that trust and decent work could redeem even the most dangerous criminals in the world.

Prison director Daniel Dutton firmly believed in this experiment. On the small island of Pulau Senang, he built dormitories, mess halls, water structures. There was nothing preventing escape—only trust. The recidivism rate dropped to 5%—a “miracle” according to international media.

Then, in July 1963, everything collapsed. Instead of showing gratitude, the inmates revolted. Armed with the same tools used to build, they burned everything down. Dutton, who had placed his faith in human nature, was killed.

Ethereum followed a similar script. In March 2024, the Dencun (EIP-4844) upgrade dismantled the “economic wall” between L1 and L2, offering nearly free data space to Layer 2s. The vision of core developers was win-win: L2s would thrive and return value to the mainnet through increased activity and token burning.

But like the Pulau Senang inmates, the L2s of 2025 did not show gratitude. Instead, they launched a “silent economic predation”: Base, Arbitrum, and others generated tens of thousands of dollars in daily revenue while paying Ethereum L1 only a few dollars in “rent.” L2 was eating the flesh, L1 was eating the wind.

The Economic Crisis: The Blob Pricing Paradox

The Blob’s pricing mechanism, introduced by EIP-4844, had a fatal flaw. The Blob’s Base Fee was determined solely by supply and demand. Since the data space supply far exceeded initial demand, the price collapsed to 1 wei (0.000000001 Gwei).

This meant that while L2 transactions still cost a few cents for the end user, L2 paid Ethereum L1 a negligible fee for security and block space. The EIP-1559 burning mechanism became ineffective: fewer transactions were processed on L1 (because they migrated to L2), and L2 didn’t burn enough ETH via Blob to compensate.

In Q3 2025, Ethereum’s annualized inflation rate rose back to +0.22%. The narrative of the “deflationary asset” was dead. Investors began to ask: if Ethereum isn’t a safe haven like Bitcoin, lacks Solana’s speed, and now doesn’t even generate a consistent cash flow, what is it really?

The Paradigm Shift in Regulation: When the State Recognizes Reality

The solution to Ethereum’s identity dilemma, ironically, came from the institutions the crypto community despised most: the government and regulators.

In November 2025, SEC Chairman Paul Atkins presented “Project Crypto,” a roadmap to abandon the “Regulation by Enforcement” approach and move toward a clear classification based on economic reality. Crucial element: Atkins refuted his predecessor’s statement that “once security, always security,” asserting it’s not a law of nature.

The SEC introduced the “Token Taxonomy,” recognizing that the properties of a digital asset are fluid. A token can start as a security and, when the network reaches a sufficient level of decentralization (such that holders no longer depend on the “Essential Managerial Effort” of a centralized entity), it exits the jurisdiction of the Howey Test.

Ethereum, with over 1.1 million validators and the most distributed node network in the world, was officially recognized: ETH is not a security.

In July 2025, the U.S. Congress approved the “Digital Asset Market Clarity Act” (CLARITY Act), codifying this recognition into law. The law assigns “decentralized protocol-derived” assets—explicitly mentioning Bitcoin and Ethereum—to the jurisdiction of the CFTC, not the SEC. ETH is officially a digital commodity, like gold or foreign currencies.

The law also allows banks to register as “digital commodity brokers,” meaning ETH is no longer a high-risk, undefined asset on bank balance sheets but a standard commodity. This opened the door to unprecedented institutional investments.

The Tech-Economic Solution: Fusaka Upgrade

With the identity issue resolved, the remaining problem was economic. How to ensure L2 pays tribute to L1 without stifling ecosystem development?

The Fusaka upgrade on December 3, 2025, introduced two key innovations:

EIP-7918: Linking the Blob’s minimum price to L1’s gas price

The most commercially significant proposal is EIP-7918, which radically transformed Blob pricing logic. Previously, the price could fall to 1 wei without a lower limit. EIP-7918 introduces a guaranteed “floor price”: the minimum Blob price is now linked to the gas price of the L1 execution layer (specifically 1/15.258 of the L1 Base Fee).

This means that as long as the Ethereum mainnet remains congested—whether for new emissions, DeFi transactions, or NFT minting—the L1 Gas Price automatically rises, increasing the minimum cost to buy Blob space. L2 can no longer use Ethereum’s security almost for free.

Immediately after activation, the Blob’s Base Fee increased by 15 million times (from 1 wei to 0.01-0.5 Gwei). For L2 users, transaction costs remain low (about $0.01), but for the Ethereum protocol, revenues skyrocketed.

PeerDAS (EIP-7594): Increasing supply without compromising security

To prevent rising prices from choking L2 development, Fusaka simultaneously introduced PeerDAS (Peer Data Availability Sampling). Instead of downloading the entire Blob, nodes now randomly sample only a small part of the data to verify availability. This reduces bandwidth and storage pressure by about 85%.

This innovation allows Ethereum to significantly increase Blob supply. The target number of Blobs per block will gradually rise from 6 to 14 or more.

The New Business Model: Digital Seigniorage

With EIP-7918 and PeerDAS, Ethereum has built a business model that can be described as “B2B taxation based on security services”:

Vertical structure:

• Upstream (layer 2): Base, Optimism, Arbitrum act as “distributors,” capturing end users and managing high-frequency transactions
• Core (Ethereum L1): Sells two types of commodities:
  • High-value execution space (settlement of L2, complex DeFi transactions)
  • High-capacity data space (Blob) for L2 transaction history
• Burn economy: The rent paid by L2 (in ETH) is mostly burned, increasing scarcity for all holders; a small part goes to validators

The virtuous cycle: More L2s prosper → Greater demand for Blobs → Unit price is low, but volume is high and there’s a floor → More ETH burn → ETH becomes deflationary → Greater network security → Attraction of high-value assets

According to analyst Yi, ETH’s burn rate could increase by 8 times in 2026 compared to pre-Fusaka levels.

Valuation: A Hybrid Asset

How to value this new type of asset that combines properties of a commodity, capital asset, and currency?

DCF (Equity Perspective): In 2025, 21Shares applied a DCF model based on fee and burn revenues. With a conservative discount rate (15.96%), the fair value of ETH was calculated at $3,998; with more optimistic assumptions, at $7,249. Post-Fusaka, the guaranteed pricing mechanism provides solid foundations for projecting future cash flows.

Monetary Premium (Commodity Perspective): ETH is the main collateral in the DeFi ecosystem (TVL over $100 billion). It is the trust anchor for minting stablecoins, lending, derivatives. With ETFs locking ETH ($27.6 billion in Q3 2025) and corporate reserves growing, liquidity tightens, granting a premium similar to gold.

“Trustware” (Institutional Perspective): Ethereum doesn’t sell simple computing power but “decentralized and immutable finality.” With RWA tokenization, Ethereum L1 will shift from “processing transactions” to “protecting assets.” If Ethereum protects $10 trillion of global assets, its market cap must be large enough to withstand a 51% attack. Ethereum’s market cap becomes directly proportional to the economic value it supports.

Competitive Positioning: Wholesale vs. Retail

2025 data shows a structural segmentation:

Solana is akin to Visa or Nasdaq: targeting extreme TPS, minimal latency, ideal for high-frequency trading, payments, DePIN.

Ethereum has evolved into a settlement system like SWIFT or FedWire: it doesn’t process every single transaction but focuses on “settlement packets” from L2 containing thousands of transactions.

This division is the natural evolution of a mature market. High-value, low-frequency assets (tokenization of government bonds, cross-border settlement) prefer Ethereum for security; low-value, high-frequency transactions go on Solana.

In the RWA segment, considering the future trillion-dollar market, Ethereum dominates. BlackRock, Franklin Templeton, and other institutional players have built their projects on Ethereum, believing that for assets worth hundreds of millions or billions of dollars, security comes before speed. Ten years of uninterrupted uptime is Ethereum’s deepest moat.

Conclusion: Awakening from a Nightmare

In 2025, Ethereum made a risky leap toward the model of “digital economy seigniorage.” It abandoned the illusion of being a “world computer” for all and embraced the role of settlement layer for high-value assets.

The identity crisis was resolved not through seeking a single narrative but through recognizing its hybrid nature: neither a simple commodity like Bitcoin nor a computing platform like Solana, but a decentralized security infrastructure for the emerging digital economy.

If this model withstands the test of time in the coming months, Ethereum will truly have risen from the ashes of 2025.