Vitalik “Exposes” the Limits of Burn Efficacy as ETH’s Value Narrative Shifts
- Core Viewpoint: Vitalik argues that Ethereum should focus more on ETH’s store-of-value properties rather than overemphasizing fee burning; the burn mechanism provides limited support for valuation, and pursuing it excessively may also harm decentralization and capture resistance, while store of value better aligns with Ethereum’s strengths in security, privacy, and stability.
- Key Elements:
- The valuation logic of fee burning is based on net present value theory, but the large-scale burning from 2021 to 2023 mainly came from speculative demand within the crypto ecosystem, and revenue shrank in tandem when prices fell, so it has never formed a reliable valuation floor.
- If burning were relied upon to support a market cap of about $270 billion, Ethereum would need to operate like a large enterprise on the scale of L’Oréal, would require about 700,000 ETH per year in protocol funds to support R&D, and validator revenue would fall by about two-thirds.
- Pursuing fee burning means pursuing higher gas prices, which may shut out the users who most need privacy and security guarantees, conflicting with the network’s goal of broad accessibility.
- As a store-of-value asset, the most important metric is long-term survivability, which requires prudent responses to changes in quantum computing and AI; the core protocol is tending toward stability, with innovation shifting to the upper layers.
- There is synergy between store of value and application growth: the more abundant RWA and decentralized assets on L1 become, the more use cases there are for the utility and security exchange of holding ETH.
Original Author:Vitalik
Compiled by｜Odaily（@OdailyChina）；Translator｜Asher（@Asher_ 0210）
Last night, Vitalik posted on X stating that Ethereum should focus more on ETH's store-of-value property. Fee burning has limited capacity to support valuation, and over-pursuing burning could harm the network's decentralization and capture-resistance, whereas store of value better aligns with Ethereum's strengths in security, privacy, and stability. EIP-1559 and its burning mechanism should still be retained, but even if burn volume stays below 10% of new issuance over the long term, there is no need for disappointment—ETH's value has other sources.
Fee burning never provided a truly solid valuation floor
The valuation of fee-burning tokens is typically built on net present value theory, with a simplified formula: market cap ＝ annual value of fees burned ÷ discount rate. Suppose a token burns $1 billion worth of tokens per year and can sustain this steadily over the long term. If the discount rate is 4%, meaning people consider $1 billion today equivalent to $1.04 billion a year from now, then this asset should be valued at roughly $25 billion.
By this logic, $25 billion can constitute a natural valuation floor: when the price falls below this level, investors can buy the token and sell a portion each year, still maintaining their share of total supply while earning returns above the market benchmark.
Between 2021 and 2023, Ethereum removed large amounts of ETH through fee burning. But the problem is that this never constituted a truly reliable floor. At the time, most of the burning came from uses within the crypto ecosystem. If ETH's price fell to one-tenth of its level, the revenue generated by these uses would also decline, because participants would have less money to pay. This problem applies both to the NFT minting frenzies that once burned about $180 million in fees in a single day and to the more common lending activities. Only when revenue is backed by demand from outside the crypto market does a so-called valuation floor become more convincing.
As the real-world asset (RWA) economy grows, today's Ethereum is indeed better positioned to gain such external support. But mature, stable businesses are also unlikely to replicate the scenarios of massive single-day fee consumption seen during speculative manias.
What price might Ethereum pay for burning?
If it decides to rely on fee burning to justify ETH's current market cap of roughly $270 billion, Ethereum would effectively need to operate like a world-class large enterprise, roughly on the scale of L'Oréal. How do truly large companies sustain their position over the long term?
First, they need continuous investment. According to AI-generated estimates, L'Oréal's annual R&D spending is about 0.58% of its market cap. If Ethereum adopted the same ratio, the Ethereum Foundation's funds would soon be exhausted, so it might need about 700,000 ETH per year in protocol-level funding support, and validator revenue would drop by about two-thirds. And that is just R&D—the spending required for a company to stay competitive goes far beyond that.
Second, they need active governance. Facing technological and cultural changes, companies must make clear choices—which markets to enter, which products to develop, and how to meet the needs of new users. Following this path, Ethereum would need to maintain highly interventionist governance over the long term.
Continuously allocating large sums of money and strengthening governance both create political problems and make it harder for Ethereum to improve decentralization and capture-resistance. The funding and revenue figures above are estimates under this hypothesis.
Moreover, pursuing fee burning to some extent means pursuing higher gas prices. This could shut out some users, including those who most need privacy and security guarantees. Maximizing "price × usage" and enabling as many people as possible to use the network within safe resource limits are two different optimization goals.
As a store-of-value asset, the most important metric is survival
When I ask people what they value most about Ethereum, the most common answer is decentralization and CROPS, namely censorship resistance and capture resistance, open source, privacy, and security. These properties are also valuable to institutions. Individuals may view privacy as an abstract ideal, but for institutions, privacy involves practical needs such as risk management and data protection compliance, and the same goes for security and running one's own node. For ETH holders, the focus depends on the purpose of holding: if they want Ethereum to keep pace with financial trends and collect fees from them, they might expect a strong leader who constantly embraces new opportunities and adjusts the protocol; but if they hold ETH primarily to store value, the primary measure is whether the network can survive over the long term.
This means Ethereum needs to make prudent trade-offs on security and seriously address the changes brought by quantum computing and AI. Once the core protocol is complete, it should gradually stabilize, allowing more innovation to move to the upper layers, and set high barriers for new features that add protocol complexity and new reward mechanisms that could be captured by interest groups. Users should also be able to securely and privately custody their assets and be confident that transactions will not be blocked by block builders. Work such as multisig, privacy tools, privacy account abstraction, and FOCIL all serves these goals. Reducing dependence on infrastructure service providers is equally important: I can currently run a node on my laptop, with synchronization taking less than six hours and using about one-eighth of the hard drive space—better performance than in 2019.
Store of value and application growth also have strong synergies. The richer the RWA and decentralized assets natively issued on L1, the more things one can do by holding ETH: securely and trustlessly swapping for other assets, or using ETH as collateral to participate in more activities, both increase its utility as a holding. There are still trade-offs between these uses and decentralization—for example, shortening block times could bring centralization pressure—but the overall conflict is smaller than single-mindedly maximizing fees. From a social perspective, Ethereum's significance lies in giving more people and applications access to decentralization, privacy, and security guarantees; from a holder's perspective, ETH's store-of-value property derives precisely from these guarantees.
