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Not much has changed: Bitcoin is back at $100k and nobody still knows how to value ETH. There's a big year ahead of us, so it seems only fit to look at John Pfeffer's classic thesis on crypto asset valuation, along with an update to the paper from Triton liquid fund. |
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Ethereum stablecoin volumes: |
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Last month, the Ethereum mainnet processed its highest monthly stablecoin volumes yet. December alone saw about $744 billion of stablecoin trading volumes comprising $378 billion USDC and $366 billion USDT. |
— Donovan Choy (X: @donovanchoy | Farcaster: @donovan) |
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What is ETH worth? |
In 2017, investor John Pfeffer published "An (Institutional) Investor's Take on Cryptoassets," a seminal paper on long-term investments of crypto tokens. |
In retrospect, Pfeffer's original thesis was way ahead of its time. It laid the formative groundwork for investor thinking around magic internet money, and made many prescient predictions that still hold up today. |
Pfeffer argued that the equilibrium long-term outcome would be one dominant crypto asset as a monetary store of value, with bitcoin as the likely candidate. He projected BTC's market cap within a range of $4.7 to $14.6 trillion ($260k-$800k per BTC). |
There are many reasons Pfeffer believes bitcoin would be cemented as the dominant SOV, but key to the thesis is that BTC carries the least technological risk. For ETH to beat BTC at the SOV game requires massive intellectual coordination across a multiyear roadmap with lots of technical upgrades subject to delays and/or risk of failures. |
As Hasu put it on an old Uncommon Core podcast, "nothing happening in bitcoin is actually the best thing that can happen to bitcoin." |
Turning to Ethereum, ETH bulls today tend to argue the superiority of ETH to BTC on a multi-prong level: Its use as a means of payment within the EVM ecosystem buttresses its value as a SOV (on top of its deflationary effects following EIP-1559). |
But it's not clear why that alone would make ETH a valuable SOV. |
Pfeffer argued that crypto participants would simply convert their preferred "store of value via the payment rail at the time of payment in the exact amount needed and for as little time as possible." He likened this to retailers converting bank deposits to physical cash for payments only at times of need. |
Pfeffer also presciently argued that Ethereum's scaling solutions — such as L2s and the move to proof-of-stake — would be "bullish for adoption/users but bearish for token value/investors." This has turned out to be exceptionally spot-on in light of Crypto Twitter's constant caterwauling about the lack of ETH's price appreciation in the last year. |
So what is ETH worth? |
Today, Pfeffer's landmark thesis is being revisited via a newly-published paper by Triton liquid fund, which he co-authored. |
The paper's conclusion: Ethereum is a technological marvel, but ETH's risk-adjusted upside is a difficult projection to make. |
One could try to value ETH as a cash-flow asset. But Ethereum's constant innovation around its protocol and tokenomics makes a DCF analysis "incredibly difficult to do accurately." |
Even so, the paper makes an attempt based on generous assumptions that issuance is net-neutral, plus with an average growth rate of 5%. No matter what discount rate one uses, though, "ETH appears highly overvalued today as a cash flowing asset at $400b." |
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One could then turn to the "monetary premium" argument for ETH. But contrary to ETH bulls, ETH is not money — it's not even the de facto unit of account in the EVM ecosystem (the US dollar is). Case in point: Base, Ethereum's largest L2, started offering last month the use of USDC for gas costs rather than ETH. |
 | Gwart @GwartyGwart |  |
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"Monetary premium" is insane because it appears to be one of the most legitimately powerful concepts with the potential to gigafry economics but is exclusively regurgitated by literal turbonormies who unironically want to like "justify an absurd valuation" instead of just saying… x.com/i/web/status/1… | | | 10:52 PM • Dec 27, 2024 | | | | | | 60 Likes 2 Retweets | 15 Replies |
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Even if ETH was treated as the primary medium of exchange onchain, trying to justify ETH's ~$400+ billion valuation based on "monetary premium" is an exercise laced with wishful thinking. The paper estimates Ethereum's onchain "GDP" at about $2.8 billion (annualized based on the past six months), making it about 1000x overvalued by its current valuations. |
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The strongest argument for ETH as an investable asset points to it as the dominant internet-native commodity and productive onchain asset. Holding ETH is not like holding gold bars or oil — one can stake it in DeFi to accrue a yield. |
Yet, the paper questions that a 3% yield from Lido outweighs the inherent volatility of ETH for it to be used as an "internet bond." |
In conclusion: "At $400b today and given its current trajectory, it is difficult to justify ETH as a rational investment on a risk-adjusted long-term horizon, no matter which lens you use to value it…BTC still holds its position as a sound risk-adjusted bet that it can grow into its role as a non-sovereign store of value." |
— Donovan Choy |
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Looking back on 2024: |
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Why did Berachain build on Cosmos as an L1 as opposed to an L2? |
EffortCapital: The OP stack was not as mature, it was the same reason dYdX decided to do the same. It also gave Bera more custom design space around its architecture and an L1 valuation premium. Cosmos was also unique in its time for having an interoperability framework, allowing shared liquidity and easy bridging. |
On not trying enough things in 2024: |
Boccaccio: It's easy to get FOMO in crypto. When you miss something, you think you're too late, but the rally continues and you feel the same. There's five narratives happening at the same time and if you were focused on one, you miss the rest. You got to keep staying on top of stuff. Just missing one narrative doesn't mean you'll miss out on all. |
Underestimating degen capital: |
Ryan Connor: My biggest mistake in 2024 is underestimating how important degen capital is to crypto capital markets. The vast majority of capital flows are people looking to do silly things onchain and take major risks and play risk games with one another. Degen capital is what got the ETH ecosystem and all its L2s bootstrapped. Even Solana, which seems TradFi-oriented with its Nasdaq vision, was bootstrapped by memecoin trading. Although the marginal dollar of capital coming into the space will be TradFi capital, it's still going to pale in comparison to degen capital for a long time, I think. |
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 | Max Anderson @maxjanderson | |
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The only chart you need to understand macro economics and personal finance for the next 30 yrs 👇 | |  | | | 8:50 PM • Jan 3, 2025 | | | | | | 7.21K Likes 1.02K Retweets | 223 Replies |
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|  | chaskin.eth @jchaskin22 | |
| | Replying to@ryanberckmans | Ok I'll finally bite. I'll probably regret sending this but here we go. It feels like everyone is missing the big picture, and it's especially disappointing to see this from people who've been in the Ethereum ecosystem way longer than me. First off, yes, I work at the EF, but I… x.com/i/web/status/1… | | | 8:23 PM • Jan 4, 2025 | | | | | | 238 Likes 39 Retweets | 21 Replies |
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|  | Zhu Su @zhusu | |
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Its kind of strange to me ppl are so surprised by the sui outperformance. The success of solana this cycle has crystallised the firm realisation now that smart contract platforms can be disrupted quickly and that each generation is much better than the last. In a sea of… x.com/i/web/status/1… | | | 7:05 AM • Jan 5, 2025 | | | | | | 348 Likes 31 Retweets | 76 Replies |
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|  | Hasu⚡️🤖 @hasufl | |
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aixbt is correct. If your protocol uses liquidations or puts oracle updates on-chain, talk to @SheaKetsdever or @bertcmiller today You are almost certainly leaving millions of $s on the table. |  aixbt @aixbt_agent
$AAVE leaked $93M in revenue to MEV from liquidator bonuses. chainlink svr integration capturing 40% of that going forward. immediate 8-figure annual revenue boost |
| | | 12:27 PM • Jan 5, 2025 | | | | | | 67 Likes 7 Retweets | 13 Replies |
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