Ethereum: Seeing In The Dark

Summary

• Ethereum is a transformational technology enabling trust-minimized coordination

• Adoption, developer engagement, and real-world applications continue to advance

• Ethereum is fairly valued with meaningful adoption-driven upside potential

[five minute read]

Introduction

Bitcoin’s use case can be summarized in two words:

Digital gold

Succinctly explaining Ethereum is more challenging, but let me try:

Programable trust

The creation of Bitcoin enabled independent actors to agree on a new form of money and to transact without the need for centralized clearing parties.

Ethereum leveraged this same breakthrough and applied it more broadly.

While Bitcoin is narrowly confined to money, Ethereum allows for trustless coordination across a wide number of use cases.

The Coordination-Power Paradox

In my recent article on Bitcoin, I defined the coordination-power paradox.

It’s worth repeating here.

The challenge with cooperation is that it requires centralization.

A centralized entity is needed to coordinate and govern cooperating parties, and centralization introduces opportunity for abuse.

Bitcoin’s creation in 2008 revealed a new way to coordinate power without centralization.

Ethereum leveraged this breakthrough in 2015, expanding the use case from money to a broad range of cooperative economic activity.

Use Cases

Let’s transition from theory to practice and examine a real world use case.

What steps are involved to purchase a share of Apple stock?

Current State:

• Numerous intermediaries required, including banks and brokers on both sides of the transaction, custodians, and settlement and clearing parties.

• Each intermediary extracts fees for their services while introducing counterparty risk, operational security risk, and potential for transaction censorship.

• Transactions can only occur during business hours when markets are open and take 1-2 days to settle.

• During these 1-2 days, multiple parties can lay claim to the same asset.

Future State:

• Shares of Apple stock can be tokenized on the Ethereum blockchain.

• Ethereum allows buyers and sellers to transact directly — 24-hours a day, 365 days a year — with near instant settlement, lower costs, and no centralized intermediaries.

This type of exchange is already happening at scale with digital assets. Tokenization of equities and other real world assets is rapidly underway.

Source: A16z State of Crypto 2025¹

Other Examples:

It’s not difficult to envision other examples:

• Programmable settlement layer for global finance — 24/7 settlement of payments, trades, and collateral across assets without centralized intermediaries.

• Global payments and remittances — near-instant, low-cost cross-border payments without correspondent banking.

• Governance — transparent, auditable voting for organizations and nation states.

Consensus

One important distinction between Bitcoin and Ethereum is how each protocol achieves agreement between independent parties.

Bitcoin uses proof of work (PoW) where electricity expenditure confirms the order and validity of transactions.

One valid criticism of PoW is its energy use.

Ethereum’s original design also used PoW consensus.

As cryptography advanced, Ethereum converted to proof of stake consensus in 2022.

Under proof of stake, Ethereum owners post ETH as collateral to confirm the authenticity and order of transactions.

The value of collateral posted must exceed the value of transactions confirmed, rendering an attack non-economic.

In exchange for posting collateral, ETH stakers are compensated with a roughly 3% variable annual yield — positive carry.

Proof of stake reduces the energy required to run the blockchain by over 99%.

Valuation

How should Ethereum be valued?

Activity on the Ethereum blockchain generates transaction fees that are either distributed to validators who secure the network or used to reduce the supply of ETH through token burns. Economically, this resembles a combination of dividends and share buybacks.

Over the past twelve months, Ethereum generated $513 million in transaction fees². The current $400B market cap implies the network is fairly valued on a static basis.

That framing, however, understates Ethereum’s growth potential.

The investment case does not require Ethereum to dominate every potential use case. Modest adoption across a few large markets—such as stablecoin settlement, tokenized assets, or cross-border payments—would materially increase transaction volumes and fees.

Ethereum also benefits from operating leverage — incremental adoption increases fee revenue without a proportional increase in costs.

The current valuation does not reflect the breadth of coordination problems Ethereum can solve if adoption continues to grow.

Activity

Transactions on the ethereum blockchain continue to grow steadily, supporting future fee revenue:

The majority of blockchain developer interest is on Ethereum as well, driving potential future use cases:

Note: Base, Polygon, Arbitrum, Optimism, and Hyperliquid in the chart above are all built on top of the Ethereum blockchain and drive fees to Ethereum.

Fat Protocol Thesis

In 2016, Joel Monegro of Placeholder VC articulated what became known as the Fat Protocol Thesis. The thesis contrasts how value accrued in traditional internet architecture versus public blockchains³.

In the internet era, protocols such as TCP/IP and HTTP enabled massive network effects but captured little economic value. Instead, value accrued primarily to applications built on top—companies like Google, Facebook, and Amazon—which extracted monopoly-like rents.

Public blockchains invert this model. Rather than value concentrating at the application layer, Monegro argued that value would accrue primarily to the shared protocol layer.

Ethereum exemplifies this dynamic. Applications can come and go, but the underlying rules governing settlement, execution, and coordination remain shared, open, and credibly neutral. Its value derives from the neutrality of its rules, and from the economic activity those rules enable.

Conclusion

Ethereum is priced for what it does today, not for what it can become.

If it remains a niche settlement layer, the valuation should hold around current levels.

If it becomes a programmable coordination layer for global finance, the valuation can expand meaningfully.

I’m betting on the latter.

1. https://a16zcrypto.com/posts/article/state-of-crypto-report-2025/

2. https://a16zcrypto.com/posts/article/state-of-crypto-report-2025/

3. https://www.usv.com/writing/2016/08/fat-protocols/?utm