Viewpoint: ETH used to be a currency, but it has now been replaced by stablecoins.

Written by: Dankrad Feist, former Ethereum Foundation researcher, current researcher at Tempo

Translated by: Jinse Finance

I am not a trader. This article only represents my personal summary and does not constitute investment advice.

Currently, there are some interesting phenomena happening with the valuation of L1 tokens: despite continued growth in on-chain activity, many tokens are struggling to maintain their previous price levels. This disconnect suggests that the fundamental value proposition of these tokens may have shifted. Here are my thoughts on the current situation.

ETH Used to Be Money

There has always been much debate about whether ETH counts as money, but if we look at the facts, the reality is that ETH used to be money.

In 2017, Ethereum’s first significant product-market fit (PMF) was the ICO. That was a crazy year, full of optimism, but most importantly, ICO fundraising was conducted in ETH. At the time, ETH seemed only to go up, so both individuals and institutions kept most of their investments in ETH and even used it as the primary way to measure the value of their asset reserves.

2020/2021 brought another wave of adoption centered around DeFi and NFTs. Once again, ETH was at the core—remember when Christie’s and Sotheby’s started pricing in ETH?

Looking back, that was the peak of ETH’s adoption as money. In some ways, it had achieved the “three functions of money”:

• Unit of account (primarily for NFTs)
• Store of value
• Medium of exchange

According to the equation of exchange (MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the total volume of goods/services), when ETH is used as money, its market cap (proportional to M) should be proportional to on-chain GDP (PQ), assuming the velocity V remains relatively constant. In other words, as Ethereum economic activity grows, if ETH continues to serve as the main medium of exchange, its valuation should grow accordingly.

ETH Replaced by Stablecoins

Since 2021, time has not been kind to ETH: NFTs have lost much of their value, and its status as a medium of exchange has mostly been replaced by stablecoins.

Compared to the 2017-2021 period, Ethereum is now rarely used as a medium of exchange or unit of account. This may explain why, despite continued adoption, ETH’s appreciation seems to have stalled.

The Road Ahead

ETH can break out of this predicament by:

1. Transforming into a “meme-like store of value” that mimics gold (and now Bitcoin). However, this largely decouples it from the success of the Ethereum chain itself, and it’s unclear if it will be perceived as superior to Bitcoin; the value of meme-like stores of value is mainly driven by branding, not technical attributes.
2. Driving massive activity to reestablish ETH’s monetary function in areas where it has lost ground.
3. Focusing on generating revenue and burning fees, aiming for at least several billion dollars in income. This would require transforming the Ethereum Foundation (EF) into an efficient R&D and business development (BD) organization and finding ways to sustainably fund these efforts.

Many other L1s will face the same problem. While their tokens don’t have a history as money, their valuations are mostly derived from being seen as potential alternatives to Ethereum, with the implicit assumption that their tokens would also be used as a medium of exchange. Solana had brief success during the meme coin craze in early 2025, but this success was even more short-lived than Ethereum’s past drivers.

Conclusion

The challenge facing L1 tokens is that their historically high valuations have largely depended on their use as money (especially as a medium of exchange). The equation of exchange shows that when tokens fulfill this function, their valuations will track on-chain economic activity. However, the shift to stablecoins has broken this link for most L1 tokens.

This creates a valuation problem: if tokens are no longer used as money, what drives their value? There are only three options: either regain the monetary function, pivot to a store of value narrative (competing with Bitcoin), or generate substantial income through fee revenue and burning, fundamentally changing the value proposition. The latter requires a different type of organization: one focused on business development and sustainable revenue generation, not just protocol development.