Key Points
- The success of Ethereum going forward may depend on ETH’s ability to hold long-term monetary value
- With the development of Layer-2 networks, there is debate regarding the impact of Ethereum’s adoption on ETH’s value
- Weakness in ETH prices and lower support levels have raised questions about Ethereum’s economic model
Identity of Ethereum Undergoes Scrutiny Again
Questions have emerged once more about whether Ethereum serves as a good store of value as stakeholders analyze the link between the success of the Ethereum network and the intrinsic value of ETH. This discussion came into focus when comments from one of the co-founders of Bankless were widely shared within the cryptocurrency community.
In his comments, Ethereum was said not to be distinct from its underlying asset. This point led some people to believe that backing the future of Ethereum while disregarding its value was contradictory. This triggered further discussion from different quarters about the economic base of Ethereum.
Layer 2 Expansion Brings Up Value Creation Considerations
Moreover, the discussion grew even more heated when a co-founder of Bankless gave his point of view about how Ethereum creates value. The latter’s consideration was based on the question of whether an increase in blockchain usage means that the value of its token will go up.
The topic has been highly relevant lately due to Layer 2 expansion on Ethereum. Networks built on top of Ethereum perform increasingly more transactions, allowing better scaling and decreasing costs for end users. At the same time, however, it brings up concerns whether the activity conducted on Layer 2 brings direct value for ETH holders.
According to the critics, the broad use of applications does not mean that the demand for tokens goes up as well. The reason behind is that there might be no connection between the network’s development and token growth in case all the actions happen within the apps.
Advocates of Ethereum state that ETH has remained the centerpiece of the ecosystem despite Layer 2 development. ETH still acts as the main asset for staking, is used as a major type of collateral in DeFi protocols, and is one of the sources of network security.
Scarcity and Proof-of-Stake
Ethereum’s shift to proof-of-stake resulted in a reevaluation of its monetary policy. The upgrade implemented a mechanism that allows for the reduction of net ETH creation in periods of high network activity. It has led to the emergence of narratives regarding Ethereum’s supply dynamics among supporters who claim that the token becomes scarce under such conditions.
Supporters believe that the introduction of scarcity will contribute to Ethereum’s attractiveness as an investment. However, skeptics argue that scarcity is not enough to ensure long-term demand due to the rise of competition among new blockchain-based projects that use other technologies to provide services and attract capital at lower costs.
Market Performance Brings Additional Pressure
Market performance recently added yet another aspect to the debate. ETH was trading at $1,669, marking a decline of about 3.7% over the reporting period.
The crypto had been struggling in a crucial support area of $1,725 before undergoing a notable drop. Even though the buyers were able to stop the fall in the $1,650 range, this downturn brought increased focus on the future prospects of the asset.
At this point, the main concern does not revolve around the capability of Ethereum to attract new projects and developers. More and more investors start questioning whether the progress made by Ethereum would eventually lead to an increase in the price of the coin itself.
The further development of the crypto project remains controversial with some investors focusing on the expansion of the ecosystem whereas others place emphasis on the need for ETH appreciation.
