The digital asset management firm CoinShares has released a comprehensive analysis exploring the factors shaping Ethereum’s long-term value, particularly how adoption trends influence ETH’s supply and demand dynamics. The report identifies transaction demand—specifically, how much users are willing to pay for services on the Ethereum network—as the core driver of ETH’s intrinsic value. However, it also raises concerns about Ethereum’s current trajectory, noting that most of this demand stems from speculative applications rather than real-world utility.
This insight challenges the original vision of Ethereum as a "world computer" and prompts critical questions about its future sustainability and economic model.
From World Computer to Speculation Hub: Ethereum’s Evolution
“Ethereum’s usage has evolved significantly since its inception,” notes Matthew Kimmel, analyst at CoinShares. “Initially used primarily for simple asset transfers, it now supports complex interactions through DApps and infrastructure protocols.”
When Ethereum launched, its ambition was to serve as a decentralized global computing platform—capable of running everything from financial systems to identity solutions. Today, however, Kimmel argues that Ethereum has largely transformed into a global speculation engine.
Since 2018, practical use cases have expanded beyond basic transactions and smart contract management to include decentralized applications (DApps), digital identity frameworks, and on-chain operational tools like withdrawals and staking. Financial services and gambling platforms have emerged as dominant sectors within this ecosystem.
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Infrastructure development surged in 2020 with the rise of cross-chain bridges, MEV (Maximal Extractable Value) strategies, oracles, Layer 2 scaling solutions, and staking protocols following the shift to Proof-of-Stake. While these innovations enhance network functionality, Kimmel cautions: “While Ethereum delivers higher utility through complex transactions, a small subset of services dominates usage—and they’re mostly speculative or focused on value transfer, not real-world applications.”
90% of Fees Come From DEXs — A Network Built on Speculation?
One of the most striking findings in the report is that approximately 90% of Ethereum’s transaction fees originate from decentralized exchanges (DEXs). In the first half of 2024 alone, Uniswap accounted for 15% of all network fees.
In contrast, NFT marketplaces—once hailed as a breakthrough use case—have seen declining activity. For example, OpenSea consumed $433 million in fees during Q1 2022, more than double the combined total from Q2 2022 through Q3 2024 ($296 million).
Infrastructure-related fees are similarly skewed toward speculative mechanisms. MEV (Maximal Extractable Value), often linked to arbitrage opportunities, constitutes nearly half of all infrastructure transaction costs. This further reinforces the argument that much of Ethereum’s economic activity revolves around short-term financial gain rather than sustainable utility.
Another pivotal development is EIP-4844, which introduced proto-danksharding to reduce data costs for Layer 2 rollups. While successful in cutting settlement fees—dropping from $41 million in February to just $1.6 million in April—it raises new concerns about Ethereum’s monetary policy.
Stablecoins Are Taking Over — Is ETH Losing Relevance?
The rise of stablecoins has fundamentally altered Ethereum’s economic landscape. Since the introduction of the ERC-20 standard in 2017, issuing tokens became accessible, paving the way for stablecoins like USDT and USDC to dominate transaction volume.
At times, stablecoin transfer fees have even surpassed those of native ETH transactions—a telling sign of shifting priorities. While some view this as progress toward mainstream adoption, others see it as a missed opportunity.
Many crypto enthusiasts advocate for decentralization and de-dollarization, yet most on-chain transactions still rely on fiat-backed stablecoins. This dependence highlights a critical gap: a lack of native, non-financial applications on Ethereum.
During the last cycle, ETH saw strong demand as users paid with it to mint NFTs. But today, with stablecoins acting as the primary medium of exchange, ETH is often reduced to paying gas fees—diminishing its broader utility and weakening its role beyond mere transactional fuel.
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Can Layer 2 Save Ethereum — Or Is It Accelerating Inflation?
Layer 2 solutions have become essential to Ethereum’s scalability strategy. Yet Kimmel points out a paradox: while they improve user experience, they may be undermining Ethereum’s long-term economic health.
EIP-1559 introduced a deflationary mechanism by burning base fees. Whether Ethereum experiences inflation or deflation depends on the balance between newly issued ETH (via staking rewards) and burned fees. Pre-EIP-4844, high transaction volumes led to significant ETH burns—fueling hopes of a deflationary asset.
But now, with Layer 2 solutions handling most user transactions and EIP-4844 slashing their settlement costs, far less fee revenue flows back to the mainnet. As a result, Ethereum currently maintains a 0.23% annual inflation rate, according to Ultrasound.money.
This shift suggests that scaling success may come at an economic cost: reduced fee income weakens the deflationary pressure intended by EIP-1559. Critics argue that Layer 2 offloading and cheaper rollup settlements have inadvertently turned Ethereum into an increasingly inflationary chain.
Beyond Finance: Rediscovering Meaningful Utility
Kimmel emphasizes that developers must look beyond scalability. “The focus shouldn’t just be on expanding capacity,” he says. “It should be on creating meaningful, long-term value.”
True innovation lies in building applications that go beyond financial speculation—identity systems, supply chain tracking, decentralized social media, or verifiable credentials. These could restore Ethereum’s original vision as a general-purpose computing platform.
DeFi Summer demonstrated Ethereum’s ability to generate explosive demand. But if the ecosystem wants lasting relevance, it must answer a fundamental question: What non-speculative services will drive sustained user engagement over the next decade?
The path forward requires not just technical upgrades but a reimagining of what “value” means on a blockchain.
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Frequently Asked Questions (FAQ)
Q: What drives Ethereum’s value according to CoinShares?
A: The primary driver is transaction demand—how much users are willing to pay for services on the network. This fee-based economy directly impacts ETH’s supply-demand balance.
Q: Why is Ethereum currently inflationary?
A: Due to reduced fee burn from lower mainnet transaction volume, especially after Layer 2 solutions offloaded activity and EIP-4844 lowered settlement costs. New ETH issuance now exceeds burned amounts.
Q: How do stablecoins affect ETH’s utility?
A: Stablecoins dominate transaction volume, reducing ETH’s role to mainly gas payments rather than a medium of exchange—limiting its broader application potential.
Q: What percentage of Ethereum fees come from DEXs?
A: Around 90%, with Uniswap alone contributing 15% in early 2024.
Q: Does MEV contribute to speculative usage?
A: Yes, MEV is closely tied to arbitrage and front-running opportunities, representing nearly half of infrastructure-related fees and reinforcing speculative behavior.
Q: Can Ethereum return to being deflationary?
A: Potentially—if mainnet transaction demand increases significantly or if more fee-generating applications return to Layer 1. However, current trends favor Layer 2 dominance.