Author: Kevin Li Artemis Researcher, Translated by: Shaw Jinse Finance
summary
Ethereum (ETH) is transforming from a misunderstood asset to a scarce, programmable reserve asset that provides security and power to a rapidly institutionalizing on-chain ecosystem.
ETH's adaptive monetary policy anticipates a decline in inflation - even if 100% of ETH is staked, the upper limit is only about 1.52%, and it will drop to about 0.89% by the 100th year (2125). This is much lower than the average annual growth rate of 6.36% in the US M2 money supply (1998-2024), and is even comparable to the supply growth of gold.
Institutional adoption is accelerating, with firms like JPMorgan and BlackRock building on Ethereum, driving continued demand for ETH to secure and settle on-chain value.
The annual correlation between on-chain asset growth and ETH native staking is as high as over 88%, highlighting the high degree of economic alignment.
The U.S. Securities and Exchange Commission (SEC) released a policy statement on staking on May 29, 2025, reducing regulatory uncertainty. Ethereum exchange-traded fund (ETF) filings now include staking provisions, which both increases returns and promotes alignment with institutional investors.
Ethereum’s deep composability makes it an efficient asset - it can be used for staking/re-staking, as decentralized finance (DeFi) collateral (such as Aave, Maker), automated market maker (AMM) liquidity (such as Uniswap), and as a native fee token on Layer 2.
While Solana has gained traction in meme coin activity, Ethereum’s greater decentralization and security allow it to dominate for high-value asset issuance — a larger and more durable market.
Marked by the rise of the Ethereum Treasury Reserve strategy launched by Sharplink Gaming (SBET) in May 2025, more than 730,000 ETH are now held by listed companies. This new demand trend is exactly the same as the reserve craze for Bitcoin in 2020 and has driven ETH's recent outperformance relative to Bitcoin.
Not long ago, Bitcoin was widely considered not to be a legitimate store of value, and its "digital gold" thesis was considered ridiculous by many. Today, Ethereum (ETH) faces a similar identity crisis. ETH is often misunderstood, has underperformed in annual returns, has missed key hot cycles, and has seen slow retail adoption across much of the cryptocurrency ecosystem.
A common criticism is that ETH lacks a clear value accrual mechanism. Skeptics argue that the rise of Layer 2 solutions cannibalize base layer fees, undermining ETH’s role as a monetary asset. When ETH is viewed primarily in terms of transaction fees, protocol revenue, or “real economic value,” it starts to look like a cloud computing security — more like Amazon stock than a sovereign digital currency.
In my view, this framework suffers from a category error. Valuing ETH purely through cash flows or protocol fees confuses fundamentally different asset classes. Instead, ETH is best understood through a commodity framework similar to Bitcoin. More precisely, ETH constitutes a unique asset class: a scarce but highly productive, programmable reserve asset whose value accrues through the role it plays in securing, settling, and driving an increasingly institutionalized, composable on-chain economy.
Fiat currency debasement: Why the world needs an alternative
To fully understand ETH's evolving monetary role, it must be considered in the context of the broader economy, especially in an era characterized by fiat currency debasement and monetary expansion. Inflation is often underestimated due to continued government stimulus and spending. Although official Consumer Price Index (CPI) data indicates an annual inflation rate of about 2%, this indicator is subject to revision and may mask a decline in actual purchasing power.
CPI inflation averaged 2.53% per year between 1998 and 2024. In contrast, the average annual growth rate of US M2 money supply was 6.36%, exceeding the inflation rate and house price growth, and close to the 8.18% return of the S&P 500. This even suggests that much of the nominal growth in the stock market may be due more to monetary expansion than to productivity gains.
Figure 1: Returns of the S&P 500, CPI, M2 Supply, and Housing Index (HPI). Source: Federal Reserve Economic Data
The rapid growth of the money supply reflects the government's increasing reliance on monetary stimulus and fiscal spending programs to respond to economic instability. Recent legislation such as Trump's "Big, Beautiful Act" (BBB) has introduced radical new spending measures that are widely considered to be inflationary. At the same time, the implementation of the Department of Government Efficiency (DOGE), which was strongly advocated by Elon Musk, seems to be ineffective. These developments have contributed to the growing consensus that the existing monetary system is imperfect and a more reliable store of value or form of currency is urgently needed.
What constitutes a store of value — ETH’s position
A reliable store of value generally meets four criteria:
Durability – It must stand the test of time without degrading.
Value preservation – It should maintain its purchasing power throughout market cycles.
Liquidity – It must be easily tradable in an active market.
Adoption and trust – It must be widely trusted or adopted.
Today, ETH excels in durability and liquidity. Its durability stems from Ethereum’s decentralized and secure network. Its liquidity is also high: ETH is the second most traded crypto asset, with a deep market on both centralized and decentralized exchanges.
However, when evaluating ETH from a purely traditional "value storage" perspective, its value preservation, application, and trust are still controversial. This is where the concept of "scarce programmable reserve assets" is more appropriate, highlighting the positive role and unique mechanism of ETH in value maintenance and trust building.
ETH’s Monetary Policy: Scarce but Adaptable
One of the most controversial aspects of ETH’s role as a store of value is its monetary policy, specifically its approach to supply and inflation. Critics often point to Ethereum’s lack of a fixed supply cap. However, this criticism overlooks the architectural subtleties of Ethereum’s adaptive issuance model.
ETH issuance is dynamically related to the amount of ETH staked. While issuance increases with stake participation, the relationship is nonlinear: inflation grows slower than the total amount staked. This is because issuance is inversely proportional to the square root of the total amount of ETH staked, creating a natural regulatory effect on inflation.
Figure 2: Rough inflation formula for staked ETH
The mechanism introduces a soft cap on inflation, which gradually decreases over time even as staking participation increases. In the worst-case scenario simulated (i.e. 100% of ETH is staked), the annual inflation rate is capped at approximately 1.52%.
Figure 3: Illustrative extrapolation of ETH maximum issuance, assuming 100% of ETH is staked, starting at 120 million ETH, and a 100-year term
Importantly, even this worst-case issuance rate will decline as the total supply of ETH increases, following an exponential decay curve. Assuming 100% of ETH is staked and no ETH is destroyed, the expected inflation trend is as follows:
Year 1 (2025): ~1.52%
Year 20 (2045): ~1.33%
Year 50 (2075): ~1.13%
Year 100 (2125): ~0.89%
Figure 4: Illustrative extrapolation of ETH maximum issuance, assuming 100% of ETH is staked, starting at 120 million ETH, as total supply increases
Even under these conservative assumptions, Ethereum’s declining inflation curve reflects an inherent form of monetary discipline — which strengthens its credibility as a long-term store of value. The situation improves further if we consider the burning mechanism introduced by Ethereum through EIP-1559. A portion of transaction fees will be permanently removed from circulation, which means that the net inflation rate can be much lower than total issuance, and sometimes even deflationary. In fact, since Ethereum transitioned from Proof of Work (PoW) to Proof of Stake (PoS), the net inflation rate has been lower than issuance and periodically negative.
Figure 5: ETH supply inflation rate annualized
Compared to fiat currencies such as the US dollar (whose M2 money supply has an average annual growth rate of over 6%), the structural constraints on ETH's supply (and potential deflation) enhance its appeal as a value asset. Notably, ETH's maximum supply growth is now comparable to or slightly inferior to gold, further consolidating its position as a sound monetary asset.
Figure 6: Annual gold supply growth rate. Source: ByteTree, World Gold Council, Bloomberg, Our World in Data
Institutional adoption and trust
While Ethereum’s currency design effectively solves the supply dynamics problem, its actual utility as a settlement layer has now become the primary driver of adoption and institutional trust. Major financial institutions are building directly on Ethereum: Robinhood is developing a tokenized stock platform, JPMorgan will launch its deposit token (JPMD) on Base (Ethereum Layer 2 network), and BlackRock is tokenizing a money market fund on the Ethereum network through BUIDL.
This on-chain process is driven by a strong value proposition that addresses legacy inefficiencies and unlocks new opportunities:
Efficiency and cost reduction: Traditional finance relies on intermediaries, manual operations, and slow settlement processes. Blockchain simplifies these links through automation and smart contracts, thereby reducing costs, reducing errors, and shortening processing time from days to seconds.
Liquidity and fractional ownership: Tokenization enables fractional ownership of illiquid assets such as real estate or art, broadening investor access and freeing up locked-up capital.
Transparency and Compliance: Blockchain’s immutable ledger ensures a verifiable audit trail, streamlining compliance and reducing fraud through real-time visibility into transactions and asset ownership.
Innovation and market access: Composable on-chain assets allow new products (such as automated lending or synthetic assets) to create new revenue streams and expand the scope of finance outside of traditional systems.
ETH staking as a means of security and economic synergy
The on-chain migration of traditional financial assets highlights two main drivers of ETH demand. First, the growing presence of real-world assets (RWAs) and stablecoins has increased on-chain activity, driving up demand for ETH as a fee token. More importantly, as Tom Lee observes, institutions may need to purchase and stake ETH to secure the infrastructure they rely on, aligning their interests with the long-term security of Ethereum. In this context, stablecoins represent Ethereum’s “ChatGPT moment,” a major breakthrough use case that demonstrates the platform’s transformative potential and broad utility.
As more and more value is settled on-chain, the alignment between Ethereum’s security and its economic value becomes increasingly important. Ethereum’s finality mechanism, Casper FFG, ensures that blocks can only be finalized when a majority (two-thirds or more) of the staked ETH reaches consensus. While an attacker who controls at least one-third of the staked ETH cannot finalize malicious blocks, they can completely disrupt finality by undermining consensus. In this case, Ethereum can still propose and process blocks, but due to the lack of finality, these transactions may be reversed or reordered, posing serious settlement risks for institutional use cases.
Even when running on Layer 2, which relies on Ethereum for final settlement, institutional participants rely on the security of the base layer. Far from harming ETH, Layer 2 increases the value of ETH by driving demand for base layer security and fees. They submit proofs to Ethereum, pay base fees, and typically use ETH as their native fee token. As Rollup execution scales, Ethereum continues to accumulate value through its fundamental role in providing secure settlement.
In the long term, many institutions may move beyond passive staking through custodians and begin operating their own validator nodes. While third-party staking solutions offer convenience, operating a validator node allows institutions to have greater control, higher security, and direct participation in consensus. This is particularly valuable for stablecoin and real-world asset (RWA) issuers because it enables them to capture maximum extractable value (MEV), ensure reliable transaction inclusion, and leverage privacy enforcement - features that are critical to maintaining operational reliability and transaction integrity.
Importantly, broader institutional participation in validator node operations helps address one of Ethereum's current challenges: the concentration of equity in the hands of a few large operators, such as liquid staking protocol and centralized exchanges. By diversifying the set of validator nodes, institutional participation can help increase Ethereum's decentralization, strengthen its resilience, and enhance the network's credibility as a global settlement layer.
A notable trend between 2020 and 2025 reinforces this alignment of incentives: the growth of on-chain assets is closely tied to the growth of staked ETH. As of June 2025, the total supply of stablecoins on Ethereum reached a record $116.06 billion, while tokenized real-world assets (RWA) climbed to $6.89 billion. At the same time, the number of staked ETH grew to 3,553, a significant increase that highlights how network participants can increase security as on-chain value grows.
Figure 7: Total value of ETH on the chain vs. value of staked native ETH. Source: Artemis
From a quantitative perspective, the annual correlation between on-chain asset growth and ETH native stake has remained above 88% across major asset classes. In particular, the supply of stablecoins is closely correlated with the growth of staked ETH. While quarterly correlations can be more volatile due to short-term fluctuations, the overall trend remains the same - as assets move on-chain, the incentive to stake ETH increases.
Figure 8: Monthly, quarterly, and annual native correlations between staked ETH and on-chain value. Source: Artemis
Additionally, the increase in staking has also impacted ETH’s price action. As more ETH is staked and removed from circulation, the supply of ETH tightens, especially during periods of high on-chain demand. Our analysis shows that on an annualized basis, the amount of staked ETH is 90.9% correlated with ETH price; on a quarterly basis, the correlation is 49.6%. This supports the view that staking not only secures the network, but also creates favorable supply and demand pressures on ETH itself in the long run.
Figure 9: Native correlation between staked ETH and price. Source: Artemis
A recent policy clarification from the U.S. Securities and Exchange Commission (SEC) eased regulatory uncertainty surrounding Ethereum staking. On May 29, 2025, the SEC's Division of Corporation Finance stated that certain protocol staking activities (limited to non-entrepreneurial roles, such as self-staking, entrusted staking, or custodial staking under certain conditions) do not constitute securities offerings. While more complex arrangements still need to be determined based on actual circumstances, this policy clarification encourages institutions to participate more actively. After the announcement, Ethereum ETF application documents began to include staking clauses, allowing funds to receive rewards while maintaining network security. This not only improves the rate of return, but also further consolidates institutional acceptance and trust in the long-term adoption of Ethereum.
Composability and ETH as a productive asset
Another notable feature of Ethereum that distinguishes it from pure store-of-value assets such as gold and Bitcoin is its composability, which in itself drives demand for ETH. Gold and Bitcoin are non-productive assets, while ETH is natively programmable. It plays an active role in the Ethereum ecosystem, providing support for decentralized finance (DeFi), stablecoins, and Layer 2 networks.
Composability refers to the ability of protocols and assets to work together seamlessly. In Ethereum, this makes ETH not only a monetary asset, but also a fundamental building block for on-chain applications. As more and more protocols are built around ETH, the demand for ETH grows - not only as fees, but also as collateral, liquidity, and pledge funds.
Today, ETH is used for a variety of key functions:
Staking and re-staking — ETH secures Ethereum itself and can be re-staked through EigenLayer to provide security for oracles, rollups, and middleware.
Collateral in lending and stablecoins — ETH powers major lending protocols like Aave and Maker, and is the basis for over-collateralized stablecoins.
Liquidity in AMMs — ETH dominates decentralized exchanges like Uniswap and Curve, enabling efficient exchanges across the ecosystem.
Cross-chain fees – ETH is the native fee token for most Layer 2s, including Optimism, Arbitrum, Base, zkSync, and Scroll.
Interoperability — ETH can be bridged, wrapped, and used in non-EVM chains (e.g. Solana, Cosmos), making it one of the most widely transferable assets on-chain.
This deeply integrated utility makes ETH a scarce but productive reserve asset. As ETH becomes more integrated into the ecosystem, switching costs rise and network effects strengthen. In a sense, ETH may be more like gold than Bitcoin. Most of gold's value comes from industrial and jewelry applications, not just investment. In contrast, Bitcoin lacks this functional utility.
Ethereum vs. Solana: Layer 1 Divergence
Solana appears to be the biggest winner in the Layer 1 space during this cycle. It has effectively captured the meme coin ecosystem, creating a vibrant network for new tokens to be launched and developed. While this momentum is certainly there, Solana is still not as decentralized as Ethereum due to its limited number of validators and high hardware requirements.
That being said, demand for Layer 1 block space is likely to be stratified. In this stratified future, both Solana and Ethereum can thrive. Different assets require different trade-offs between speed, efficiency, and security. But in the long run, Ethereum may capture a larger share of asset value due to its greater decentralization and security guarantees, while Solana may account for a higher transaction frequency.
Figure 10: Quarterly transaction volume of SOL and ETH
However, in the financial markets, the market size of assets seeking robustness and security is much larger than the market size of assets seeking execution speed alone. This dynamic trend favors Ethereum: as more and more high-value assets move to the chain, Ethereum's role as a basic settlement layer becomes more and more important.
Figure 11: Total value secured by Chain ($ billion). Source: Artemis
Ethereum Reserve Drive: ETH’s Microstrategic Moment
While on-chain assets and institutional demand are long-term structural drivers of ETH, Ethereum’s treasury reserve management strategy — just as MicroStrategy (MSTR) leverages Bitcoin — could be a sustained catalyst for ETH’s asset value. A key turning point in this trend was Sharplink Gaming (SBET) announcing its Ethereum treasury reserve management strategy in late May, led by Ethereum co-founder Joseph Lubin.
Figure 12: ETH Treasury Reserve Holdings. Source: strategythreserve.xyz
Treasury reserve strategies provide tokens with access to traditional financial (TradFi) liquidity while also increasing the value of the underlying company’s stock assets. Since the advent of Ethereum-based reserve strategies, these companies have accumulated over 730,000 ETH, and ETH has begun to outperform Bitcoin - a rare occurrence in this cycle. We believe this is indicative of a broader trend in Ethereum-focused asset reserve adoption.
Conclusion: ETH is the reserve asset of the on-chain economy
Ethereum’s journey embodies a broader paradigm shift in the concept of monetary assets in the development of the digital economy. Just as Bitcoin overcame early skepticism and was eventually recognized as “digital gold,” ETH is establishing its unique identity—not by imitating Bitcoin’s narrative, but by growing into a more general and fundamental asset. ETH is not just a cloud-computing-like security, nor is it just used to pay transaction fees or as a source of protocol revenue. Instead, it is a scarce, programmable, and economically critical reserve asset—underpinning the security, settlement, and functionality of an increasingly institutionalized on-chain financial ecosystem.
