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Why Ethereum's network keeps growing and ETH hasn't followed
Ethereum is cheaper, faster and busier than it has ever been. ETH has not followed.
6 min watch · Investing & Strategy · Always free
Vitalik Buterin says nothing is wrong with Ethereum, and on the network side that holds up. Ethereum leads in stablecoins and tokenization, and a large ecosystem of Layer 2 networks has grown on top of it. ETH has not reflected any of it.
One explanation is that Ethereum got exactly what people asked for. Cheaper, faster, and busy on the Layer 2s rather than on Ethereum itself, which is where expensive transactions used to take ETH out of circulation. The question people keep asking, whether Ethereum needs saving, may be the wrong one. The more interesting question is whether the value the ecosystem creates can find its way back to the token.
Transcriptlightly edited
Ethereum has an interesting problem
Hi, I'm Viv, and welcome to my notebook. Here's something I've been thinking about.
Ethereum has an interesting problem. Its network is bigger, faster, and cheaper than it's ever been. It sits at the center of some of the biggest areas of growth in blockchain. And yet Ethereum's token hasn't necessarily reflected that success.
So can a blockchain network be hugely successful without that success translating into the value of its token? Let's look at what's happening with Ethereum, and why the success of the network hasn't necessarily translated into the value of ETH.
The network is doing what it was built to do
If you look at Ethereum today, its usability is arguably better than ever. It's cheaper and faster than it's been. It remains safe and secure, and the Ethereum Foundation has continued to develop it towards visions they had for many years.
In fact, Vitalik Buterin, one of the founders and main names behind Ethereum, has essentially said that nothing is wrong with Ethereum. They're building what they set out to build. Their focus is on continuing to make the protocol bigger, safer, cheaper, and more secure, with Ethereum increasingly able to behave as a settlement layer.
And when you look at the network itself, there's a lot to support that argument. Ethereum is a leader in stablecoins and tokenization, and has built a huge ecosystem around what are known as Layer 2 networks, networks built on top of Ethereum that help make transactions faster and cheaper. We now see Layer 2s like Optimism, Arbitrum, Base, and many more built on top of Ethereum. The ecosystem is being used across areas such as gaming, AI, payments, tokenization, and real world assets, with different Layer 2s developing strengths in particular areas.
So the network has grown substantially over the last number of years.
A victim of its own success
But here's the interesting part. That success hasn't necessarily paid dividends back to the Ethereum token. And why is that?
Well, to some extent, Ethereum has become a victim of its own success. If you go back to 2020, 2021, when Ethereum had a huge run-up in price, the network was extraordinarily busy and there was much less competition. There were huge numbers of transactions, and those transactions could be very expensive. That translated into significant buying back and burning of the Ethereum token. That was beneficial to the token.
But at the same time, everyone wanted Ethereum to become faster and cheaper. Well, we've got that. People wanted a bigger ecosystem. We got that too. The problem is that by making Ethereum cheaper and faster, and by moving so much activity into Layer 2s, the growth of the overall ecosystem doesn't necessarily translate directly into the greater value for ETH itself.
And I think that distinction is really important. You can have successful networks without automatically having a successful token.
The question worth asking instead
We've seen some of the biggest Ethereum evangelists question the investment case for ETH. We've seen people sell their Ethereum while continuing to believe that Ethereum's network itself is extremely important. Even people who have left the Ethereum Foundation have continued to build within the wider Ethereum ecosystem. And that tells you something.
The question isn't necessarily, is Ethereum working? The network appears to be doing much of what it was designed to do. The more interesting question is, how does the success of the Ethereum network translate back into the value of the Ethereum token?
What could send value back to ETH
I think there are a couple of things worth watching. The first is simply growth. As the Ethereum ecosystem gets busier and busier, I believe those revenues can grow, and over time, more of that value could make its way back to ETH.
While more and more activity can happen on these Layer 2 networks, it appears to me that Ethereum is positioning itself as the underlying settlement layer, the place where that activity can ultimately be secured and settled. And that could become increasingly important.
Think about what that could potentially move into blockchain infrastructure over the coming years. Things like stablecoins, bonds, property and real estate, tokenized real world assets, payments, and potentially many things we haven't even thought about yet. If a significant amount of that activity ultimately settles on Ethereum, then the network could grow by many multiples. And I believe that could eventually make its way back into increasing the value of ETH.
But there's another part to the story. Ethereum has always had people who were extremely good at explaining the vision and getting people excited about what's being built. I think ETH itself now needs stronger advocates who can explain why the token matters within this much larger ecosystem.
And this is where companies such as BitMine become interesting. BitMine has been accumulating a very significant position in Ethereum and has a stated ambition to own around 5% of the total ETH supply. That gives it a very obvious interest in the long-term value of the token. And because a large percentage of its Ethereum can be staked, it can potentially generate income from those holdings while continuing to build its position.
Ethereum and ETH are not the same thing
So when people ask whether Tom Lee and BitMine can save Ethereum, I'm not sure that's actually the right question, because I'm not convinced the Ethereum network needs saving. The network continues to grow, the ecosystem continues to develop, and its potential role as a settlement layer may become increasingly important as more of the financial world moves on chain.
The question I'm much more interested in is whether the value being created across the enormous ecosystem can increasingly find its way back to ETH. Because Ethereum, the network, and ETH, the token, are related, but they are not the same thing. And understanding that distinction may be one of the most important things to watch as Ethereum enters its next stage of development.
Thanks for spending a few minutes with me. I'd genuinely love to hear your thoughts, so if this notebook sparked something for you, leave a comment below and let's continue the conversation. And I'll see you on the next notebook.
Supporting notesdrawn from the transcript
The case for the network is straightforward. Ethereum is cheaper and faster than it has been, the Ethereum Foundation is building what it set out to build, and Vitalik Buterin's position is that nothing is wrong with it. Ethereum leads in stablecoins and tokenization, and Layer 2 networks like Optimism, Arbitrum and Base have grown a large ecosystem on top of it, reaching into gaming, AI, payments and real world assets.
The token is where the problem sits, and it comes down to Ethereum getting what everyone asked for. In 2020 and 2021 the network was busy and transactions were expensive, and that burned a meaningful amount of ETH. Making Ethereum cheap and fast, and moving activity onto the Layer 2s, cut that. What could change it is scale and settlement. If stablecoins, bonds, property and payments move on chain and settle on Ethereum, the network could grow by multiples and more of that value could reach the token. ETH also needs better advocates, and BitMine is the example, buying toward 5% of all ETH and able to stake what it holds. Whether Tom Lee and BitMine can save Ethereum is the question people ask, and the network doesn't appear to need saving. Ethereum the network and ETH the token are related without being the same thing, and that distinction is the thing to watch.
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The answer here to whether Ethereum needs saving is that it doesn't, and that the harder question is where the value ends up. If you hold ETH and have been sitting with some version of that question, or you sold it and kept believing in the network, the comments are the place for it. Those replies are where a lot of the next entries start.