Research on the Architecture and Value of Ethereum (ETH): From a Smart Contract Platform to a Global Settlement Layer

As of February 2026, Ethereum has completed its most thorough functional restructuring since inception: 95% of transaction execution has migrated to Layer 2, with Layer 1 officially retreating to the role of “global settlement layer.” However, market pricing logic for ETH still largely remains stuck in the outdated framework of “Gas fee revenue”—when L1 actively cedes fee income in exchange for ecosystem expansion, what truly underpins ETH’s value?

This article, based on the latest on-chain data and institutional activity in 2026, from the perspectives of positioning evolution, L1-L2 collaborative architecture, economic model re-evaluation, three value capture pathways, institutional premium pricing paradigm, and settlement layer competition landscape, quantifies Ethereum’s transition from “world computer” to “global settlement sovereignty,” and answers the most critical market question of 2026: when the Gas fee narrative fails, where does ETH’s valuation anchor shift to?

Ethereum Positioning Evolution: From World Computer to Settlement Layer

Why does Ethereum no longer call itself the “world computer” in 2026, but instead shifts toward “global settlement layer”? When the mainnet launched in 2015, Ethereum’s vision was a decentralized world computer—providing trusted computing services to global developers via EVM, with ETH serving as the Gas fuel. This narrative dominated the first two cycles. However, the practice of modular blockchains has fundamentally changed the division of labor: execution layers are separated to Layer 2, while Layer 1 becomes a finality provider and asset custody anchor.

Three phases of positioning shift confirmed by evidence:

• 2015–2020: Smart contract experimental playground, driven by ICO funding enthusiasm.
• 2021–2024: DeFi/NFT settlement network, with EIP-1559 introducing deflationary expectations.
• 2025–2026: Global settlement sovereignty layer. ETH evolves from a Gas token into a reserve asset backed by non-sovereign credit.

Conclusive evidence of the 2026 positioning is no longer theoretical speculation but institutional behavior:

As of January 2026, 35 top global financial institutions—including BlackRock, JPMorgan, and Fidelity—have launched tokenized products based on Ethereum mainnet or Layer 2. Fidelity issued a tokenized money market fund on Ethereum; JPMorgan migrated its deposit tokens from internal chains to Base (Ethereum L2); Societe Generale launched a euro-denominated lending market based on Ethereum DeFi protocols.

This answers the fundamental question: why can’t L2 replace L1? L2 offers efficiency (costs around 300), but cannot provide finality and censorship resistance. Trillions of dollars in institutional assets will not be deployed on a chain that can be frozen or rolled back by a single sequencer. The core product of L1 is not low fees, but certainty.

Ethereum Operating Mechanism: Collaborative Architecture of L1 and L2

When 95% of transactions have migrated to Layer 2, what is Ethereum mainnet actually doing? As of February 2026, Ethereum has fully entered the era of modular symbiosis. L1 no longer pursues throughput but focuses on the three pillars of the settlement layer: data availability, finality, and consensus security.

Table 1: Responsibilities Reallocation of Ethereum L1 and L2 (2026)

The most critical upgrade in 2026 is not Cancun but BPO2.

On January 7, 2026, at epoch 419,072, Ethereum implemented the BPO2 upgrade, increasing the Blob per block limit from 10 to 14, and the maximum Blob count from 15 to 21, boosting data capacity by 40%, achieving nearly 59 million Gas per second throughput on L1. This upgrade was non-forking and seamless, demonstrating Ethereum’s core protocol layer’s capacity for smooth scaling.

Vitalik’s reflection in February 2026 directly addresses the core:

“If L2 pursues complete independence, it will lose the network effects and trust minimization benefits provided by Ethereum.”

L2 is not Ethereum’s competitor but a leverage of the settlement layer—using L1’s security to drive application layer innovation. Currently, leading L2s still highly depend on L1 for finality anchoring in aspects like sequencer decentralization and fraud proof challenge periods. This dependency is not technical debt but a source of Ethereum’s settlement sovereignty value.

Re-evaluating ETH Economic Model: Deflation and Staking

Why does the success of L2 make ETH harder to deflate? Has the deflation narrative failed? This is the biggest misconception about ETH in 2026.

The true function of deflation: ETH supply is a dependent variable of network activity, not a protocol goal. After the Dencun upgrade in 2024, the structural decline in Base Fee revenue on L1 led to reduced ETH burns, and the network entered a state of micro-inflation in late 2025 (annualized +0.3%–0.5%). This is an active strategic choice—Ethereum uses short-term inflation to facilitate exponential expansion of the L2 ecosystem. After the BPO2 upgrade in January 2026, Blob fee share rose from 12% pre-upgrade to 19%, indicating a shift in fee structure from “execution charges” to “settlement charges.”

Staking mechanism: from retail behavior to institutional treasury strategy. As of February 2026, ETH staking rate exceeds 30% (about 36.2 million ETH locked). More signaling is the institutional staking normalization milestone:

On-chain analysts monitor that Bitmine re-staked 140,400 ETH (~$282 million) on February 11, 2026, with total staked ETH surpassing 70%. At an annualized rate of 2.8%, this yields about 8,500 ETH (~$17.2 million) in annual interest income for that institution.

Re-staking: increases complexity and risk visibility. Protocols like EigenLayer extend ETH security to oracles, cross-chain bridges, and DeFi layers, transforming ETH from “network fuel” into a “shared security commodity.” By February 2026, total re-staked assets locked in protocols exceeded $320 billion, about 15% of total staked ETH market cap. However, researchers warn that re-staking leverage cycles are accumulating—LSTs are repeatedly collateralized and borrowed against ETH, then re-staked, which could trigger involuntary liquidations when underlying asset volatility spikes. Such risks already appeared in minor fluctuations in August 2025, and markets should remain highly vigilant.

ETH Value Capture Mechanisms: Income and Assetization Pathways

When Gas fees are no longer the core revenue, where does ETH’s value come from? Traditional valuation models (PE ratios, fee multiples) have become invalid for Ethereum in 2026. ETH’s value capture has fractured into three parallel pathways.

Table 2: Three Parallel Paths of ETH Value Capture (2026)

Settlement premium is the only new dominant variable in 2026 valuation framework. When BlackRock’s money market funds, JPMorgan’s deposit tokens, and Societe Generale’s lending pools are all anchored to Ethereum settlement, ETH is no longer a flow business but a balance sheet. The market is willing to pay a premium for this “irreversible finality,” which is not reflected in L1’s P&L but in ETH’s interest rate corridors as institutional collateral.

Gate monitoring data shows that in January 2026, Ethereum’s protocol fee income was about $120 million, while the total RWA tokenization volume in the ecosystem had already exceeded $120 billion—this latter is the true mirror of settlement premium.

ETH Market Pricing Logic: Cycles and Premium Structures

Why can’t ETH in 2026 be explained solely by “fee burns” anymore? Every price leap in ETH history has been driven by a paradigm shift in valuation.

Table 3: Three Paradigm Shifts in ETH Valuation (2017–2026)

Market behavior in January 2026 provides empirical evidence of “institutional premium”:

• Despite ETH spot ETF experiencing outflows of $230 million on January 20, BlackRock and other issuers continued to develop Ethereum ecosystem products.
• JPMorgan’s decision to migrate deposit tokens from internal chains to Base was unrelated to short-term Gas prices; it fundamentally affirms Ethereum’s settlement sovereignty.
• Societe Generale issued euro stablecoin EURCV on Ethereum mainnet and integrated regulated bank assets into Ethereum settlement layer via protocols like Aave.

This answers the sharpest question of 2026: “With extremely low L2 fees, sharp reduction in ETH burns, why does ETH still maintain a market cap of hundreds of billions?” Because the market no longer views it as a “software company stock” but as a “digital settlement sovereignty.” The pricing weight of institutional premium has risen from less than 10% in 2021 to over 45% in 2026, becoming the most resilient ballast in ETH’s valuation system.

Future Ethereum Paradigm: Settlement Layer Competition Landscape

If all public chains can settle, why do institutions only choose Ethereum? The competition landscape has shifted from a “performance race” to a “trust race.”

Table 4: Global Settlement Layer Competition Landscape (2026)

Data as of February 2026 clearly delineates:

• Total L2 TVL around $48–52 billion, with Ethereum mainnet + Base + Arbitrum dominating.
• Leading L2s have proven their revenue models: Base, distributed by Coinbase, grew 37% QoQ in Q4 2025; Arbitrum remains the DeFi settlement hub, with stablecoin supply surpassing $8 billion.
• The choice of 35 regulated financial institutions is essentially a vote on settlement sovereignty—they will not migrate assets every year.

Ethereum’s moat in 2026 is not code but ecosystem politics. Developers can build applications on Solana at lower costs, but global asset managers will not deploy trillions of dollars of balance sheets on a network that crashes three times a year. Ethereum has shifted from a “technical route” to a “systemic path.”

Conclusion

Ethereum has completed its deepest identity restructuring since inception in 2026: from the grand narrative of “world computer” to a clear function as “global settlement layer.”

The quantitative results of this restructuring are already evident:

• Asset side: 36.2 million ETH staked (30% of supply), institutional staking ratio exceeding 70%, ETH becoming a standardized yield-generating asset for corporate treasuries.
• Application side: 35 global financial institutions issuing products on Ethereum, RWA tokenization approaching hundreds of billions, with settlement premium transforming from a theoretical concept into observable institutional behavior.
• Protocol side: BPO2 upgrade proves L1 can scale smoothly without sacrificing security; Blob fee mechanism now accounts for 19% of L1 fee structure.

ETH’s economic model no longer pursues a “super-sound currency” narrative of unidirectional deflation but has evolved into a three-dimensional valuation model of “staking cash flow + settlement premium + multi-layer capital efficiency.” Market perception is shifting from chain Gas tokens to a reserve asset of the global settlement layer.

Historical price reviews of ETH clearly show that each cycle’s valuation anchor has been migrating. From technological vision, to application prosperity, to institutional trust—ETH is gradually shedding the volatility of high-risk tech stocks and embedding itself into the macro asset pricing framework.

ETH’s future no longer depends on whether the next upgrade can reduce Gas fees to $0.001, but on whether Ethereum can, while maintaining trustworthiness and neutrality, expand the boundaries of settlement sovereignty from native crypto assets to the $10 trillion global macro financial assets. This race is far from over, but the rules have already been rewritten.

FAQ

Q1: What is ETH token? How does it fundamentally differ from Bitcoin’s positioning?

ETH is the native asset of the Ethereum network. Bitcoin is “digital gold”—an ultimate store of value with an economic model centered on scarcity; ETH is “digital crude oil”—serving as settlement fuel, yield-bearing capital, and a pricing anchor for global asset tokenization, with its value strongly correlated to the breadth and depth of on-chain economic activity.

Q2: What is the most important change in ETH’s economic model in 2026?

Deflation is no longer the goal; adoption is. ETH supply has entered an elastic equilibrium—when L2 activity surges, Blob fees increase, boosting burns; when L2 activity stabilizes, slight inflation occurs. The market no longer uses “deflation” as the core valuation metric; instead, staking yields, settlement asset scale, and institutional adoption depth are key.

Q3: How to interpret ETH’s weak price performance in 2026?

The underperformance of ETH relative to Bitcoin in 2025–2026 is essentially a valuation gap during a paradigm shift. The market is digesting the fact that “L1 fee income is structurally declining,” and has yet to fully price in the new variable of “institutional settlement premium.” Historical experience shows each paradigm shift in valuation takes 12–18 months for market recognition.

Q4: What should be the most focused indicator in ETH market valuation currently?

Abandon the inertia of “L1 Gas fee = valuation.” The core observables are shifting to: ① ETH collateral share in L2 TVL; ② proportion of RWA token issuance on the preferred network; ③ growth rate of ETH allocations in listed companies and sovereign wealth funds’ treasuries; ④ scale of institutional custody assets in the Ethereum ecosystem.

Q5: What is the biggest real risk Ethereum faces in 2026?

Internal risk: If re-staking leverage cycles encounter sustained price declines, it could trigger a negative feedback loop of forced liquidations; the minor liquidation event in August 2025 already sounded an alarm.

External risk: Regulatory boundaries—if major jurisdictions classify “staking as a service” as securities issuance, it could hinder ETH’s institutionalization path; significant divergence between US CFTC and SEC on Ethereum’s classification could impact liquidity in spot ETFs.