Vitalik Buterin Highlights ETH's Potential as a Store of Value Over Burn Mechanism

Original author:Vitalik

Compiled by Odaily Planet Daily (@OdailyChina); Translator: Asher (@Asher_0210)

Last night, Vitalik posted on X that Ethereum should focus more on ETH's role as a store of value. While fee burning provides some support for valuation, its impact is limited, and over-pursuing burning may harm the network’s decentralization and resistance to capture. A store of value better aligns with Ethereum’s strengths in security, privacy, and stability. EIP-1559 and its burning mechanism should still be retained, but there’s no need for disappointment if burning remains below 10% of new issuance over the long term—ETH’s value has other sources.

Fee burns have never provided a truly solid valuation floor.

The valuation of fee-burning tokens is typically based on the net present value theory, with the simplified formula: market cap = annual fee burn value ÷ discount rate. Suppose a token burns $1 billion worth of tokens annually and can sustain this at a stable rate over the long term. If the discount rate is 4%, this implies that people consider $1 billion today equivalent in value to $1.04 billion a year from now, resulting in an estimated valuation of approximately $25 billion for this asset.

Following this logic, $25 billion can serve as a natural valuation floor: below this level, investors can buy tokens and gradually sell portions over time while maintaining their proportion of the total supply and achieving returns above the market benchmark.

Between 2021 and 2023, Ethereum removed a significant amount of ETH through fee burning. However, the issue was that this never constituted a truly reliable bottom. At the time, most of the burning came from within the crypto ecosystem itself. If the price of ETH fell to one-tenth of its original level, the revenue generated by these use cases would also decline, as participants would have less capacity to pay. This applies to both NFT minting events that once burned around $180 million in fees in a single day and more common lending activities. A valuation bottom becomes more credible only when the underlying revenue is supported by demand outside the crypto market.

As real-world asset (RWA) adoption grows, Ethereum today is indeed better positioned to benefit from this external support. However, mature and stable businesses are unlikely to recreate the scenario of massive daily fee consumption seen during speculative frenzies.

What cost might Ethereum incur for destruction?

If the decision is made to rely on fee burning to justify ETH’s current market cap of approximately $2.7 trillion, Ethereum would essentially need to operate like a global enterprise on the scale of L'Oréal. How do truly large corporations sustain their position over the long term?

First, they require continuous investment. According to AI estimates, L'Oréal spends approximately 0.58% of its market capitalization on R&D annually. If Ethereum adopted the same ratio, the Ethereum Foundation’s funds would be depleted quickly, potentially requiring about 700,000 ETH per year in protocol-funded support, reducing validator income by roughly two-thirds. This is only for R&D—enterprise expenses to maintain competitiveness extend far beyond this.

Second, they require active governance. In the face of technological and cultural changes, companies must make clear decisions—entering which markets, developing which products, and how to meet the needs of new users. Along this path, Ethereum will need to maintain highly interventionist governance over the long term.

Continuously allocating large sums of funds and strengthening governance both raise political issues and are unlikely to help Ethereum improve its decentralization and resistance to capture. The above funding and revenue figures are estimates under this assumption.

In addition, pursuing fee burning somewhat implies pursuing higher gas prices, which may exclude certain users, including those who most need privacy and security. Maximizing “price × usage” is a different optimization goal from enabling as many users as possible to use the network within secure resource constraints.

As a store of value asset, the most important metric is survival.

When I ask people what they value most about Ethereum, the most common answers are decentralization and CROPS—censorship resistance, capture resistance, open source, privacy, and security. These attributes are equally valuable to institutions. Individuals may view privacy as an abstract concept, but for institutions, privacy involves practical needs such as risk management and data protection compliance; the same applies to security and running one’s own node. For ETH holders, priorities depend on their holding intent: if the goal is to keep pace with financial trends and generate fees, they may look for strong leadership that continuously embraces new opportunities and evolves the protocol; however, if ETH is held primarily as a store of value, the primary metric is whether the network can survive in the long term.

This means Ethereum must take careful trade-offs in security to responsibly address the changes brought by quantum computing and AI. Once the core protocol is complete, it should gradually stabilize, encouraging more innovation to move upstream and setting high barriers for new features that increase protocol complexity or new reward mechanisms that could be controlled by interest groups. Users should also be able to securely and privately custody their assets and be confident that their transactions cannot be blocked by block builders. Work on multi-sig, privacy tools, privacy-aware account abstraction, and FOCIL all serve these goals. Reducing dependence on infrastructure providers is equally important: I can currently run a node on my laptop, syncing in under six hours and using only about one-eighth of the disk space, performing better than in 2019.

There is also strong synergy between value storage and application growth. The richer the native RWA and decentralized assets on L1, the more things holders can do with ETH: securely and trustlessly exchange for other assets, or participate in more activities using ETH as collateral, all of which enhance its utility. Trade-offs still exist between these uses and decentralization—for example, shortening block intervals may introduce centralization pressures—but overall conflicts are smaller than those arising from solely maximizing fee revenue. From a societal perspective, Ethereum’s significance lies in enabling more people and applications to access decentralization, privacy, and security; from a holder’s perspective, ETH’s value storage properties derive precisely from these protections.