In defense of Ethereum and its fatness: a discussion of ETH's value capture potential


Ultimately the value of ETH depends on the decision of the people in charge. Minimally to do with scaling, governance, adoption or development of dapps as these are all secondary.

  1. If the decision is to make ETH reserved for paying transactions fees only, then its value can be estimated with DCF.
  2. If the decision is to make ETH as well as any other 3rd-party tokens usable for paying transaction fees, then its value is as close to zero as possible. Next question to ask is what are competing blockchains like EOS, Stellar, etc doing differently that they have non-zero values while ETH does not.
  3. If the decision is to make ETH a natural medium of exchange in the Ethereum network, then valuation with DCF is not enough as its value depends on how much of the conventional economic values (commodities, securities, real estate, forex, etc) can it displaces.

We are talking about 3 possible outcomes of ETH: 1. Having decent worth no different from traditional businesses, 2. Having negligible worth, or 3. Having massive worth. Eventually, the blockchain industry will displace most conventional economy, but the value capture of ETH depends on what role do the people in charge want it to be.


I haven’t seen any conversation related to the money thesis in this thread, yet this is where the underlying value of BTC seems to resides (just ask the BTC community). The idea: a sufficiently hard (difficult to inflate) commodity asset can become a money by first becoming a Store of Value, then a Medium of Exchange, and finally a Unit of Account. This is the path taken by Silver, then later dominated by Gold. Gold itself has low utility value, but high monetary premium due to its history as a Store of Value. It is moated by strong network effects.

Monetary premium can quite literally be memed into existence.

Why does this matter?

If Ether does not become some form of money, it will not have a monetary premium. If no monetary premium, the security of the Ethereum network will be less than the security of a similar network whose underlying asset has monetary premium, thus Ethereum will not be most secure. If Ethereum is to continue hosting currencies (e.g. DAI) and high value financial assets (a decentralized world financial stack), it must be competitive as the most secure network.

Given this, it seems we should encourage Ether’s use as a money, both in protocol economics & monetary policy.


Great discussion thread. Decided to go for it, and finally opened an account – first substantive contribution here, so pls be kind if the post offends some community norm or whatever. Just getting to know everyone, and so on.

Ok, so about Eth as money. The key thing to note is that Eth already operates as money, and that nobody has a working methodology (and, ideally, methodologies) for assessing the value of this money-form. Current price-based valuation methods simply don’t work for Ethereum. Here’s why:

Today, the “monetary premium” that should attach to Eth/Ethereum is best understood by analogy to paper and the printing press (two inventions that are as integral to our modern understanding of “money” as anything else out there). So, it’s less whether Ethereum is a money form, but to what extent it allows other Eth-based currencies to emerge as money forms. This is the genius of Ethereum, and why it’s one of the most valuable technology projects in development today.

Like paper and printing blocks, it allows for an infinite number of permutations of the money-form, allowing scalable monetary units for an infinite # of socio-economic transactional spaces. Ethereum basically allows people to micro-monetize micro-transactions, on their own terms.

Of course, Ethereum’s not the only game in town, but it has a clear first mover advantage. Can BinanceChain, or BitcoinScale, or whatever, overtake Ethereum? Yeah, of course, just like competing OS systems had every chance to displace Windows. But in tech, once adoption curves start growing exponentially (which seems to be the case with Ethereum), the first-mover advantage is very difficult to overcome.

Now, that being said, it should also be kept in mind that tech crews are also notorious for squandering first mover advantage (myspace, BlackBerry, Palm, etc.). In this respect, the Ethereum community would be well-advised to stop getting high on its own [monetary] supply.

Paper + printing press ≠ money.

Money becomes valuable not only as a “medium of exchange” – that’s too techy and abstract. One of the easiest tests for money-ness isn’t whether you can sell your apples for ETH or BTC. Rather, it’s whether lots of people start agreeing to do labor in exchange for a particular crypto instrument.

Labor and goods are related. One needs labor inputs to grow the apples, harvest them, and bring them to market. But the reason it’s important to emphasize labor now is because it seems to be fading from view. Today, there is much more attention on crypto financialization, collateralization, oraclizing, etc.

“How should we BlockTrack those organic SmartApples from tree to market to make sure they’re not tampered with?”

The question above is very important.

But in order for Ethereum to showcase its full potential (to adopters, and also to regulators, competing chain communities, other stakeholders), cryptoeconomic theorists must be able to explain how Ethereum permits radical expansion of labor markets. To do this, one must be able to point to very simple use cases that permit a normal person to, say, download a crypto app and easily earn crypto. That use case can be as simple as the inevitable integration of ETH into Uber, AirBnB, and so on. But to unlock Ethereum’s monetary potential, we should posit more ambitious micro-transactional targets at global scales (instead of just offering a “more secure” alternative to the greenback, or whatnot).

Bottom line: to understand crypto valuation, and Ethereum’s monetary potential, we have to realize how easy Ethereum has made it to create entirely new labor markets (e.g., getting paid for doing micro-location mapping; incident reporting; litter pick-up; etc.).

(Micro-transactions) x (global scale) x (t) = hyperutility = value

Even though we don’t have firm empirical inputs for the full range of possible micro-transactions and their globally-scaled markets, we can and should start building and refining these models.

Now is a great time to start because platforms like EthBounties will give us a front-row view into the development of these micro-incentivized, micro-transactional, micro-monetary (as opposed to “micro-financial”) exchanges. Right now, EthBounties has 43 live bounties (and a platform total of 200+). When that number is 43K, 43M (and, yes, 43B! by EthBounties and/or competitors), then we’ll actually have world-first quant data sets on global labor markets (beyond just disembodied “financial markets”).

Ethereum will have pulled off one of the most audacious feats in global economic history–bringing actual liquidity to global commodity and labor markets (the biggest % of the world’s real economy pie).

Here, again, lies the genius of Ethereum, and the enormity of the potential that has been unleashed by the indefatigable Ethereum crew. To keep realizing this potential, and to keep striving for this potential, everyone in crypto and especially in Ethereum should understand just how fragile the aforementioned “micro-transactional spaces” are – and how easy it is to extinguish them and stomp them out.

The antidote to financialization at the expense of full-spectrum marketization is simple. Everyone just needs to keep asking one basic question:

What’s the easiest way for a no-coiner to earn crypto by doing socially useful work?

Instead of “what’s the value of all the Eth-based coin out there?” the question should be “what’s the real value of all the Eth-based tokenizable micro-markets out there?”

Three takeaways:

  1. In addition to making it easy to spend and borrow crypto, we need to make it extremely easy for people to earn crypto.

  2. CryptoEarning dApps are crypto’s tastiest fat reserves.

  3. There’s nothing like winter to trigger the mind to seek out fat.


I do not believe an object goes through a progression in stages of being a store of value, then being a medium of exchange, and then finally a unit of account in order to become money. Rather, these 3 are different aspects of the same thing that is money and I believe they come into existence together at the same time. If a seashell is treated to have a store of value, it must also have an accounting unit and already being exchanged by 2 or more persons at the same time. These aspects do not work separately.

Indeed, ETH must be engineered as a form of money, and have substantial monetary value associated with it. Otherwise, anyone can sabotage and hijack the network from within at minimal cost without even the need to invest into 51% mining power (in PoW) nor stake any ETH (in PoS). This can be done by any rogue agent creating his own 3rd-party token and then manipulate such token to an artificially elevated level to create any form of monetary significance and acceptance. Once such elevated state is reached, anything is possible from there as the network structure allows it. Binance coin is an example of a token (not coin, even though it has the word “coin” in its name) being marketed and promoted as money because of its burn policy. But its burn policy depends on business profit. And business profit depends on how sustainable is the business. If the business flounders due to competition, i.e. more exchanges cropping up with better services and attractive trading fees, then BNB may eventually deflate. In the long run, I do not see BNB to stay, i.e. another way of saying the bullish trend is short-term. So if Ethereum Foundation does not focus on promoting ETH as a form of money, then all its effort spent on scaling, governance, and security may be just a waste, as Binance coin and many others will persist and overshadow ETH in authority eventually. You can create a deflationary economy just the same with money, not necessarily possible only with fuel.

Of course, there can be many ways of hijacking the Ethereum network beyond controlling 51% mining power. And creating a 3rd-party token and manipulate it upward, monetarily, is one such ways, cheaply, as long as the network allows it, by way of making ETH potentially “subservient” to any non-native coin or token in its own network. Once a non-native coin or token become significant enough (monetarily and economically), the network’s governance and security model will revolve around it. That is why I said effort on scaling, governance, and security would be a waste if such situation is allowed. Any other way to resolve this may be far less than ideal and lack elegance than making ETH an official reserve currency.

Clarification: “Making ETH an official reserve currency” as in making ETH a primary medium of exchange within the Ethereum network, regardless of whether it is marketed as money or fuel, in a way that it is not subservient nor subordinated to any “coin” or token made from the network that is not native to it, in any way related to scaling, governance, security, and economics of the network.

“What’s the real value of all the Eth-based tokenizable micro-markets out there?”
Assuming your wording is correct, then whatever the real value is, is at micro-level, i.e. insignificant.
Otherwise, the total real value of all ETH-based tokens should at best be a subset of ETH. And if the network structure allows them to be a “superset” of ETH, then I deem the EF decision-making to be very unwise.



Sorry for slow response. Just got back from lots of much needed vacation. I love the discussion this sparked.

I don’t want to say that DCF is unusable, only that you need to insert some important and somewhat unvetted assumptions (e.g. 90-day trailing price as sell price for ETH). However, I will say that a DCF isn’t exactly a scientific way to value company, so you could probably make one for staking. The key point here is that, if you assume that people will care about fiat for the foreseeable future, you have to explicitly determine the exchange rate between ETH and fiat for the model to work. This is because ETH and fiat do not have the same risk profile.

For example, imagine you get own 100 shares of Apple, and as a dividend, you got another share. That additional share is subject to the same risks as your existing 100 shares of Apple. It can increase and decrease in value dramatically. It’s not the same as cash. As such, you need to value your returns accordingly.

A model using these guidelines should roughly capture the network effects. A “moat” is and should be a quantifiable feature of the network. A good moat will manifest itself in continued growth of first-order metrics (transaction counts, gas fees paid) and second-order metrics (developers on platform, $'s raised by Ethereum-based projects, etc.).

After all, what is a company’s moat? As my equity analyst friends would say, it’s the ability to consistently provide returns on capital above average for the industry. My company (Morningstar) actually time-binds it to years. Narrow moat is 10 years while wide moat is 20 years. I think this concept is applicable with a discounted transaction fee model in crypto. If Ethereum can grow transaction fees and volumes at a rate that’s faster than comparable networks, it demonstrates its “moat.”