Recently, interest in Ethereum has surged once again, particularly following the emergence of ETH as a reserve asset. Our fundamental analyst explores ETH's valuation framework and constructs a compelling long-term bull case. As always, we welcome engagement and idea-sharing—but remember to do your own research (DYOR).

• Ethereum (ETH) is transitioning from a misunderstood asset to a scarce, programmable reserve asset that secures and powers a rapidly institutionalizing on-chain ecosystem.

• ETH’s adaptive monetary policy projects declining inflation—even with 100% of ETH staked, inflation peaks at ~1.52%, falling to ~0.89% by year 100 (2125). This is far below the U.S. M2 money supply’s 6.36% annual growth (1998-2024) and even rivals gold’s supply growth rate.

• Institutional adoption is accelerating, with firms like JPMorgan and BlackRock building on Ethereum, driving sustained demand for ETH to secure and settle on-chain value.

• The annual correlation between on-chain asset growth and native ETH staking exceeds 88%, highlighting strong economic alignment.

• The SEC’s policy clarification on staking (May 29, 2025) reduced regulatory uncertainty. Ethereum ETF filings now include staking provisions, boosting yields and institutional alignment.

• ETH’s deep composability makes it a productive asset—usable for staking/restaking, as DeFi collateral (e.g., Aave, Maker), AMM liquidity (e.g., Uniswap), and as the native gas token on Layer 2s.

• While Solana has gained attention for memecoin activity, Ethereum’s stronger decentralization and security position it to dominate high-value asset issuance—a larger, more enduring market.

• The rise of ETH reserve asset plays, beginning with Sharplink Gaming ($SBET) in May 2025, has led public companies to hold over 730K ETH. This new demand trend mirrors Bitcoin’s 2020 reserve asset wave and contributed to ETH’s recent outperformance of BTC.

Not long ago, Bitcoin was widely dismissed as a legitimate store of value—its "digital gold" narrative seemed fanciful to many. Today, Ethereum (ETH) faces a similar identity crisis. Often misunderstood, ETH has underperformed in annual returns, missed key meme cycles, and seen slowing retail adoption across much of the crypto ecosystem.

A common critique is ETH’s lack of a clear value accrual mechanism. Skeptics argue that the rise of Layer 2 solutions erodes base-layer fees, undermining ETH’s monetary status. Viewed purely through transaction fees, protocol revenue, or "real economic value," ETH begins to resemble a cloud computing security—more like Amazon stock than a sovereign digital currency.

In my view, this framing constitutes a category error. Evaluating ETH solely through cash flows or protocol fees conflates fundamentally different asset classes. Instead, it’s better understood through a commodity framework akin to Bitcoin. More precisely, ETH constitutes a unique asset class: a scarce yet productive, programmable reserve asset whose value accrues through its role in securing, settling, and powering an increasingly institutionalized, composable on-chain economy.

To fully grasp ETH’s evolving monetary role, it must be contextualized within broader economic trends—particularly fiat debasement and monetary expansion. Inflation rates, often understated, are fueled by persistent government stimulus and spending. While official CPI data suggests ~2% annual inflation, this metric may be adjusted and can obscure true purchasing power erosion.

From 1998 to 2024, CPI inflation averaged 2.53% annually. In contrast, U.S. M2 money supply grew at 6.36% yearly, outpacing inflation and home prices and nearing the S&P 500’s 8.18% returns. This even suggests that nominal equity growth may stem more from monetary expansion than productivity gains.

Figure 1: S&P 500, CPI, M2 Supply, and Housing Price Index (HPI) Returns
Source: Federal Reserve Economic Data

Rapid money supply growth reflects governments’ growing reliance on monetary stimulus and fiscal spending to address economic instability. Recent legislation, like Trump’s "Big and Beautiful Act" (BBB), introduced aggressive new spending measures widely seen as inflationary. Meanwhile, Elon Musk’s touted Government Efficiency Department (DOGE) has failed to deliver. These developments fuel consensus that the current monetary system is inadequate, necessitating a more reliable store of value or monetary alternative.

A reliable store of value typically meets four criteria:

1. Durability—It must withstand the test of time without degradation.

2. Value Preservation—It should maintain purchasing power across market cycles.

3. Liquidity—It must be easily tradable in active markets.

4. Adoption and Trust—It must be widely trusted or adopted.

Today, ETH excels in durability and liquidity. Its durability stems from Ethereum’s decentralized, secure network. Its liquidity is robust: ETH is the second-most-traded crypto asset, with deep markets on centralized and decentralized exchanges.

However, ETH’s value preservation and trust remain debated under traditional "store of value" frameworks. Hence, the concept of a "scarce programmable reserve asset" is more apt, highlighting ETH’s active role in value maintenance and trust-building through unique mechanisms.

One of the most contentious aspects of ETH’s store-of-value role is its monetary policy—particularly its supply and inflation controls. Critics often cite Ethereum’s lack of a fixed supply cap. Yet this critique overlooks the architectural sophistication of Ethereum’s adaptive issuance model.

ETH’s issuance dynamically correlates with staked ETH. While issuance rises with staking participation, the relationship is sublinear: inflation grows slower than staked totals. This is because issuance scales inversely with the square root of staked ETH, creating a natural inflation dampener.

Figure 2: Rough Formula for Staked ETH Inflation
This mechanism introduces a soft inflation cap, where inflation rates gradually decline even as staking participation grows. In a worst-case simulation (100% ETH staked), annual inflation peaks at ~1.52%.

Figure 3: Illustrative ETH Max Issuance Over 100 Years (Assuming 100% Staking, Starting at 120M ETH)
Critically, even this worst-case issuance rate declines as total ETH supply grows, following an exponential decay curve. Projected inflation trends under 100% staking (no burns):

• Year 1 (2025): ~1.52%

• Year 20 (2045): ~1.33%

• Year 50 (2075): ~1.13%

• Year 100 (2125): ~0.89%

Figure 4: ETH Max Issuance with Rising Total Supply
Ethereum’s descending inflation curve reflects inherent monetary discipline—enhancing its credibility as a long-term store of value. Factoring in EIP-1559’s burn mechanism further improves this: net inflation may fall below issuance, even turning deflationary. Since Ethereum’s transition to proof-of-stake, net inflation has periodically dipped negative.

Figure 5: Annualized ETH Supply Inflation Rate
Compared to fiat like the U.S. dollar (M2 growth >6%), Ethereum’s structural constraints (and potential deflation) bolster its reserve asset appeal. Notably, ETH’s max supply growth now rivals—or even undercuts—gold’s, reinforcing its sound money credentials.

Figure 6: Gold Annual Supply Growth Rate
Sources: ByteTree, World Gold Council, Bloomberg, Our World in Data

While Ethereum’s monetary design addresses supply dynamics, its utility as a settlement layer is now the primary driver of adoption and institutional trust. Major financial institutions are building directly on Ethereum: Robinhood is developing a tokenized stock platform, JPMorgan is launching its deposit token (JPMD) on Ethereum Layer 2 (Base), and BlackRock is tokenizing a money market fund via BUIDL on Ethereum.

This on-chain shift is powered by a compelling value proposition that solves legacy inefficiencies and unlocks new opportunities:

• Efficiency & Cost Reduction: Automation and smart contracts streamline processes, cutting costs, errors, and settlement times from days to seconds.

• Liquidity & Fractional Ownership: Tokenization enables fractional ownership of illiquid assets (e.g., real estate, art), expanding investor access.

• Transparency & Compliance: Immutable ledgers provide auditable trails, simplifying compliance and reducing fraud.

• Innovation & Market Access: Composability fosters novel products (e.g., automated lending, synthetics), creating revenue streams beyond traditional systems.

End of Translation

Recently, interest in Ethereum has surged once again, particularly following the emergence of ETH as a reserve asset. Our fundamental analyst explores ETH's valuation framework and constructs a compelling long-term bull case. As always, we welcome engagement and idea-sharing—but remember to do your own research (DYOR).

• Ethereum (ETH) is transitioning from a misunderstood asset to a scarce, programmable reserve asset that secures and powers a rapidly institutionalizing on-chain ecosystem.

• ETH’s adaptive monetary policy projects declining inflation—even with 100% of ETH staked, inflation peaks at ~1.52%, falling to ~0.89% by year 100 (2125). This is far below the U.S. M2 money supply’s 6.36% annual growth (1998-2024) and even rivals gold’s supply growth rate.

• Institutional adoption is accelerating, with firms like JPMorgan and BlackRock building on Ethereum, driving sustained demand for ETH to secure and settle on-chain value.

• The annual correlation between on-chain asset growth and native ETH staking exceeds 88%, highlighting strong economic alignment.

• The SEC’s policy clarification on staking (May 29, 2025) reduced regulatory uncertainty. Ethereum ETF filings now include staking provisions, boosting yields and institutional alignment.

• ETH’s deep composability makes it a productive asset—usable for staking/restaking, as DeFi collateral (e.g., Aave, Maker), AMM liquidity (e.g., Uniswap), and as the native gas token on Layer 2s.

• While Solana has gained attention for memecoin activity, Ethereum’s stronger decentralization and security position it to dominate high-value asset issuance—a larger, more enduring market.

• The rise of ETH reserve asset plays, beginning with Sharplink Gaming ($SBET) in May 2025, has led public companies to hold over 730K ETH. This new demand trend mirrors Bitcoin’s 2020 reserve asset wave and contributed to ETH’s recent outperformance of BTC.

Not long ago, Bitcoin was widely dismissed as a legitimate store of value—its "digital gold" narrative seemed fanciful to many. Today, Ethereum (ETH) faces a similar identity crisis. Often misunderstood, ETH has underperformed in annual returns, missed key meme cycles, and seen slowing retail adoption across much of the crypto ecosystem.

A common critique is ETH’s lack of a clear value accrual mechanism. Skeptics argue that the rise of Layer 2 solutions erodes base-layer fees, undermining ETH’s monetary status. Viewed purely through transaction fees, protocol revenue, or "real economic value," ETH begins to resemble a cloud computing security—more like Amazon stock than a sovereign digital currency.

In my view, this framing constitutes a category error. Evaluating ETH solely through cash flows or protocol fees conflates fundamentally different asset classes. Instead, it’s better understood through a commodity framework akin to Bitcoin. More precisely, ETH constitutes a unique asset class: a scarce yet productive, programmable reserve asset whose value accrues through its role in securing, settling, and powering an increasingly institutionalized, composable on-chain economy.

To fully grasp ETH’s evolving monetary role, it must be contextualized within broader economic trends—particularly fiat debasement and monetary expansion. Inflation rates, often understated, are fueled by persistent government stimulus and spending. While official CPI data suggests ~2% annual inflation, this metric may be adjusted and can obscure true purchasing power erosion.

From 1998 to 2024, CPI inflation averaged 2.53% annually. In contrast, U.S. M2 money supply grew at 6.36% yearly, outpacing inflation and home prices and nearing the S&P 500’s 8.18% returns. This even suggests that nominal equity growth may stem more from monetary expansion than productivity gains.

Figure 1: S&P 500, CPI, M2 Supply, and Housing Price Index (HPI) Returns
Source: Federal Reserve Economic Data

Rapid money supply growth reflects governments’ growing reliance on monetary stimulus and fiscal spending to address economic instability. Recent legislation, like Trump’s "Big and Beautiful Act" (BBB), introduced aggressive new spending measures widely seen as inflationary. Meanwhile, Elon Musk’s touted Government Efficiency Department (DOGE) has failed to deliver. These developments fuel consensus that the current monetary system is inadequate, necessitating a more reliable store of value or monetary alternative.

A reliable store of value typically meets four criteria:

1. Durability—It must withstand the test of time without degradation.

2. Value Preservation—It should maintain purchasing power across market cycles.

3. Liquidity—It must be easily tradable in active markets.

4. Adoption and Trust—It must be widely trusted or adopted.

Today, ETH excels in durability and liquidity. Its durability stems from Ethereum’s decentralized, secure network. Its liquidity is robust: ETH is the second-most-traded crypto asset, with deep markets on centralized and decentralized exchanges.

However, ETH’s value preservation and trust remain debated under traditional "store of value" frameworks. Hence, the concept of a "scarce programmable reserve asset" is more apt, highlighting ETH’s active role in value maintenance and trust-building through unique mechanisms.

One of the most contentious aspects of ETH’s store-of-value role is its monetary policy—particularly its supply and inflation controls. Critics often cite Ethereum’s lack of a fixed supply cap. Yet this critique overlooks the architectural sophistication of Ethereum’s adaptive issuance model.

ETH’s issuance dynamically correlates with staked ETH. While issuance rises with staking participation, the relationship is sublinear: inflation grows slower than staked totals. This is because issuance scales inversely with the square root of staked ETH, creating a natural inflation dampener.

Figure 2: Rough Formula for Staked ETH Inflation
This mechanism introduces a soft inflation cap, where inflation rates gradually decline even as staking participation grows. In a worst-case simulation (100% ETH staked), annual inflation peaks at ~1.52%.

Figure 3: Illustrative ETH Max Issuance Over 100 Years (Assuming 100% Staking, Starting at 120M ETH)
Critically, even this worst-case issuance rate declines as total ETH supply grows, following an exponential decay curve. Projected inflation trends under 100% staking (no burns):

• Year 1 (2025): ~1.52%

• Year 20 (2045): ~1.33%

• Year 50 (2075): ~1.13%

• Year 100 (2125): ~0.89%

Figure 4: ETH Max Issuance with Rising Total Supply
Ethereum’s descending inflation curve reflects inherent monetary discipline—enhancing its credibility as a long-term store of value. Factoring in EIP-1559’s burn mechanism further improves this: net inflation may fall below issuance, even turning deflationary. Since Ethereum’s transition to proof-of-stake, net inflation has periodically dipped negative.

Figure 5: Annualized ETH Supply Inflation Rate
Compared to fiat like the U.S. dollar (M2 growth >6%), Ethereum’s structural constraints (and potential deflation) bolster its reserve asset appeal. Notably, ETH’s max supply growth now rivals—or even undercuts—gold’s, reinforcing its sound money credentials.

Figure 6: Gold Annual Supply Growth Rate
Sources: ByteTree, World Gold Council, Bloomberg, Our World in Data

While Ethereum’s monetary design addresses supply dynamics, its utility as a settlement layer is now the primary driver of adoption and institutional trust. Major financial institutions are building directly on Ethereum: Robinhood is developing a tokenized stock platform, JPMorgan is launching its deposit token (JPMD) on Ethereum Layer 2 (Base), and BlackRock is tokenizing a money market fund via BUIDL on Ethereum.

This on-chain shift is powered by a compelling value proposition that solves legacy inefficiencies and unlocks new opportunities:

• Efficiency & Cost Reduction: Automation and smart contracts streamline processes, cutting costs, errors, and settlement times from days to seconds.

• Liquidity & Fractional Ownership: Tokenization enables fractional ownership of illiquid assets (e.g., real estate, art), expanding investor access.

• Transparency & Compliance: Immutable ledgers provide auditable trails, simplifying compliance and reducing fraud.

• Innovation & Market Access: Composability fosters novel products (e.g., automated lending, synthetics), creating revenue streams beyond traditional systems.

End of Translation