Thank you. Hello everyone. So, I'm going to rethink how we value Ethereum, not just as any blockchain based on any metric; I'm going to talk to you about how to properly and comprehensively evaluate Ethereum as a public good infrastructure, and why it's important to use the right framework. Because if we don't use the right framework, we will misvalue Ethereum, as it was misvalued recently. We only have 20 minutes, so I'll give you a summary of the report I published last December, with some updates.
So if you really want to dig into this and understand the whole assessment methodology, go to the ETHMRC website and you can download the report. It's about 40 pages long, very easy to read, and I would encourage you to do so . So what exactly prompted me to write this report? I have been working in this field for a very long time , and something very disturbing is happening in this field right now. Many cryptocurrency tokens and their valuations are not based on fundamentals, and this is wrong.
I kept asking myself why fundamentals don't affect cryptocurrency valuation? If you think about it, if you've worked in this field worked in this field , look at what's going on, almost everything that's not related to cryptocurrency affects cryptocurrency prices. One day it's a war in the Middle East, another day it's inflation, another day it's the strength of the US dollar, or whatever Nvidia or NASDAQ does. These are many external factors, liquidity, availability, etc. Why is this happening?
Why should we admit that we have been working in this industry for 14 years been working in this industry for 14 years ? Why should we put up with this? So I looked into this area looked into this area , and one of the answers is that there is no one-size-fits-all solution. And when I segmented the field, it turned out that the Defy field, DeFi, is the most advanced in terms of very specific quantification of fundamental indicators that can affect market prices. Defy protocols are more advanced because you can look at some metrics.
For example, the total locked value reflects assets under management in some way. We understand that. Then you have commissions. Commissions are equivalent to income. This is what we know how to understand.
Treasury is like a reflection of the strength of the balance. We know that transaction volumes in terms of activity, user activity, are a reflection of product-market fit. This means that everything is working. So DeFi is a little ahead. It's not perfect, but it's headed in the right direction.
Then we have what I call revenue chains. These are the likes of Tempo and Solana and their obsession with fees and they are very centrally managed and operated. So I'm different from truly public, reliably neutral chains, and they are a segment in their own right. They like to be valued based on discounted cash flow, which is normal. This is their cup of tea.
And then we have Bitcoin, obviously, and Bitcoin likes to be seen as a special snowflake. He likes to be seen as a hedge against inflation. He likes to be treated like digital gold. Although it hasn't been doing very well lately . This is doubtful.
And then we have our beloved Ethereum blockchain, which I think is also a special snowflake, but of a different kind. And one of the mistakes people who pretend to know how to value Ethereum make is that they try to separate ETH as an asset from Ethereum as a platform. Especially recently, there has been a narrative that yes a narrative that yes , Ethereum may work well as a platform, but it is not translating into value for ETH. This is wrong. This is the wrong perspective.
The reality is that there are four Es. There is Ethereum as a platform, there is ETH as an asset, there is obviously the Ethereum Foundation, and there is the ecosystem. And all of these four E's work together synergistically. So you really need to see all of this together to really understand how Ethereum should be valued, how Ethereum should be perceived. I'm going to draw a lot of analogies with the Internet because that's what Ethereum should be compared to.
If you were in the web space, uh, when it started in 1995, and I was there from the beginning, my first book was an online book called "Discovering Digital Markets." At that time, in 1995, we did n't know how to measure and evaluate Internet evaluate Internet companies. Yes. Do you know what the most important metric was back then? These were the grades.
We measured ratings, uh measured ratings, uh , ad impressions, and that's very different from what it is today. Over the years, valuation methods have evolved since the crash. Uh, we started seeing more revenue. So we started looking at companies based on revenue, margin, profit. And recently it has become even more difficult with companies like Facebook, Google, Uber.
Uh, they're more like platform companies, and we value them based on revenue from the strength of the ecosystem, of course, but they have a moat, and it's very different from how it all started. So the point of this slide is to let you know that we need some time to mature valuation models, and unfortunately, we are still very early in our understanding of valuation models in blockchain. Another lesson from the internet regarding Ethereum is that Ethereum, from a structural perspective, from an infrastructure and architecture perspective, is very similar to the internet. You can put them side by side and you will see the similarities at the first level. This is a public infrastructure, accessible to everyone, and both the internet and Ethereum operate at a common level, accessible to everyone.
But then you have the second layer, you have access networks; On the internet you have to pay for internet access. The comparison is that it becomes more like a club membership in terms of value rather than a pure public good, which is very cheap. And then you have private goods, applications, application levels, institutions. And if you look at this chart, you'll realize that over time, more value is being created at the application level than at the underlying infrastructure level. If you look at internet companies today, of course, the value of all internet companies combined is much greater than the value of the internet itself.
And the same thing could happen with Ethereum, for example, Ethereum is currently in second place. For example, Tether is in third place, very close to it very close to it . And some people will say, . And some people will say, "Well, at some point Ethereum might overtake Ethereum in terms of market cap." I wouldn't be too upset if that happened.
This means that Ethereum is doing its job by allowing large companies to be built on it , and that would be an indicator of success. I would like to see more companies eventually. If you go back, if you look ahead five to ahead five to ten years, it is possible that there will be a number of companies with a market capitalization greater than Ethereum that are based on Ethereum. Ethereum will continue to grow accordingly, but it will also create more value than it receives value than it receives . This is a very important factor.
And there have been several very credible studies that analyzed how we evaluate the Internet. And this is done by dividing it into three different parts. There is visible value. These are all internet-based companies like Google, Facebook, etc., Uber.
All of these companies wouldn't exist without the internet, and they have a valuation. This is one way. The second part is the segment of the digital economy that encompasses the Internet. There are very well-founded studies that have shown that the Internet is responsible for 15% of global GDP. The world GDP is about one hundred trillion dollars.
And if the Internet covers 15%, and even if half of it is now directly connected to it, then you capitalize on that, and you get a big number of 160 trillion. And thirdly, there is something called consumer surplus. This is an invaluable value of using the Internet, and it can also be measured quantitatively. What are the big quantitatively. What are the big , big uses of the Internet?
Search and email. Search engines. The value is 17,500. This is the value for the United States, the number for the United States. This is how much you need to pay a user to unsubscribe from email from a search engine.
On average, someone would have to pay you $8,000 a year to give it up. This was analyzed in a certain way . So it has value, and we need to quantify it . I've talked a lot about public goods. Why is this important?
Because public goods have three properties common to all. There's no, uh, rivalry. That is, if someone uses something, it does not make another person less capable of using it. This is available to everyone. This is not exclusive.
If I use something, it doesn't mean that another person can't use it. And it also contributes systematically, that is, it creates more economic value economic value than it receives. And so it's hard to quantify public goods, uh, that have a systemic property systemic property , when the benefits are really for everyone. And the long-term effect is that it takes time to see the actual benefit unfold benefit unfold . If we apply the same methodologies as for the internet to Ethereum, we get the same three segments, but they are slightly different in terms of what lies beneath them.
First, it is a captured value. This is what we see now. Commissions can be included here. The commissions already exist. Then there is the economic flow, because ETH is a currency.
You think of it as digital oil. It has to flow between different segments of wealth segments of wealth , different segments of value. And that has a meaning that also has value. This is like the equivalent of GDP. And then there's overconfidence , using the same analogy we used for the internet, but it's a little different.
And to start with, excess trust is what users would pay minus what they actually pay. And it has a number in the Ethereum space number in the Ethereum space . Uh, we haven't reached the $1,000 level yet. Uh, but on average, I estimate it would be between 50 and 150 net trust surpluses per user, and there are now 20 to 30 million users, and you do the math and you get a number. But this is at the user level.
There is also a systemic level. Ethereum increases efficiency when settlements are made on Ethereum, uh , when fraud is reduced fraud is reduced , in particular when there is less counterparty risk, etc. You can quantify at each step of these specific processes how much you save by using a trust network such as Ethereum, and you have a number; you capitalize on it, so you use this modeling in the same way we did for the Internet, for the, uh, Ethereum space. And you can consider a low scenario, a medium scenario, and a more, uh, aggressive scenario. And depending on where you stop, uh, we'll get a trillion dollars.
And if you extrapolate this over a certain number of years, it is clear that Ethereum is currently very undervalued. Uh, today it should be valued at at least $1 trillion, which is equivalent to a token price of $8,000. So at least four times more than now. And that is precisely our current battle: should we explain why Ethereum is valued and why it should be valued that way? Again, the analogy with the internet is that it took a long time for the internet to be understood and appreciated, especially before the crash.
At some point, even around 2000, many people doubted the value of the internet. Some people thought it would be no more valuable than the fax effect. And look where he is today. So it takes us a long time to understand this because it's a lot of things. And Ethereum is also a lot of different things.
It's not just one thing. Uh, why do markets continue to misprice him ? Uh, they're looking at a token offering. Some people do that, but that doesn't say anything about how the system works. For example, you look at the decentralization aspects of the Ethereum Foundation and it gets a lot of criticism, but people don't understand that it's not a corporation.
There is an L2 L1 relationship, and some people say that it reduces the cost of L1 it reduces the cost of L1 , but no, it increases the market. So this dependency is difficult to understand, and you don't see the flows between institutions. Ethereum currently handles $3 trillion worth of stablecoin transfers per month. This is how it is now. You don't see it, but it happens day after day.
And we know from history that its real valuation will lag behind its economic role, but over time it will manifest itself. Therefore, we need to change the thinking paradigm about how we value Ethereum. This is not a commission- based valuation model . It is more flow-based. This is a kind of money flow because ETH is similar to the US dollar ETH is similar to the US dollar .
Why is the US dollar so valuable? Because it is the main currency for paying for oil. This is the main currency for paying for trade. It is indeed in demand for many external reasons, not only in the US but also abroad. And the same thing needs to be considered for ETH.
It is becoming a very valuable currency outside the Ethereum ecosystem. Forget about comparing TPS transactions per second. It's not about speed and flows. It's a matter of economic calculations. Ethereum can handle three trillion dollars of stablecoins per month, and that's the most, without being the fastest, so you can say which is more important.
Don't look at short-term income, look at long-term trust minimization, that's what a trust surplus is, and let's look at the GDP aspect. So, the value and valuation of Ethereum does not really depend on the amount of its revenues. Some people just want to look at the income. Imagine it's like trying to rate the Internet based on paid packages. You know there are paid packages, but we don't think we don't think about paid packages.
Network providers must pay each other paid packages. But that's probably the least valuable aspect of the Internet. The value of the internet depends on how much the world depends on it. The same goes for Ethereum. The value of Ethereum lies in how much we depend on it.
And ultimately, the paradigm shift is about trust. The architecture of trust is changing. It is collapsing. And Ethereum is rebuilding it in many different places. And this is the theme and thesis of my next book, which will be released in the fall, and it is rightly called "Changing Trust."
I combined these two terms into one word, and it will actually be about Ethereum and rethinking trust. If you take this QR code, I will send some early materials to those who sign up for the newsletter. And this will be a deep, uh, treatise on the practical aspects of Ethereum as a key factor in the transition of trust from institutions from old models to new ones. So thank you very much, and I'll see you later when you contact me about the book.
Automatic transcript — names and jargon may be misspelled.