One of the most interesting debates regarding the valuation of Ethereum concerns the criteria by which the rewards given to validators should be considered. There are fundamentally two ways we can consider the rewards.

• Expenses: The most widespread would be to consider it as a cost within the project's accounting

• Dividends: The second approach would be to consider it a dividend to shareholders.

There are solid arguments to support both criteria, although the discussion is really relevant because we are faced with a situation that is not usual in the traditional corporate environment.

In this infographic from Token Terminal on the valuation of Ethereum, we find the first accounting interpretation of this financial flow, considering it an expense. Following this criterion, Ethereum would have fundamentally entered into profits starting from 2023

However, I should mention that I believe there are stronger arguments for considering it a dividend, and I will try to outline them.

Ethereum needs to outsource the maintenance of its network externally. This involves having a series of providers to whom it pays to perform the necessary operations to offer smart contract services that are massively used.

In a traditional corporate environment, this hiring should be done with suppliers who offer the best service at the lowest possible cost. Due to its need for resilience and decentralization, it forces the company to try to have an additional criterion, which is to maximize the possible number of suppliers. This certainly creates a tension between what should be prioritized: cost or maximum decentralization, which the foundation always resolves by focusing on decentralization. This does not generate an optimal process in terms of costs.

This could be part of the explanation for why Ethereum currently allows its suppliers to have an extremely high margin, which can reach up to 90%.

However, considering this initial approach, the first thing that is certainly surprising is not addressing this situation. Perhaps this is one of the reasons why there is recent discussion about the protocol’s issuance. The rational approach would be to establish a mechanism for making this expenditure that could put providers in competition to select the most efficient ones.

However, there is a significant condition for being a supplier that supports considering another approach. Suppliers must necessarily be shareholders of the company and hold a substantial amount of capital (32 ethereums, which would be around 100,000 dollars currently).

In such a way, if a company really wants to be a provider for Ethereum, the main cost to qualify for providing this service is the capital cost associated with holding shares of this corporation, along with its respective volatility. This significant investment means that the profit from carrying out the activity does not weigh as heavily in the final outcome of this activity.

In this sense, the company would be much more impacted by its exposure as an investor than by its profitability associated with providing the technology service.

As a supplier, it would have a cost that could be around 300 dollars, and the profit it would obtain would not be fixed, since it is actually 3% of the capital invested in the company and that must be left as a guarantee of the correct execution of its activity.

Certainly, this is an unusual scenario for a technology provider, and its profits would primarily be correlated with the evolution of the company rather than with a fixed contract defined by performing its professional service. This explains Ethereum's difficulty in being able to carry out this contracting in an efficient manner.

However, if we take the second approach, the exercise is less strange. Ultimately, this reward would be an incentive received as a shareholder of the company. Nevertheless, the condition of having to provide a professional service in order to get paid as a shareholder is a peculiar situation. The closest analogy we could use would be attendance premiums at the general shareholders' meeting.

Attendance premiums at meetings are the amounts paid by the company to its shareholders as a gratification for attending the General or Extraordinary Meetings of the company.

Assuming that the expense of attending a shareholders' meeting could be around 500 euros, covering travel and accommodation. This would in some way be the service that the shareholder is providing to the company, understanding that their attendance is critical for its operation.

The situation that we should consider unusual in this case is that the company has decided to only distribute dividends to those shareholders who attend the meeting. In this case, we wouldn’t be talking about a premium, but about the entire amount of the dividend. Something that would clearly be very unusual in a traditional corporation.

In the case of Ethereum, attending the meeting would actually involve setting up that server to maintain the network

Being two unheard-of situations in the traditional corporate world, in my view, the second is more solid because it better reflects the relationship of the validator with Ethereum, given that, in my opinion, their exposure is more significant as shareholders than as providers.

Depending on how we consider this financial fact, the valuations of the company change radically. In the second case, practically all of Ethereum's income would be profit, distributed among different types of shareholders, with the most involved shareholders receiving a higher return