Today, I share my thoughts on crypto asset valuations and why it is important to optimize and build for specific types of value. I will also focus on ETH and its current value accrual and market pricing struggles.

Introduction

A socially accepted framework for valuing crypto assets is still undefined. I personally believe this is a feature, not a bug. It means the crypto market remains a true free market, allowing anyone to value assets based on how they believe the market will price them and enabling assets to optimize their building for specific types of market pricing.

Unlike traditional equities or commodities, crypto assets mostly exist in a category of their own, blending utility, monetary properties, and strong narrative-driven demand. This complexity leads to widespread mispricing and volatility, particularly for assets like Ethereum (ETH), which serve multiple roles within the ecosystem.

Ethereum is often misunderstood because market participants tend to focus on only one aspect of its value. Some view ETH as a mere fuel for the network’s infrastructure, while others attempt to classify it strictly as money. In reality, ETH’s valuation is multidimensional, as will be the case for many crypto assets in the future. Today, I explore three distinct but interconnected forms of value capture for a crypto asset: fundamental value, monetary value, and memetic value.

My aim is that by understanding these three dimensions together, we can optimize how and what we build to push the market toward a higher ETH valuation. One that captures both its current and future utility and, more importantly, its real potential as a monetary asset. In the sections ahead, we will explore each of these valuation components in detail and propose a more holistic approach to influencing the market pricing of ETH.

Fundamental Value: The Utility and Returns Layer

What is Fundamental Value?

At its core, fundamental value represents value accrual from real utility and operations. It is the direct economic benefit captured by an asset based on its use within a system, similar to how revenue-generating businesses and equity markets function.

For Ethereum, fundamental value is best understood through real economic value (REV) capture, which includes transaction fees and settlement demand.

While there are other fundamental value drivers for a multidimensional asset like Ethereum, such as users, wallets, developer activity, and the future network roadmap, we will focus on the REV capture side for now.

Infrastructure as the Driver of Fundamental Value

Fundamental value in Ethereum is driven by infrastructure. The more infrastructure, such as rollups, execution environments, dev tools, clients, and network upgrades, that relies on or improves Ethereum, the more utility and operational demand ETH captures. Although this relationship is not perfect, as scaling infrastructure without demand results in net lower REV due to market prices dropping for the utility of the infrastructure.

One of the core results of Ethereums infrastructure development is network security, arguably its most valuable export.

Security is achieved through the ability to run nodes, maintain decentralization, support diverse client implementations and economic security mechanisms like slashing with proof of stake. This enables censorship resistance, ensures uptime, and maintains overall network reliability.

All of these elements contribute to Ethereum’s fundamental value, as security itself is a product that other ecosystems depend on. If Ethereum’s security is an export, then it falls under its fundamental value, driven by its utility in safeguarding value, transactions, and operations.

The Limits of Fundamental Value

While fundamental value is critical, relying solely on it for market pricing and valuation is inherently limiting. Recently, Ethereum’s shift toward prioritizing fundamental value capture, through initiatives like scaling via L2s or exporting security through restaking, has not resulted in higher ETH prices. Instead, ETH has declined in value, exposing two key limitations of fundamental valuation:

1. Fundamentals have a natural ceiling – The market only values an asset’s fundamental utility up to a certain point, beyond which additional utility does not necessarily translate into higher market prices. The market tends to price in the ceiling of fundamental value early on, leaving fewer buyers as fundamentals grow.

2. It is highly measurable – Unlike speculative or monetary premiums, fundamental value is easy to quantify. Because it can be precisely calculated, it lacks the psychological and scarcity-driven effects that often drive outsized market appreciation. This keeps market pricing grounded in the raw fundamentals rather than speculative forces.

While fundamental value is essential for ETH’s baseline valuation, it alone does not explain or maximize ETH’s price potential. In the next sections, we will explore how monetary and memetic value play a critical role in ETH’s long-term appreciation.

Monetary Value: True "Internet Money"

The Spectrum of Monetary Value: How Assets Become Money

In the world of crypto, assets transition from pure utility tokens to true internet money. Strong Layer 1 cryptocurrencies like ETH exist at the far end of this spectrum, where they serve as the most pristine form of money within their respective ecosystems.

Crypto as a Commodity

In traditional markets, commodities are priced based on supply and demand more than fundamental value. Bitcoin has followed this path successfully, it is now predominantly valued as a scarce digital commodity, allowing it to trade at a much stronger valuation due to its positioning as a monetary asset rather than a utility-driven asset. BTC has far less REV capture and fundamental utility value than Ethereum, yet market pricing doesn't care, and it shouldn't.

Ironically, ETH is also a commodity, but market optics have focused too much on its fundamental value, leading to its pricing being more aligned with network utility rather than monetary demand.

Positioning ETH as a commodity asset leans further into its monetary value, which has historically led to stronger market pricing. Crypto being priced as a commodity means the sole focus is on the demand side because the supply side is extremely clear and doesn't change. How do we position ETH as a store of value and money? The answer is applications.

Applications Drive Monetary Demand

If infrastructure is the key driver of fundamental value, then applications are the primary driver of monetary value.

While applications also increase fundamental demand by enhancing Ethereum’s utility, their core role is different. Infrastructure (fundamental value) enables utility-driven demand for ETH, while applications (monetary value) create ongoing speculative demand for ETH.

Moreover, I view the main job of infrastructure as enabling and perpetuating applications. Infrastructure is not there to optimize for value accrual through REV capture, it is there to optimize for applications, which then drive value accrual through monetary demand. This relationship is one of the most misunderstood and least talked about dynamics in Ethereum.

Why do applications drive ETH’s monetary premium? Because they introduce a demand for ETH beyond its role as a network gas token. When users engage with an application, particularly decentralized finance applications on Ethereum, they often buy and hold ETH for reasons beyond transaction fees.

This results in significantly higher future speculative demand and market pressure than what fundamental REV alone would price into markets.

This was evident in every cycle, where the real reason ETH performed so well was due to the applications that drove significant ETH demand beyond gas fees, not because of fundamental network upgrades.

Users acquired ETH to stake for governance tokens, provide liquidity to earn fees, participate in token launches and offerings, buy/trade NFTs, use as collateral for loans and yield farming, potential airdrops, and most importantly, speculate on financial applications designed to generate returns.

In each case, ETH was purchased not just for utility, but as a monetary asset within these applications.

Yes, some of these applications are questionable in nature, potentially Ponzi-like, but the core point remains: monetary demand is far more significant than any fundamental demand.

Why Applications and Liquidity Drive ETH’s Monetary Premium

For ETH to reach its full monetary potential, we need to prioritize building applications that generate monetary demand for ETH.

Historically, this has been most evident in DeFi applications, where ETH serves as the primary trading pair, collateral, and liquidity provider.

Consider RWA tokenization, for example. The demand for ETH in this context is primarily transactional, used as a gas token to move and settle assets, essentially paying for Ethereum’s security (fundamental value). In contrast, applications like AAVE and Uniswap create monetary demand by locking up significant amounts of ETH in liquidity pools and as collateral. Even highly speculative, so-called "ponzi-like" apps like OHM contributed to ETH’s buy pressure by driving structured financial trades. This is the essence of finance where demand for ETH extends beyond utility into a true monetary asset.

Monetary premium is driven by applications that encourage users to hold ETH for speculative and financial purposes. DeFi protocols, trading platforms, and other financial primitives help ETH establish itself as true internet money, an asset that is not only used, but also desired and held for its economic features beyond basic transactions.

Memetic Value: The Bonus Multiplier

The Power of Memes in Crypto

I couldn’t write this article without talking about memes.

Memetic value is absolutely a real and powerful force in crypto. In the context of this article, I define memetic value as speculative, narrative-driven valuation, ideas like "ultra sound money," "triple point asset," or "call option on internet money" that shape market perception and influence investor behavior.

Many projects lean heavily into memetic value. They sell the dream and vision through an easy-to-understand meme, which allows investors to buy into the narrative and irrationally bid or hold assets at speculative valuations that cannot be justified by fundamentals alone.

Memes are also powerful tools for conveying an asset’s total addressable market (TAM) to investors, often allowing it to trade at valuations far beyond what it has actually captured. The best example is BTC’s "digital gold" narrative, which subconsciously anchors it to a $15T market, making a $3T BTC valuation seem like just the beginning. Similarly, the "MicroStrategy for ETH" narrative suggests the protocol ETH Strategy could attract $40B buy pressure on ETH.

Why Memetic Value Matters

While memetic value alone can hold strong over time, it is most powerful when combined with established fundamental and monetary value. It acts as the secret ingredient that removes valuation ceilings and fuels irrational bullishness. You can’t kill a dream backed by the real chance of realizing it.

BTC has achieved the ultimate memetic value. Its digital gold and scarcity narratives have created a mindset where supply is the primary focus, and demand is seen as "infinite." This positioning has helped BTC sustain high valuations and remove any perceived ceiling, despite the existence of real fundamental limitations that could be analyzed.

ETH has a similar, if not stronger, meme that should be pushed more aggressively. I invested in ETH over eight years ago because I saw it as a call option on all future internet value. This is what makes ETH attractive to buy at all valuations, not fundamentals like profit margins.

To truly unlock ETH’s full potential, we must embrace and amplify its memetic value, ensuring that a narrative like "the future money of the internet" becomes as deeply ingrained as BTC’s digital gold meme.

Fixing ETH’s Valuation: The Sweet Spot Between Gas Token and Meme

Why ETH Is Not Doomed

The main reason I started writing this article was the recent discourse on Twitter claiming that ETH is doomed. I wanted to present a more viable mental model, one that not only refutes this narrative but also shows why ETH is actually positioned for significant growth based on the path it is heading down.

I believe that, in general, crypto assets should aim to integrate all three forms of value, fundamental, monetary, and memetic to create a more complete valuation model. The projects that successfully balance these three elements will have the greatest ability to influence market pricing in their favor.

How the Market Currently Misprices ETH

Ironically, ETH seems to be the only major crypto asset that that has skewed almost entirely toward fundamental value. BTC, in contrast, has leaned completely into monetary value, positioning itself as digital gold. Meanwhile, most other crypto assets are priced almost entirely on memetic (speculative and future vision) value. If they were valued purely on fundamentals, they would have almost no revenue or users to justify their valuations.

ETH has real utility, revenue, and economic activity, yet the market has failed to price in its monetary and memetic potential. However, this recent push in fundamental scaling has given ETH the largest network effects and dependency effects through L2s, expanding its GDP and making it the most pristine, sovereign, permissionless, and censorship-resistant money across both existing and future networks.

Therefore, this mispricing is precisely where we should focus our efforts, building and innovating to capture that expanded GDP and position ETH as the defacto best future money of all networks.

The Path Forward: Pushing ETH Toward Monetary Value

For ETH to maximize its adoption and price appreciation, it needs to shift further toward monetary value. The vision to push is that ETH is an incredibly far-out-of-the-money call option on future internet money, one that the market cannot ever price properly.

This is a feature, not a bug. Optically positioning ETH as an out-of-the-money call option on the future money of the internet shifts it away from being purely a fundamental value play. This allows ETH to embrace memetic value, which removes valuation ceilings and strengthens its narrative.

The way to reinforce this vision and build toward it is by doubling down on DeFi applications that position ETH as money. ETH Strategy is an example that will bring a monetary bid to ethereum, allowing investors to take different trades using ETH as the engine for it all including farming its volatility and having downside protection. Every ETH that is bought for monetary and financial purposes within DeFi contributes more to price appreciation than any amount of fundamental revenue (gas utility) can.

By expanding ETH’s role as a monetary asset within financial applications, we shift the market perception away from pure fundamental utility token pricing and more toward a supply/demand mindset, like BTC, where the dominant narrative becomes: "There is only this much ETH left, and ETH is the best money." This shift unlocks the potential for far greater demand.

Conclusion

The key to ETH’s long-term valuation is recognizing the full spectrum of value (fundamental, monetary, and memetic) rather than being hyperfocused on infrastructure and fundamental value capture. While infrastructure is essential, the real opportunity lies in expanding ETH’s role within applications and positioning it as the foundation of digital finance.

For investors, builders, and the Ethereum ecosystem, this means shifting focus from ETH as just the token that receives real value capture on network activity towards ETH as true internet money. The path forward is to reshape the market narrative, moving away from concerns over value accrual and profit margins and toward a monetary thesis. The key here is that this requires doubling down and building applications that drive ETH’s demand as a financial asset, capturing its unique features, making it desirable to hold and use far beyond basic network fees or staking.

By reinforcing ETH’s monetary value through DeFi and financial applications and amplifying its demand, we can solidify the perception of ETH as the obvious call option on the future money of the entire internet. In hopes of influencing market pricing to a more supply/demand model, where the demand is now significantly increased.

I believe we are only beginning to unlock the full potential of ETH as a foundational financial asset. Its not going to be boomer permissioned tokenized US Dollars bro, its going to be this new thing that has infinite upside.

Clouted