Ethereum’s system turning point: When convex assets meet technological paradigm shift

Vitalik 2025-10-30 17:58 22648人围观 ETH

1. Phenomenon: Signal in divergence From 2024 to now, Ethereum has shown a rare price-fundamental divergence: Layer2 TVL increased by more than 300%, and the daily transaction volume exceeded 15 million. However, the price of ETH retraced more than 60% f

1. Phenomenon: Signals in divergence

Since 2024, Ethereum has shown a rare price-fundamental divergence: Layer 2 TVL has grown by more than 300%, and daily transaction volume has exceeded 15 million. However, the price of ETH has retraced more than 60% from its peak, and the ETH/BTC exchange rate has hit a multi-year low. The market attributes this to "narrative weakness" or "increased competition," but this linear explanation ignores a deeper phenomenon - Ethereum is experiencing a discontinuous system turn.

This transition is different from conventional technology iterations. It has three characteristics: irreversible, nonlinear, and decisive impact on the future path. Understanding the nature of this transition is crucial to judging ETH’s mid- to long-term risk-return structure.
2. Theoretical Framework: What is system transition?

In complex systems theory, "inflection point" refers to the critical moment when a system transitions from one stable state to another. Its core characteristic is discontinuity—the inability to predict future states by extrapolating historical data. The 2008 subprime mortgage crisis is a typical case: it was not only a financial shock, but also triggered a chain reconstruction of the monetary policy paradigm, wealth distribution structure, and even the geopolitical landscape.

Identification signs of transition include:

Changes in underlying driving forces: not quantitative changes, but qualitative changes

The formation of positive feedback loop: deviation-amplification-new equilibrium

Old models no longer work: Historical valuation frameworks no longer apply

Ethereum is currently in such a turning point. The driving force is not a single variable (such as gas fee reduction), but the simultaneous reconstruction of the triple structure.
3. Three turning points of Ethereum
3.1 Transition in the execution layer: from monolithic to modular

Phenomenon: The daily transaction volume of Layer 2 such as Arbitrum, Base, Optimism, etc. has exceeded the Ethereum main network 5-8 times, but the fees paid to L1 only account for 3-5% of L1 revenue (the blob market price is close to zero after EIP-4844).

Turning logic: Ethereum is switching from a monolithic architecture of "execution + settlement + data availability" to a modular architecture of "L1 only provides settlement + consensus". This is not a technical optimization, but a discontinuous transition of the business model:

Old model: ETH value capture relies on mainnet transaction volume, and Gas destruction drives deflation

New model: ETH value relies on L2 economic scale demand for security, and the network effect of L1 as the settlement layer

The problem is that the transition is not complete yet. The current state is an "unstable intermediate state": L2 liquidity is highly fragmented (the TVL distribution Gini coefficient of the eight major L2s is >0.65), the value capture mechanism of L1 has not yet been established (Blob fees are too low, L2 sequencer income has not been returned), and cross-chain interoperability standards are missing (proposals such as ERC-7683 are still under discussion).

Data support: Arbitrum processes 2 million transactions every day and pays L1 only $50K-$100K； The same transaction volume in 2021 will bring $5M-$10M in revenue to L1. That's a 100x difference in value capture efficiency.
3.2 Transformation of currency attributes: from application of Gas to reserve assets

Phenomenon: The ETH pledge rate reaches 28% (over $110 billion), but the proportion of ETH in on-chain payment scenarios continues to decline (the USDC/USDT trading pair accounts for 70% of Uniswap’s transaction volume).

Turning logic: ETH is migrating from "a consumable asset of the application platform" to the dual attributes of "pledge income + currency premium". This is similar to gold's transformation from an industrial metal to a reserve currency.

Refer to the evolution of the gold pricing model: After the disintegration of the Bretton Woods system in 1971, gold prices shifted from being linked to industrial demand to being driven by central bank reserve demand and currency credit. The current gold price fluctuations have shown the characteristics of a power law distribution (with frequent tail risks), rather than a normal distribution.

ETH may be experiencing a similar transition:

Pledge income: an actual rate of return of 3-4% (deducting inflation), creating a quasi-"risk-free interest rate""

Currency premium: When DeFi protocols use ETH as a collateral benchmark (Aave, MakerDAO, etc.), ETH gains similar "currency""

But the uncertainty surrounding this turn of events is: Can ETH build enough monetary credibility to support a premium? Bitcoin’s currency narrative took 10 years to build. Can ETH’s “ultrasonic currency” narrative achieve the same social consensus?
3.3 Application layer transition: from DeFi to chain abstraction

Phenomenon: The concept of Chain Abstraction has emerged in 2024, and many projects such as Near, Particle, and Avail are aiming in this direction. The core goal is to make users unaware of the underlying chain.

Turning logic: If the chain abstraction succeeds, Ethereum is downgraded from "user portal" to "backend infrastructure". This is another shift in value capture - similar to the value migration of the Internet from ISP (infrastructure) to the application layer (Google, Facebook).

Risk scenario: Users operate on any chain through unified accounts, and liquidity is aggregated through the cross-chain intent layer, then public chains become "substitutable computing resources." Ethereum's moat has been weakened to: consensus security + ecological lock-in effect.

Reverse case: AWS occupies 40% of the market share in cloud computing, but does not receive a "monetary premium". If Ethereum is regarded as the "AWS of blockchain", its valuation model should be DCF rather than monetary theory - which will cause the valuation center to shift significantly downward.
4. Convexity Characteristics: Asymmetric Risk Return

From the perspective of asset characteristics, Ethereum currently has a typical convexity structure (Convexity): when system volatility increases, its second-order returns may far exceed linear expectations.

Source of convexity 1: Tight equilibrium position in the supply chain

Ethereum is currently the only settlement layer that simultaneously satisfies "decentralization + high security + ecological scale". Competitors either have insufficient decentralization (BSC, Polygon PoS), insufficient ecological scale (Avalanche, Fantom), or untested security (Solana has been down many times).

Once there is a systemic impact (such as regulatory requirements that stablecoins must be issued on a decentralized chain, a security incident in a mainstream L1), the value of Ethereum as the "only alternative" will amplify non-linearly. This is similar to the Panama Canal's surge in bargaining power during the shipping crisis.

Source of convexity 2: Positive feedback from the Restaking ecosystem

Restaking protocols like EigenLayer allow staking ETH to provide security for multiple services simultaneously. The current Restaking TVL has reached $15 billion, but only a few AVS (Actively Validated Services) are online.

If the Restaking ecosystem breaks out (such as providing security for AI reasoning, oracles, and cross-chain bridges), the utility value of ETH staking will increase exponentially. This is a positive feedback loop of "one mortgage, multiple returns".

Historical reference: During the 2020 DeFi Summer, the demand for ETH as collateral skyrocketed, with the price rising from $200 to $1,400 (7 times in 6 months). Restaking may trigger similar non-linear requirements.

Risk scenario: Restaking may also amplify systemic risks. If a large amount of ETH is used for multiple high-risk services at the same time, a default event may trigger a series of liquidations (similar to the 2008 CDS crisis).
5. Risks and Contrarian Views
5.1 Execution risk: The transition may fail

The turning point of Ethereum relies on multiple external conditions to be established at the same time:

L2 ecological integration (liquidity, cross-chain standards)

Currency Narrative Accepted (Institutions Adopting ETH as Reserves)

Restaking does not present systemic risks

The failure of any link may cause Ethereum to fall into the dilemma of "neither up nor down": mainnet revenue shrinks, currency premiums are not established, and the application layer is left empty.
5.2 Competitive risks: the rise of alternatives

Solana retains the advantages of a monolithic architecture through high TPS, Cosmos achieves interoperability through IBC, and Bitcoin explores the application layer through inscriptions/runes. Ethereum's "modular route" may be just one of multiple technical paths, not the only solution.

The bigger threat comes from traditional giants: if a banking consortium launches a permissioned chain settlement network (such as JP Morgan’s Onyx) and attracts stablecoins and RWAs through regulatory advantages, the value of Ethereum’s settlement layer will be diverted.
5.3 Valuation risk: The market may fail to price in advance

The current market value of ETH is $230 billion, corresponding to a P/S ratio (market value/annualized revenue) of about 50 times (based on L1’s annual revenue of $5 billion). If the market believes that the turning point has failed, the valuation may return to the 10-15 times P/S of "public chain infrastructure", corresponding to a 50-70% downside.
6. Investment Framework: How to Deal with Turning Points

For institutional investors, the allocation logic during the system transition period should be different from that during the steady state period:

Avoid linear extrapolation: Don’t simply use the old model of “L2 growth → L1 cost growth”. The new model may be "L2 economic scale → security demand → Restaking income → ETH pledge rate → supply tightening".

Configure convexity rather than direction: Rather than betting that Ethereum will succeed, it is better to configure a convex structure with "excess returns in case of success and limited losses in case of failure." Specific methods:

Long call options (reduce costs, retain upside)

Pair trading (long ETH/short high valuation L2 token)

Participate in staking + Restaking (obtain income and reduce holding costs)

Metrics for monitoring transition completion:

The proportion of fees paid by L2 to L1 (current 3% → target 20%+)

The proportion of ETH in stablecoin trading pairs has rebounded (current 30% → target 50%+)

Disclosure of institutional ETH holdings (such as sovereign funds, pension funds)

Restaking AVS quantity and quality (currently <10 → target 100+)

Risk hedging: While allocating ETH, you should hold:

Hedging tool: BTC (if the overall crypto market goes down)

Alternatives: SOL or Modular Emerging (if Ethereum pivot fails)

Traditional hedging: gold or short duration bonds (systemic risk)
7. Conclusion

The current state of Ethereum is similar to Apple in 2010: it is transforming from a single product (iPhone) to an ecosystem (App Store + hardware + services). The market has not yet understood the value capture mechanism of the new model, and the valuation has been temporarily underestimated. But transformation can also fail - Palm and Blackberry have all stood at similar crossroads.

The essence of system transition is "discontinuity". This means two things: There is no way to tell whether current prices are cheap based on historical valuations ； But once the turn is complete, the rewards will be non-linear.

In terms of investment, this requires us to abandon linear thinking in the steady state period and embrace convex opportunities in uncertainty. Or to put it in older wisdom: All things are impermanent, and convexity is our talisman in an impermanent world.