From Deflation to Store of Value: Can Vitalik's Narrative Shift Save Ethereum's Market Cap?

On November 8, a remark by Ethereum co-founder Vitalik Buterin on X shook the ETH valuation consensus that the crypto market has carried for years.

He argued that, rather than anchoring ETH to the logic that "fee burns support its value," he prefers to position it as a store-of-value (SoV) asset. The statement amounts to a near-public correction of "Ultrasound Money," the most widely circulated ETH narrative of the past five years.

Ethereum is now experiencing a contradictory boom: the network handles ever more transactions and users pay ever less, yet the revenue Ethereum earns from each transaction and its fees — and thus the amount of ETH burned — keep shrinking.

Now that the gas-burn mechanism once regarded as the ballast of ETH's price can no longer hold, ETH, with a market cap of about $260 billion, urgently needs to find a new valuation anchor. Vitalik's answer is to pivot toward "store of value."

To Be a Store of Value, ETH First Has to Pass the "More Usage, More Buying" Test

A store of value is the new path Vitalik has charted for ETH.

ETH's old valuation logic was that users pay fees, the system burns ETH, and holders benefit indirectly from improved scarcity; the new logic is that Ethereum provides sufficiently secure, neutral and reliable financial infrastructure, making ETH an asset the whole ecosystem is willing to hold, stake and use over the long term.

Bitmine Chairman Tom Lee agrees, saying that ETH is not a "cash flow" token model like HYPE or LIT, but a pure and trusted collateral.

For example, users can hold ETH and stake tokens to the network for rewards, or use it as collateral in lending markets such as Aave to obtain liquidity. The staked assets involved can also enter other DeFi scenarios.

Put simply, ETH is not just an asset stored in a wallet; it can also serve as the base collateral underpinning financial activity.

The most direct demand comes from staking. Data from The Block shows that staking now accounts for 36.36% of ETH's circulating supply, up from 29.91% last year. A large share of tokens locked in validator nodes indicates that considerable supply is not held for short-term speculation but is performing network security functions.

However, the Ethereum ecosystem is facing a broken value transmission chain. Ethereum Institutional research notes that in the first ten months of this year, stablecoin transfers on the Ethereum mainnet totaled $25.8 trillion, up 61% year on year.

DeFiLlama data shows mainnet DeFi TVL at about $42 billion, stablecoin market cap above $135 billion, and RWA scale at $15 billion.

Every dimension indicates that Ethereum's value as financial infrastructure keeps consolidating. But infrastructure being used does not mean the native token will keep being bought. Take an institution issuing $1 billion of tokenized Treasuries on Ethereum: the collateral is real-world Treasuries, the yield comes from coupons, settlement is done in USDC, and the whole process requires only a small amount of ETH paid as gas for on-chain interactions. Even if the scale of assets Ethereum carries keeps growing, that does not necessarily translate into net buying demand for ETH.

This is the biggest test for the "ETH as store of value" thesis. A store of value is never attained by self-declaration; ETH needs to prove that it is indispensable base capital for on-chain financial activity, not merely "fuel" bought on demand only when the network is used.

ETH Value Diversion: Burns Down Over 90%, L2s Take the Lion's Share

Although ETH's narrative focus will shift to "store of value," gas-fee burning remains an important pillar of its valuation framework, and the broken value transmission chain has long been reflected in the cliff-like collapse of ETH burns.

Vitalik did the math: if a token can burn $1 billion of fees a year, at a 4% discount rate its theoretical present value is about $25 billion. But transaction fees are not a stable cash flow, and extrapolating future value by treating a peak as the norm does not withstand cyclical scrutiny.

Working backward from ETH's roughly $260 billion market cap, a 4% discount rate implies Ethereum would need to consistently burn $10.4 billion of fees every year to justify it. That figure has long been far removed from current reality.

In terms of burn volume, the system burned about 1.48 million ETH in 2022, whereas so far this year only about 13,000 ETH have been burned (about $27.3 million at market price), a plunge of over 99% in coin terms.

In fact, ETH returned from net deflation to net inflation as early as February last year, and the inflation rate has kept climbing. The deflationary promise of "ultrasound money" has long been broken.

The shift in Ethereum's value distribution is also a familiar problem. If the Ethereum ecosystem were a business, revenue at the base layer is continuously being diverted to L2s and the application layer.

DeFiLlama data shows that fees generated on Ethereum were already surpassed by the application layer on mainnet back in 2024. So far this year, mainnet has earned about $152 million in fees, while application-layer fees amount to $2.529 billion — a gap of more than 16 times.

Layer 2 is the most typical example of value diversion within the Ethereum ecosystem.

Take Base, the leader among L2s. It relies on Ethereum for base-layer settlement and security guarantees while having its own independent execution environment and user entry point. It charges end users transaction fees and then pays Ethereum for data publication and settlement costs; the spread in between is its on-chain gross profit.

growthepie data shows that over the past 30 days, the top three Ethereum L2s together generated about $5.71 million in on-chain profit, with Base alone contributing $2.49 million. Over the same period, they paid a combined total of only about $48,000 in settlement fees to Ethereum mainnet, and Base's share was just $18,500 — even lower than Robinhood Chain.

This means the vast majority of fee value stays on the L2s, does not flow to Ethereum mainnet, and therefore does not convert into returns for ETH holders.

The longer-term concern lies in the migration of brand and user mindshare. As more and more users complete all their on-chain operations through L2s such as Base and Arbitrum, barely touching Ethereum at all, the service and brand users perceive will increasingly belong to the L2s and front-end applications.

Scaling Opens New Scenarios, Lower Fees May Breed New Demand

Conversely, persistently falling fees are not necessarily a bad thing.

The deployment of scaling technology essentially lowers the unit cost of transactions. A transfer used to cost several dollars, leaving many high-frequency, small-value scenarios with almost no chance of being viable. When the cost drops to a few cents or even less, scenarios that previously lacked economic feasibility — high-frequency payments by AI agents, micropayments, automated strategies — finally have soil in which to grow.

However, whether such new demand can in future converge into a large enough transaction volume for economies of scale to offset the decline in per-unit fees remains to be verified by time.

Tom Lee also points out that ETH's shift to store of value will allow it to capture value in the upcoming tokenization and AI supercycle.

Today, the old path of relying on high gas fees to support burns and push up the coin price is hard to sustain, and Vitalik's statement looks more like proactive expectation management: rather than clinging to a deflationary narrative that is gradually losing force, it is better to acknowledge as early as possible that ETH's value proposition is migrating.

In the past, Ethereum needed to prove to the market that it could collect enough fees to support burns. In the future, what it needs to prove is that even as fees keep getting cheaper, ETH is still worth holding.

Join the official Coincamps community:

X: https://x.com/coincamps

Telegram: https://t.me/coin_camps