ETH is doubly undervalued

Editor's Note: This article comes fromUnitimes（ID：Uni-times）Editor's Note: This article comes from

, by Ryan Sean Adams, founder of Bankless, translated by David, published with permission.

But Ethereum usage has reached an all-time high.

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Every transaction on the Ethereum network requires the use of Gas, including sending ETH, sending tokens, or storing funds on Compound. As a result, the daily gas consumption of the Ethereum network is at an all-time high, meaning the network is being used more than ever.

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So why hasn't the price of ETH reached a new all-time high?

• The thing to remember is that native assets are not the network itself. The demand for Ethereum block space is different from the demand for ETH assets. These are two different commodities:

• ETH asset: a scarce commodity currency with a current circulation of about 110 million pieces, issued by an algorithm executed by a smart contract;

Ethereum block: A scarce commodity with the most transaction settlement space produced by the Ethereum network, producing approximately 6,000 blocks per day. Calculated by gas, each block currently contains nearly 10 million gwei[1].

While Ethereum blocks do require gas to be paid in ETH (the same way U.S. taxes are paid in U.S. dollars), there are other, larger pressures other than the relatively small ETH demand pressure from block space requirements. Sources of demand for ETH (just as a large demand for USD is not primarily due to tax demand). This is why there is a difference between the two.

• In the past 30 days, the demand for Ethereum blocks[2] mainly came from:

• Tokens (e.g. USDT consumed $1.6 million worth of gas fees);

• DeFi (for example, dYdX, Kyber, IDEX, Uniswap, and 0x have consumed gas fees worth more than $500,000 in total)

Ponzi schemes (such as a Russian Ponzi scheme MMM consumed more than 500,000 USD worth of gas fees)

• In the past 30 days, the demand for ETH assets mainly came from:

• Speculation on using it as a store of value (e.g. buying and holding ETH as a non-sovereign currency)

• As collateral assets (e.g. using ETH as collateral for DAI)

• Liquid trading pairs (such as using ETH trading pairs in Uniswap)

• Medium of exchange (such as using ETH to buy GU game cards)

The ETH used to pay for gas costs is only worth about $200,000 per day.

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Having said that, there is a strong historical correlation between the price of ETH assets and the price of Ethereum blocks (i.e. block gas fees). Additionally, we appear to be in one of the few periods where block fees are rising faster than the price of ETH. See below:

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Above: The solid line represents the historical price trend of ETH; the light purple area represents the change trend of Ethereum block space fee. It can be seen that there is a high correlation between the two.

In the current period, if the correlation is to revert to the mean, either the price of ETH must rise, or blockspace fees must fall.

I expect high usage of the Ethereum network to drive up the price of ETH in the medium term. This is what has happened in history. This is how the ETH value and scarcity mechanism is designed, that is, the utility of the Ethereum network drives the growth of ETH value.

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But that's only half the story.

I expect ETH demand to grow not only to catch up to Ethereum blockspace demand, but to surpass it as ETH becomes a recognized store-of-value asset in the coming years.

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Above: Historical price of BTC (red line) vs. Bitcoin block space fees (red area).

We have witnessed Bitcoin already taking this path (see chart above). In the past 5 years, the story of Bitcoin [3] has changed from a peer-to-peer utility payment network to a value store network of BTC reserve assets. You can see this in the premium of BTC price over blockspace fees in the chart above.

We haven't seen the same shift in Ethereum yet, but I believe it's on its way - ETH is already seen as a commodity and economic bandwidth, ETH is locked in DeFi, ETH staking (staking) mechanisms will kick in, And the issuance policy of ETH is solidified.

Do you feel the shock of this change?

Today’s narrative is Ethereum as a utility network; tomorrow’s narrative will be Ethereum as a utility network and ETH as a non-sovereign store of value. See below:

People who think this can't happen make me think of those JPMorgan CEOs who said Bitcoin was a scam (btw, the guy who said that is now banking for Coinbase)

If I'm right, then that means ETH is doubly undervalued.

First, ETH is undervalued as a utility network.

Second, ETH is undervalued as a non-sovereign store of value.