Ethereum 2025: The Disillusionment and Rebirth of Idealism

The Ethereum of 2025 is reminiscent of the tragedy of Singapore’s Pulau Senang prison—a utopian experiment that ultimately turned into disillusionment. But unlike that case, Ethereum found redemption in despair.

This year is full of contradictions. Despite celebrity endorsements, diversified DAT, frequent technological iterations, and continuous media hype, the performance in the secondary market has been disappointing: ETH is stuck in an awkward middle ground—lacking the purity and consensus of “digital gold” like BTC as a commodity, and unable to directly compete in technical performance with high-performance chains like Solana and Hyperliquid. The Dencun update did not save Ethereum; instead, it became a “vampire battle.” This “neither here nor there” dilemma raises a fundamental question: Does Ethereum have a future? What exactly is it? Is its business model truly feasible?

1. The Tragedy of Pulau Senang: Clash of Ideals and Reality

In 1950s Singapore, Lee Kuan Yew boldly implemented a radical prison reform experiment. Workers’ Party leader Devan Nair proposed a “Utopian Prison” model: no walls, no electric fences, no armed guards, relying on collective labor and trust to reform prisoners. This crazy experiment was adopted in 1960, at Pulau Senang island.

Warden Daniel Dutton believed in human nature’s goodness; he lived and ate with the prisoners, abolishing all coercive measures. Initially, the experiment seemed successful—prisoners voluntarily built and worked with enthusiasm, recidivism was only 5%, and it even attracted visits from UN delegations. But Dutton did not see that beneath the “freedom” veneer, greed and dissatisfaction were taking root. Some prisoners complained about heavy labor, others had their early release requests rejected.

In July 2023, a minor conflict ignited all contradictions—several carpenters refused weekend work, and Dutton angrily sent them back to the main prison. That smoky afternoon, armed prisoners launched a riot, killing the trusting Dutton, and burning everything they had built—this utopian experiment was completely shattered in flames.

Ethereum is reenacting this tragedy. In March 2024, the Dencun update (EIP-4844) introduced the “Blob transaction” mechanism. Lead developers, like Dutton, idealistically tore down the expensive “economic wall” (gas fees) between L1 and L2. They believed that if L2 could access near-free data space, an ecosystem feedback loop would form a “mutually beneficial utopia.”

But reality gave a harsh slap.

2. Identity Confusion: Ethereum in 2025 Caught in the Middle

As a commodity—awkwardness

BTC enjoys the status of “digital gold”—fixed supply, energy-linked, pure store of value. But ETH? Its supply swings between inflation and deflation, with complex staking mechanisms, leaving conservative institutions confused about its definition. ETH cannot be a clean commodity like BTC.

As a “tech stock”—collapse

If ETH is treated as a tech company, the most critical metric—revenue—collapsed in the first three quarters of 2025. August data is shocking: despite ETH prices approaching all-time highs, protocol revenue plummeted 75% YoY, down to only $39.2 million. For institutional investors using traditional valuation models (P/E, DCF), this signals a breakdown of the business model.

Caught in the middle

From a macro perspective, BTC strengthened due to continuous inflows into spot ETFs and national strategic reserve narratives; from the ecosystem, Solana monopolizes high-frequency scenarios like payments, DePIN, AI Agents, memes, and consumer apps with extreme performance, with stablecoin circulation speed and ecosystem revenue sometimes surpassing Ethereum’s in certain months; Hyperliquid, as a leading perpetual DEX, captures fees at a level that leaves ETH far behind.

“Neither in heaven nor on earth”—this is the true picture of Ethereum in 2025.

3. Regulatory Empowerment: From “Law Enforcement” to “Clear Classification”

The turning point came in November 2025.

In December, SEC Chairman Paul Atkins announced the “Project Crypto” plan at the Federal Reserve Bank of Philadelphia, completely changing the game rules. He explicitly opposed the rigid stance of “once a security, always a security,” and introduced the concept of “Token Taxonomy”: asset attributes are fluid and can change. A token may be an investment contract at issuance, but once the network reaches sufficient decentralization and holders no longer rely on “key managerial efforts” for profit, it ceases to be a security.

This was a decisive moment for Ethereum. ETH has 1.1 million validators and the most decentralized node network globally—SEC announced: ETH is not a security.

More critically, the Clarity Act passed in July clarified the legal framework:

• Clear jurisdiction: Assets originating from “decentralized blockchain protocols”—especially BTC and ETH—are classified under the Commodity Futures Trading Commission (CFTC)
• Definition of digital commodities: Homogeneous assets that can be freely transferred among participants, without intermediaries, recorded on cryptographically secured public distributed ledgers
• Empowering banks: Banks can register as “digital commodity brokers” to provide custody and trading services for ETH. This means ETH on bank balance sheets will no longer be considered “high-risk assets,” but commodities akin to gold or foreign currencies

The most elegant step was resolving the paradox of “interest-bearing assets as commodities”:

1. Asset layer: ETH itself is a commodity, with utility in Gas and network security
2. Protocol layer: Native staking is defined as “work” or “service”—validators provide security through computational power and capital locking, rewarded as labor compensation, not investment returns
3. Service layer: Only centralized custodial staking services constitute investment contracts

This classification allows ETH to retain its “interest-earning” features while enjoying commodity regulation benefits. Fidelity’s report calls ETH a “productive commodity”—resistant to inflation and generating yields like bonds. This is a paradigm-shifting institutional breakthrough.

4. Business Model Redemption: From “Parasite” to “Contributor”

The question returns to its origin: Is ETH truly profitable?

Dencun’s “paradox”

The Blob transaction mechanism introduced by Dencun was supposed to lower L2 costs. But what happened? L2s (Base, Arbitrum) charge users high gas fees but pay only a few cents in “rent” to Ethereum L1. Base can earn tens of thousands of dollars on some days but pays only a few dollars to L1. L2 takes the meat, L1 licks the plate.

With massive L1 transactions flowing into L2, and insufficient ETH destroyed via Blob, the deflationary mechanism of EIP-1559 collapsed. In Q3 2025, Ethereum’s annualized supply growth rate surged to +0.22%, completely destroying the “deflationary asset” narrative.

Fusaka’s “comeback” (December 3, 2025)

Amid the total collapse of utopian ideals, the Ethereum community did not give up. On December 3, Fusaka upgrade, long anticipated, finally activated. This is not just a technical patch but a rebuild of the business model.

EIP-7918: The core turning point in pricing mechanism

Previously, Blob base fees could fall to 1 wei (0.000000001 Gwei). EIP-7918 changed everything—it introduced a “price floor,” linking Blob base fees to L1 execution layer Gas prices (specifically, 1/15.258 of L1 base fee).

What does this mean? As long as the Ethereum mainnet is busy (new coin issuance, DeFi transactions, NFT minting), L1 Gas prices rise, and Blob “rent” automatically increases. L2 can no longer use Ethereum’s security at near-zero cost.

After the upgrade, Blob base fees instantly surged 15 million times (from 1 wei to 0.01-0.5 Gwei). Although user transaction costs remain low (~$0.01), for the protocol, revenue has increased by several orders of magnitude. L2 expansion has become a direct driver of L1 revenue.

EIP-7594 (PeerDAS): Supply-side expansion

To prevent rising prices from choking L2 development, Fusaka also launched PeerDAS. This technology allows nodes to verify Blob data availability via random sampling instead of downloading entire blocks, reducing bandwidth and storage requirements by about 85%.

The result is Ethereum can significantly increase Blob supply. Post-upgrade, the target number of Blobs per block will phase in from 6 to 14 or more.

A perfect microeconomic cycle

This new model creates a “quantity-price” upward spiral:

Supply side → Upstream L2s (Base, Optimism, Arbitrum) act as “distributors,” capturing end-users and high-frequency trading → Core products → Ethereum L1 sells two types of commodities: (1) high-value execution space for L2 settlement and complex DeFi, (2) large-capacity Blob data space → EIP-7918 ensures L2 pays “rent,” most of which is destroyed, with a small portion going to stakers → Positive feedback → Faster L2 development → Greater Blob demand → Even at low prices, high volume → More ETH destroyed → Supply tightens → Asset scarcity increases → Network security budget grows → Attracting higher-value assets

Analyst Yi predicts that after Fusaka, Ethereum’s destruction rate could increase by 8 times in 2026.

5. Valuation Framework: How to Price “Trust Software”?

Ethereum now combines features of commodities, capital assets, and currencies. A single model cannot fully capture its value.

DCF Model (Tech Stock Perspective)

The Q1 2025 report from 21Shares applies a three-stage growth model based on transaction fee revenue and destruction mechanisms. Even with a conservative discount rate (15.96%), the fair value of Ethereum reaches $3,998; in an optimistic scenario (11.02% discount), it’s $7,249.

Fusaka’s EIP-7918 provides a solid foundation for DCF—L1 no longer worries about L2 “vampirism,” enabling predictable minimum revenue baseline projections.

Currency Premium Model (Commodity Perspective)

Beyond cash flows, ETH also enjoys a currency premium—its value as a settlement asset and collateral.

• DeFi ecosystem TVL exceeds $10 billion, with ETH as the core collateral (DAI, lending, derivatives)
• NFT trading and L2 Gas are priced in ETH
• With spot ETF inflows (reached $2.76 billion by Q3) and corporate hoarding (e.g., Bitmine holding 3.66 million ETH), ETH liquidity is tightening
• This supply-demand tension grants it a gold-like premium

“Trust Software” Valuation Framework

Consensys’ 2025 report introduces the concept: “Trustware.” This is a groundbreaking view:

• Ethereum does not sell ordinary computing power (that’s AWS’s business), but decentralized, immutable finality
• With the wave of RWA tokenization, Ethereum evolves from a “transaction processor” to an “asset custodian”
• Its value capture is no longer just TPS but the scale of assets it protects

The logic is: “Security budget” model—if Ethereum protects $10 trillion in assets worldwide, and charges only 0.01% annual security tax, its market cap must be large enough to resist 51% attacks. The correlation between capitalization and protected assets becomes exponential.

Ironically, the best “trust software” advertising does not come from official sources but from hackers—after they steal funds on a large scale, ETH is their preferred safe haven asset.

6. Competitive Landscape: Division of Labor, RWA Competition, and Modular Moats

Ethereum vs. Solana: Wholesale and Retail Division

By 2025, data clearly depicts the differentiation of public chains:

Solana resembles Visa or Nasdaq—pursuing extreme TPS and low latency, suitable for high-frequency trading, payments, DePIN. Ethereum is evolving into SWIFT or FedWire—not concerned with every coffee transaction speed but optimizing high-efficiency settlement of L2 “batch transactions”—a block contains thousands of transactions.

This is the natural division in mature markets. High-value, low-frequency assets (bond tokenization, large cross-border settlements) favor Ethereum’s security and decentralization; low-value, high-frequency transactions (memes, DePIN, consumer apps) flow to Solana.

New battlefield for RWA

In this future multi-trillion-dollar market, Ethereum dominates. Although Solana’s growth is rapid, flagship projects like BlackRock’s BUIDL fund and Franklin Templeton’s on-chain funds all choose Ethereum.

Institutional logic is simple: For funds managing hundreds of millions or billions of dollars, speed is secondary, security is paramount. Ethereum’s ten-year uninterrupted operation history is its deepest moat.

7. Conclusion: Rebirth of Ideals

The Pulau Senang story ended in flames. But Ethereum is different—it rebuilds on the ruins of idealism with economics.

From “decentralized utopia” to “business platform with disciplined pricing,” from “L1 parasitizing L2” to “L1 benefiting from L2 growth,” from “identity confusion” to “clear legal positioning,” Ethereum completed a transformation in 2025.

The issues exposed by Dencun and the solutions offered by Fusaka show that it’s not just a technical victory but an economic design victory. The combination of EIP-7918 and PeerDAS reverses the relationship from “being plundered” to “co-prosperity.”

The question is not whether Ethereum can survive, but how valuable it will become. When ETH enjoys both the tax advantages of a commodity and the cash flow of a tech stock, plus the most decentralized network and RWA moat in the world, it is no longer an uncertain asset—it becomes a digital economic infrastructure with a clear business logic.

By 2026, we may look back and laugh at the anxieties about “Ethereum’s future” in 2025. Ideals are not dead; they have simply learned how to price themselves.