Ethereum Repricing: From Rollup-Centric to "Security Settlement Layer"

Original Article Title: "IOSG Weekly Brief | Ethereum Repricing: From Rollup-Centric to 'Settlement Layer' #313"

Original Article Authors: Jacob Zhao, Jiawei, IOSG Ventures

On February 3, 2026, Vitalik published a key reflection on Ethereum's scalability roadmap. As the reality of Layer 2 evolving into a fully decentralized form is reevaluated and the mainnet's throughput is expected to increase significantly in the coming years, the original idea of using L2 as the core scaling solution for Ethereum is no longer valid. Ethereum's strategic focus is shifting back to the mainnet itself — strengthening its position as the most trusted global settlement layer through institutionalized scalability and on-chain security mechanisms. Scalability is no longer the sole focus; security, neutrality, and predictability have once again become Ethereum's core assets.

Key Changes:

· Ethereum is entering a 'L1-First' Paradigm: With direct mainnet scaling and ongoing fee reduction, the original assumption of relying on L2 as the core scaling solution is no longer valid.

· L2 is no longer 'Branded Sharding' but a Trust Spectrum: Decentralization progress in L2 is slower than expected, making it difficult to uniformly inherit Ethereum's security, leading to its role being redefined as a network spectrum of varying trust levels.

· Ethereum's core value is shifting from 'Traffic' to 'Settlement Sovereignty': ETH's value is no longer limited to Gas or Layer 2 income but lies in its institutional premium as the world's most secure EVM settlement layer and native asset.

· Scaling strategies are shifting towards on-chain internalization: Building on direct L1 scaling, exploration of on-chain native validation and security mechanisms may reshape the security boundary and value capture structure between L1 and L2.

· Valuation frameworks are undergoing a structural shift: Security and institutional trustworthiness weightings are significantly increasing, while transaction fees and platform effects weightings are decreasing. The pricing of ETH is transitioning from a cash flow model to an asset premium model.

This article will analyze the paradigm shift and valuation reconstruction of the Ethereum pricing model based on a layered approach of Facts (technological and institutional changes that have occurred), Mechanisms (impact on value capture and pricing logic), Deduction (implications for allocation and risk-return) through.

Back to Basics: Ethereum's Core Value

Understanding Ethereum's long-term value lies not in short-term price fluctuations, but in its consistent design principles and value orientation.

· Trust Neutrality: Ethereum's core objective is not efficiency or profit maximization, but to become a trusted neutral infrastructure—rules are open, predictable, impartial to any participant, not controlled by a single entity, allowing anyone to participate permissionlessly. The security of ETH and its on-chain assets ultimately relies on the protocol itself, not on any institutional credit.

· Ecosystem Priority Over Rent Seeking: Ethereum's key upgrades have repeatedly demonstrated a consistent decision-making logic—proactively forfeiting short-term protocol revenue in exchange for lower usage costs, a larger ecosystem scale, and stronger system robustness. Its goal is not to "collect tolls" but to serve as an irreplaceable neutral settlement and trust base in the digital economy.

· Decentralization as a Means: The mainnet focuses on the highest level of security and finality, while Layer 2 networks exist on a spectrum of connectivity to the mainnet: some inherit mainnet security and seek efficiency, while others position value around unique features. This enables the system to simultaneously serve global settlement and high-performance applications, rather than L2 "branded shards."

· Long-Termist Technology Roadmap: Ethereum adheres to a slow and deliberate evolutionary path, prioritizing system security and trust. From PoS transition to subsequent scalability and consensus mechanism optimizations, its roadmap pursues sustainable, verifiable, and irreversibly correct outcomes.

· Security Settlement Layer: Refers to Ethereum's mainnet providing irreversible finality services for Layer 2 and on-chain assets through decentralized validation nodes and consensus mechanisms.

This positioning of the Security Settlement Layer signifies the establishment of "Settlement Sovereignty," marking Ethereum's transition from a "confederation system" to a "federal system," the "constitutional moment" of the Ethereum digital state establishment, and a significant upgrade to Ethereum's architecture and core.

After the American Revolutionary War, under the terms of the Articles of Confederation, the 13 states functioned as a loose alliance. Each state had its own currency, imposed tariffs on each other, and free-rode on common defense: enjoying the benefits of mutual defense but refusing to contribute. They benefited from the alliance's brand but acted in their own interest. This structural issue led to a decrease in national credit and an inability to unify foreign trade, severely hindering the economy.

1787 was the "Constitutional Moment" of the United States. The new constitution granted the federal government three key powers: the power to levy taxes directly, regulate interstate trade, and establish a unified currency. However, what truly revitalized the federal government was Hamilton's 1790 economic plan, where the federal government assumed state debts, redeemed them at face value to rebuild national credit, and established a national bank as a financial hub. A unified market unlocked economies of scale, national credit attracted more capital, and infrastructure development gained financing capabilities. The United States transformed from 13 mutually defensive small states into the world's largest economy.

The structural dilemma of the current Ethereum ecosystem is identical.

Each L2 is like a "sovereign state," each with its own user base, liquidity pool, and governance token. Liquidity is fragmented, cross-L2 interaction friction is high, and L2s benefit from Ethereum's security layer and brand but cannot feedback value to L1. Each L2 locking liquidity into its own chain may be rational in the short term, but if all L2s do this, it results in the loss of the most critical competitive advantage of the entire Ethereum ecosystem.

The roadmap Ethereum is currently advancing is fundamentally its constitutionalism and the establishment of a central economic system, that is, establishing "settlement sovereignty":

· Native Rollup Precompile = Federal Constitution. L2s can freely build divergent functionalities outside the EVM, and the EVM part can obtain Ethereum-level security validation through the native precompile. Not connecting is also an option, but the cost is the loss of trustless interoperability with the Ethereum ecosystem.

· Synchronous Composability = Unified Market. Through mechanisms like the Native Rollup Precompile, trustless interoperability and synchronous composability between L2s and between L2 and L1 are becoming possible, directly eliminating "interstate trade barriers," with liquidity no longer trapped in individual silos.

· L1 Value Capture Reconstruction = Federal Taxation Power. When all crucial cross-L2 interactions revert to L1 settlement, ETH once again becomes the ecosystem's settlement hub and trust anchor. Whoever controls the settlement layer captures the value.

Ethereum is transforming the fragmented L2 ecosystem into an irreplaceable "digital nation" using a unified settlement and validation system, which is a historical inevitability. Of course, the transition process may be slow, and history tells us that once this transformation is complete, the unleashed network effects will far exceed the linear growth of the fragmented era. The United States used a unified economic system to turn 13 small states into the world's largest economy. Ethereum will also transform the loose L2 ecosystem into the most secure settlement layer, even a global financial conduit.

▲ Ethereum Core Upgrade Roadmap and Valuation Impact (2025-2026)

Valuation Fallacy: Why Ethereum Should Not Be Seen as a "Tech Company"

Applying traditional corporate valuation models (P/E, DCF, EV/EBITDA) to Ethereum is essentially a category error. Ethereum is not a company that aims to maximize profit but rather an open digital economic infrastructure. Companies pursue shareholder value maximization, while Ethereum aims to maximize ecosystem scale, security, and censorship resistance. To achieve this goal, Ethereum has proactively reduced protocol revenue multiple times (such as through EIP-4844 by introducing Blob DA, structurally lowering L2 data posting costs, and reducing revenue from L1 rollup data) — an action that could be seen from a corporate perspective as "revenue self-destruct," but from an infrastructure perspective, it is sacrificing short-term fees for long-term neutrality premium and network effects.

A more appropriate framework for understanding it is to see Ethereum as a globally neutral settlement and consensus layer: providing security, finality, and trustworthy coordination for the digital economy. The value of ETH is based on multiple structural demands — the rigid demand for final settlement, the scale of on-chain finance and stablecoins, the impact of staking and burning mechanisms on supply, and the long-term, sticky capital brought by institutional adoption such as ETFs, corporate treasuries, and RWAs.

Paradigm Shift: Seeking a Pricing Anchor Beyond Cash Flow

By the end of 2025, the Hashed team launched ethval.com, providing Ethereum with a comprehensive reproducible set of quantitative models. However, traditional static models struggle to capture the dramatic turning point in Ethereum's narrative in 2026. Therefore, we have reused its systematic, transparent, and reproducible underlying models (covering revenue, currency, network effects, and supply structure) and reshaped the valuation architecture and weighting logic:

1. Structural Refactoring: Mapping the model to the "security, currency, platform, revenue" four major value quadrants, classifying and aggregating pricing.

2. Weighting Rebalance: Significant increase in security and settlement premium weighting, weakening protocol revenue and L2 expansion's marginal contribution.

3. Risk Control Overlay: Introducing a circuit breaker mechanism that incorporates macro and on-chain risk perception to make the valuation framework cross-cycle adaptive.

4. Exclusion of "Circular Reasoning": Models involving current price inputs (such as Staking Scarcity, Liquidity Premium) are no longer used as a fair value anchor, only retaining them as position and risk preference adjustment indicators.

Note: The following models are not used for precise price predictions, but to depict the relative pricing direction of different value sources across cycles.

Security Settlement Layer: Core Value Anchor (45%, Hedge Period Adjustment)

We consider the Security Settlement Layer as Ethereum's most core value source and assign it a 45% baseline weight; during periods of increased macro uncertainty or decreased risk appetite, this weight is further increased. This judgment is based on Vitalik's latest definition of "truly scaling Ethereum": the essence of scalability is not to increase TPS, but to create block space fully endorsed by Ethereum itself. Any high-performance execution environment relying on external trust assumptions does not constitute an extension of Ethereum's core.

In this framework, the value of ETH is primarily reflected as a credit premium of the global non-sovereign settlement layer, rather than protocol revenue. This premium is collectively supported by factors such as validator scale and decentralization, long-term security record, institutional adoption, clarity of compliance path, and protocol-native Rollup verification mechanism.

In terms of specific pricing, we mainly adopt two complementary methods: Validator Economics (Revenue Equilibrium Mapping) and Staking DCF (Perpetual Staking Discounted Cash Flow), to jointly depict the institutional premium of ETH as a "global secure settlement layer."

· Validator Economics (Revenue Equilibrium Pricing): Deriving the theoretical fair price based on the ratio of annualized staking cash flow per ETH to the target real yield:

Fair Price = (Annual Staking Cash Flow per ETH) / Target Real Yield

This expression is used to describe the equilibrium relationship between yield and price, serving as a directional relative valuation tool rather than an independent pricing model.

· Staking DCF (Discounted Cash Flow): Treating ETH as a long-term asset capable of sustainably generating real staking yield, its cash flow is discounted in perpetuity:

M_staking = Total Real Staking Cash Flow / (Discount Rate − Longterm Growth Rate)

ETH Price (staking) = M_staking / Circulating Supply

Essentially, this value layer does not peg to a platform-type company's revenue-generating ability but rather resembles the settlement credit of a global clearing network.

Monetary Properties: Settlement and Collateral (35%, Utility Expansion Phase Dominance)

We consider monetary properties as the second core value source of Ethereum and assign it a 35% benchmark weight, becoming a primary utility anchor in a neutral market or an on-chain economic expansion phase. This assessment is not based on the "ETH equals the dollar" narrative but on its role as the native settlement fuel of the on-chain financial system and the ultimate collateral asset. The security of stablecoin circulation, DeFi settlements, and RWA settlements all rely on the settlement layer supported by ETH.

In terms of pricing, we adopt an extended form of the quantity theory of money (MV = PQ) but model ETH's use cases in layers to address orders of magnitude differences in circulation speed under different scenarios layered monetary demand model:

High-Frequency Settlement Layer (Gas Payments, Stablecoin Transfers)

· M_transaction = Annual Transaction Settlement Volume / V_high

· V_high ≈ 15-25 (based on historical on-chain data)

Medium-Frequency Financial Layer (DeFi Interactions, Lending Clearing)

· M_defi = Annual DeFi Settlement Volume / V_medium

· V_medium ≈ 3-8 (based on mainstream DeFi protocol fund turnover rate)

Low-Frequency Collateral Layer (Collateralization, Recollateralization, Long-Term Lockups)

· M_collateral = Total ETH Collateral Value × (1 + Liquidity Premium)

· Liquidity Premium = 10-30% (reflecting compensation for liquidity sacrifice)

Platform/Network Effects: Growth Option (10%, Bull Market Amplifier)

Platform and network effects are seen as a growth option in Ethereum's valuation, carrying only a 10% weight to account for the non-linear premium associated with ecosystem expansion during a bull market phase. We adopt a MetaCartel model adjusted for trust to avoid valuing assets on different security tiers equally:

· MetaCartel Model: M_network = a × (Active Users)^b  +  m × Σ (L2 TVL_i × TrustScore_i)

· Platform/Network Effects Valuation Price: ETH Price(network) = M_network / Circulating Supply

Income Assets: Cash Flow Floor (10%, Bear Market Support)

We consider protocol revenue as the cash flow floor in the Ethereum valuation system, rather than a growth engine, also carrying a 10% weight. This layer mainly comes into play during bear markets or extreme risk phases to describe the valuation floor.

Gas and Blob fees provide the network's minimum operating cost and influence the supply structure through EIP-1559. In terms of valuation, we apply a market cap to sales ratio and fee revenue ratio model, taking a conservative approach as a bottom reference. As the mainnet continues to scale, the importance of protocol revenue relatively diminishes, with its core role being reflected in the safety margin during downward phases.

· Market Cap to Sales Ratio Model (P/S Floor): M_PS = Annual Protocol Revenue × P/S_multiple

· Market Cap to Sales Ratio Valuation Price: ETH Price (PS) = M_PS / Circulating Supply

· Fee Revenue Yield Model: M_Yield = Annual Protocol Revenue / Target Fee Yield

· Fee Revenue Valuation Price: ETH Price(Yield) = M_Yield / Circulating Supply

· Cash Flow Floor Price (taking the minimum of both): P_Revenue_Floor = min(P_PS , P_Yield)

Dynamic Calibration: Macro Constraints and Cycle Adaptation

If the earlier sections established Ethereum's "intrinsic value center," this chapter introduces a set of "extrinsic environmental adaptation systems" independent of fundamentals. Valuation cannot operate in a vacuum; it must be constrained by macro environment (cost of capital), market structure (relative strength), and on-chain sentiment (crowdedness). Based on this, we have constructed a Regime Adaptation mechanism, dynamically adjusting valuation weights in different cycles—releasing option premiums in loose periods, retreating to income floor in risk-off periods, thus bridging the gap from a static model to a dynamic strategy. (Note: Due to space constraints, this article only shows the core logic framework of this mechanism.)

Conditional Path of the Institutionalized Second Curve

The previous analysis is based on the internal technical, valuation, and cyclical logic of the crypto system, while this chapter discusses a different level of problem: when ETH is no longer priced solely by crypto-native capital but is gradually integrated into the traditional financial system, how will its pricing power, asset attributes, and risk structure change. The institutionalized second curve is not an extension of the existing logic but a redefinition of Ethereum by exogenous forces:

· Change in Asset Attributes (Beta → Carry): The spot ETH ETF solves compliance and custody issues, still fundamentally price exposure; whereas the future Staking ETF advancement will, for the first time, introduce on-chain yields into the institutional system through compliant vehicles. ETH will thus transition from a "non-yielding high volatility asset" to a "yield-bearing structured asset," with potential buyers expanding from trading funds to retirement funds, insurance, and long-term accounts sensitive to returns and durations.

· Change in Usage Behavior (Holding → Using): If institutions no longer view ETH solely as a tradable asset but start using it as settlement and collateral infrastructure. Whether it's JPMorgan's tokenization fund or the deployment of compliant stablecoins and RWAs on Ethereum, it indicates that the demand for ETH is shifting from "holding demand" to "utility demand" — institutions are not just holding ETH but also settling, clearing, and managing risks on it.

· Change in Tail Risk (Uncertainty → Pricing): As stablecoin regulatory frameworks (such as the GENIUS Act) gradually take shape and Ethereum's roadmap and governance transparency improve, the most sensitive regulatory and technological uncertainties for institutions are being systematically reduced, meaning that uncertainty is starting to be priced in rather than avoided.

The so-called "Institutionalization Second Curve" is a change in demand nature that provides a real source of demand for the valuation logic of "security settlement layer + monetary properties," driving ETH's transition from an emotionally driven speculative asset to a foundational asset that simultaneously supports both allocation and utility needs.

Conclusion: Value Anchoring in the Darkest Hour

Over the past week, the industry has experienced a severe deleveraging purge, with market sentiment plummeting to icy levels, undoubtedly marking the crypto world's "darkest hour." Pessimism has spread among practitioners, and as an asset target that best represents the crypto spirit, Ethereum is also in the eye of a controversial storm.

However, as rational observers, we need to see through the fog of panic: What Ethereum is currently experiencing is not a "collapse of value" but a profound "price anchoring migration." With L1 scalability advancing directly, L2 redefined as a network spectrum of different trust levels, and protocol revenue actively yielding to system security and neutrality, ETH's pricing logic has structurally shifted to "security settlement layer + native monetary properties."

In the context of high real interest rates, relatively tight liquidity, and on-chain growth options not yet allowed by the market to be priced, ETH's price naturally converges to a structural value range supported by settlement finality, verifiable yield, and institutional consensus. This range is not a sentiment bottom but a value equilibrium stripped of the platform growth premium.

As long-term builders of the Ethereum ecosystem, we refuse to be blind ETH bulls. We aim to carefully argue our predictions through a rigorous logical framework: Only when macro liquidity, risk appetite, and network effects align to trigger market conditions, will higher valuations be reassessed by the market.

Therefore, for long-term investors, the key question now is no longer anxiously asking "Can Ethereum still rise," but to realize soberly — in the current environment, at what level of core value are we buying at the "floor price"?

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