Buterin: Ethereum Should Be Seen as a Store of Value

Ethereum co-founder Vitalik Buterin explained why he sees the concept of Ethereum as a store of value (SoV) as more promising than a model in which the token is primarily viewed as a fee-burning instrument. 

In his view, the first concept aligns better with the network’s core properties — decentralization, resistance to censorship and capture, open-source code, privacy, and security (CROPS).

Buterin noted that the EIP-1559 mechanism, which burns the base transaction fee, remains useful and should be preserved. At the same time, he urged people not to worry if fee burning stays below 10% of the break-even level for a long time. He said Ethereum’s value is not shaped solely by this mechanism.

Buterin questioned the common argument that token burning creates a natural lower bound for their market valuation. It is based on a net present value (NPV) model: the asset’s market capitalization is supposedly equal to the annual burn amount divided by the discount rate.

As an example, he cited a token with $1 billion burned each year, assuming that figure remains stable over the long term. With a 4% discount rate, this model implies a valuation of $25 billion. If the market cap falls below that level, an investor could theoretically buy the asset for less than its calculated value and sell off part of their holdings each year while maintaining their share of the total token supply.

In 2021–2023, Ethereum burned millions of ETH each year. However, according to Buterin, this did not create a reliable price “floor,” because a large share of demand for the blockchain came from internal crypto use cases.

In particular, if Ethereum’s price drops tenfold, revenues from such use cases could also shrink: users would have less money to pay fees. As an example, Buterin mentioned the sale of digital apes, during which $180 million in fees was burned in a single day, as well as more routine activity, including lending.

In his view, the “minimum valuation” argument only works when the revenue source has external backing. Ethereum has more grounds for such a model thanks to the growth of the real-world assets (RWA) market, but Buterin does not expect the network’s mature economy to regularly generate activity spikes on the scale of the sale mentioned.

Fee Focus Could Weaken Decentralization

Buterin’s second argument is that trying to justify Ethereum’s current market capitalization of around $270 billion through fee burning would require Ethereum to operate like a large corporation.

He cited L’Oréal as an example, which ranks roughly 55th in the world by market capitalization. By Buterin’s estimate, the company spends about 0.58% of its market value each year on research and development. If Ethereum were to follow a similar approach, the Ethereum Foundation would not be able to cover such spending on its own.

Instead, the network would need in-protocol funding of about 700,000 ETH per year. That, Buterin said, would trigger political disputes, and validator revenue would fall by roughly two-thirds. And research and development would be only one line item in the budget.

In addition, corporations are forced to make subjective management decisions to adapt to technological change, enter new markets, and build products for different audiences. Buterin believes Ethereum would have to introduce much more centralized governance, which would run counter to its core principles.

Another risk is that maximizing fee burning could incentivize higher gas costs. This could potentially push out some users, especially those who most need privacy and security. Buterin noted that the price that maximizes the product of fee value and the number of uses implies lower activity than a model that maximizes accessible use of the network’s resources within safe limits.

Why Does Buterin Consider SoV a Better Model?

In the view of Ethereum’s co-founder, decentralization and CROPS are the key properties that distinguish the network from other blockchains and traditional financial systems. They have practical value not only for individual users, but also for institutions.

In particular, privacy for companies is not just an ideological principle, but part of risk management and compliance with data protection requirements. Security and the ability to run a node independently also have practical value for businesses.

Buterin believes that Ethereum holders who view the token as a store of value will judge it primarily by its ability to preserve value over the long term. And he called the most important characteristic of such an asset its ability to survive.

In this context, Ethereum co-founder mentioned several areas of work on the network:

• post-quantum security. Buterin advocates conservative solutions, formal security proofs, and using more rounds of protection than the bare minimum required
• protocol ossification. Once the core network work is complete, development should gradually shift to higher layers of the tech stack
• multisig. These should make it easier to store Ethereum securely
• privacy. Buterin mentioned work on Kohaku, as well as EIP-8288 and private account abstraction (AA)
• censorship resistance. The FOCIL mechanism should ensure that a coin holder can send a transaction even if block producers try to block it
• infrastructure decentralization. This is about reducing the network’s reliance on third-party services and making it possible to run your own node on affordable hardware

At the same time, Buterin does not believe that a focus on store-of-value should limit the ecosystem’s development. According to him, increasing the number of assets issued directly on Ethereum, including RWAs and decentralized tokens, boosts Ethereum’s utility.

Token holders get more opportunities to swap it for other assets, use it as collateral, and transact without having to rely on intermediaries. Buterin acknowledged that some directions of this development could create tensions with decentralization, for example through the introduction of faster slots. However, overall he considers these trade-offs less significant than those that arise when maximizing fees.

Summing up his position, Buterin called Ethereum’s main public value the spread of decentralization and the properties of CROPS to as many people and use cases as possible. And as a private reason to hold Ethereum, he considers its store-of-value properties, which directly follow from these characteristics of the network.

As a reminder, earlier Buterin said that crypto exchanges should focus on survival amid a growing number of hacks.