You're Valuing Ethereum Wrong (And Here's Why)

Transcript

Ethereum should be valued at between one and $1.2 trillion. So it's a bit more than double what it is today. This is today. This is today. This not a prediction on the price, but this is a modeling which shows that the price could be could be probably $9,000 today easily, two to three times what it is. Its true valuation is [clears throat] not the sum of its revenues, but it's the sum of the world's dependence on it. It's how we depend on it. That's the value. We depend on the internet for email, for publishing, uh for connections, for communications.

And we're going to be more and more dependent on Ethereum specifically. [clears throat] So, this requires a mental shift of sorts. uh and the shift is from a feebased valuation which some [music] analysts want you to believe that this is it. We have to think from shift from feebased valuation to flowbased valuation from TPS comparisons to economic settlement. Welcome to the [music] edge podcast. I'm defi dad here with nomadic. Today's show features William Mugayar, author of the business [music] blockchain, entrepreneur, investor, and longtime Ethereum adviser. William, thanks for

joining us. How are you doing? >> Hi guys. All good. Looking forward to it. You have over four decades of experience uh working in technology. I think you have a point of view that allows you to draw parallels to what you've actually seen in those four decades. One of the analogies I've heard you talk about is the internet as a public good and how we would value it if it was a company. So now we're talking about Ethereum, which is I believe, you know, one of the few uh crypto networks that actually mirrors the value of the internet. And so we're going to talk about how we can begin to value Ethereum as a public good. And really excited just to have you walk us through all

your thoughts and ideas on this. Uh let's start though with more on your background. tell us about all you've worked on the highlights real and then how does that ultimately lead you to Ethereum? >> Sure. So I started my career in technology working for Hillet Packard for almost 14 years. Um then I uh branched into the internet specifically in '95. At the time I wrote uh my first book in 97 called opening digital markets. Um then I wrote wrote another one which was a glossery of internet terms for executives. Uh then I um for a number of years I was a consultant on my own and then went back into the corporate world and got a taste of uh

outsourcing and offshoring. I was at Cognizant as a VP of global marketing. Uh I had a stint uh at Aberdine Group as an analyst uh in technology and then I became an entrepreneur again. uh I founded three startups. Um and then uh in 2011 or 12 uh got a taste of uh Bitcoin and the blockchain obviously which leads us to my first involvement with Ethereum uh almost exactly 12 years ago uh since I live in Toronto and as you know that's the birthplace of Ethereum uh almost exactly 12 years ago January the 1st 2014 I remember it because it was an important moment um uh

I met Vitalik and at the time I used to attend the Bitcoin meetups that uh Anthony Dioro used to organize and [clears throat] Vitalik used to attend those. At the time, Vitalik had just finished barely finished uh writing his paper and we were waiting for the meet up to start and I started to question Vitalik about Ethereum. Um and we had a lengthy conversation um [clears throat] at the time uh and he he wasn't even 19 yet. Uh he had uh just dropped out of university. He had I think done a couple of years and and decided to uh uh to take a scholarship and and um travel the world and as you know we all know what I

did and then he he realized that we needed more than Bitcoin and colored coins and um having had the experience I had before previously specifically I had had a taste of peer-to-peer technologies in 2001 uh right after the uh internet crash I used to run something called peer intelligence and we were chronicling about a 100 uh peer-to-peer technologies which at the time it was just mostly file sharing and and pirating music uh and these were the the days of Napster and uh with the internet uh with the web the early days of the web if you recall there was an early version of digital

cash uh that didn't go anywhere uh so I had had previous experience in those technologies and when I saw u bitcoin and and Ethereum specifically. I put two and two together and it dawned on me that this was going to be really big. And uh more specifically with Vitalic, what uh struck me is that Ethereum had a human there was a human element to Ethereum. It wasn't just about technology. It was about the impact that this technology was going to have on humanity uh and and on on humans on on us uh as as as human beings basically.

And uh then I decided to immerse myself completely into understanding Ethereum. Uh I became a close advisor to the Ethereum Foundation. I was close to the team before it was even a team. Uh I was um very close to Vitalic for three years. we became like reverse mentors. Uh he taught me blockchains every week and I was advising them on business matters um relating to the Ethereum Foundation and and that's kind of how it started. Grow wealth exponentially with Tauros leverage tokens. When the market moves in your favor, your gains become parabolic. They're built to ride [music] trends, autocompounding profits. With

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into, you know, some of the things that we've mentioned here, Ethereum plus the internet and Ethereum as a public good, I think it's worth just taking a step back and just looking at fundamentals again because you wrote a piece recently. we we've referenced it already called the fundamentals are coming to crypto. Um and I you you mention how we're moving past these narrative hype cycles. Uh I think collectively us as an industry are starting to look back and ask ourselves well what do we have to show for things? Um and where can we attach uh you know value to what we've done and how can we show what things are worth. So maybe uh maybe you just kind of walk us through your highlevel uh

fundamentals. thesis that you have. >> Yeah. I mean, you would think that 15 or 16 years into the evolution of crypto, uh, we'd have something better than speculative factors uh driving valuations because this this is where we are today. And if you look at uh the prices, just about anything that is not related to crypto is moving crypto. Uh, one day is uh it's geopol geopolitical uh events, another day it's interest rates. uh it could be uh what Nvidia is doing. Uh it it's it's really not related to uh uh to the blockchain and and that's the sad moment that we're in.

Um so I kept asking myself like how do we h get out of this um vicious cycle uh and then how do we start to take control of our own destiny? And uh the thing that uh we have today unfortunately uh there are lots of bad projects and zombie blockchains that are sucking the air out of the attention room and uh and these companies have many lives. Uh they don't die. Uh if there's a crash, the price goes down a bit, but they're still alive and kicking. Unfortunately, when we had the internet crash back in 99, it really wiped out companies like you

there was no kidding about it. Companies were gone. Companies that had either bad um models, business models or were not supposed to be public, they were gone. Uh with the blockchain, it's not the case. There is no roadkill. The only roadkill we have is if there is fraud or crime uh like the SBF and and other situations and uh from a legal perspective they go but so many projects are still kicking unfortunately because they can print money. So uh I kept asking myself how do we value uh blockchain companies so that the fundamentals matter and when I [clears throat] dig deep into it it I

came to uh realize that DeFi DeFi was leading the way. Uh DeFi probably is the first vertical uh to reach fundamental uh maturity uh because you can look at some metrics today. You can look at TVL total value locked. You can look at protocol fees. You can look at revenue. You can look at active users. You can look at transaction volume uh dex volume, treasury holdings. All of these have meanings and and these signals uh are are meaningful if you want to analyze the D5 protocols. Uh so we move away from liquiditydriven hype cycles in in D5 protocols at least. uh and we go

into usage uh based taliation models. Uh so in other words, DeFi is becoming more predictable and we it's not perfect but it's directionally correct. We're kind of going in the right direction. Then the second sector that I looked at was the the centrally managed or uh the corporate chains uh those that are uh dependent on revenues and and these these chains include the likes of Solana and Tempo. Um they they keep telling you re revenues are important and Solana keeps >> [clears throat] >> uh bragging about the revenues. Fine revenues are important for you. That's value uh Solana on multiples of of revenues. Um and [clears throat] um

that's how SAS companies are are are valued because they are run like businesses and they depend on revenues and if they didn't have revenues they probably would not do very well. Uh then the third segment leads us into is Bitcoin and everybody says yeah Bitcoin is a special snowflake. Well uh it wants to be a digital gold. Fine. Uh but it's getting its stress test at the same time. Uh if if Bitcoin wants to be digital gold as you know gold uh is a valuable uh is a good store of value.

Why? Because it withstands uh wars and crisis. It has many stress tests and it it does well when the when the when it's being tested. Uh Bitcoin keeps getting stress tested uh week in week out. Uh and uh every time it does well and recovers, it becomes stronger. That's fine. Let's leave it alone. But then that brings us to Ethereum. Uh and I came to realize that Ethereum is also a special snowflake but of a different kind. And that different kind is that it is a public good at the end of the day.

Uh Ethereum is is not cannot be judged by uh its revenues. Uh it is not a corporate chain. Uh it is not a centrally managed chain. Uh it is something different. Uh and the closest analog to it is not a corporation. It's the internet. So as a public uh platform uh the valuation of Ethereum can be quantifiable uh uh because uh it it extracts it doesn't extract extract revenues but it enables value creation at a scale which is the same as what the internet did.

The internet does did not extract value. it created value for many other companies around it and and that's when I dived into uh my thesis and the report you mentioned which is to uh try to understand Ethereum as a public good infrastructure. Okay, William maybe before we even get into this idea of Ethereum as a public good. We we talked a little bit about the internet and Ethereum as well in the beginning. So maybe explain to why you think the internet is a good sort of valuation precedent for Ethereum.

>> Sure. I mean when we look at the internet companies today, the mature ones, the Facebook, the Google, Amazon, eBay, even the largest SAS companies, we see some fairly sophisticated ways that Wall Street measures uh these companies. Uh the fundamentals are real and uh um and they they all share uh u things like u uh ecosystem value, network effects and and they have created modes uh around uh their uh markets uh and even more each one is uh valued differently.

Amazon is not valued the same way that Facebook is valued is not valued the same way as Google is valued nor eBay. So there's also been a segmentation that emerged in the internet company space, but we didn't get there uh right away. Uh it started with some very mundane and very incomplete and very simplistic and even lapable metrics. In the early days, if you were around in the mid 90s, we used to uh look at internet companies uh and look at uh uh page views or banner ad impression or unique visitors or monthly active users. I mean, these are

very these were very crude uh proxies for attention and but that's all we knew what to measure back then. revenues came right after. And this is what we're in the same boat today with blockchain. And the most laughable at, the most ridiculous metric is probably going to go away. And it's probably uh revenues uh for for those that are centrally controlled. Uh when you when we look forward to the future, uh we're going to laugh at that. It it's almost like it would be the equivalent would be valuing the internet based on TCP IP packet fees. It makes no sense or valuing Amazon based on shipping costs.

It's it's nothing they have nothing to do with with their business model. So we need more sophistication uh in the blockchain uh world. And this is why back to my previous point that DeFi is leading the way uh because metrics in the D5 space uh have meaning when we say TVL why why is TVL important for value locked because it mirrors assets under management it's something that is real uh why is protocol fees important because it's like revenue uh transaction counts it's user activity it's it's a it's a proxy for product to market fit treasuries. Why are treasuries

important? It's balance sheet stability. So the these are like we're not talking uh things that are not u uh familiar to to financial people. So the these are real metrics that you can tie. Do you think one of the issues is the metrics that are being uh created and marketed as signs of growth and uh signs of uh adoption? I I do worry about the fact that these metrics are sometimes created, of course, by those that are invested in those protocols and and so there's a game of marketing and and pushing that messaging and that framing

that here's the one metric that matters. Um like I've I've recognized as a proponent of TVL, there's a criticism of TVL as uh not being the best metric for all DeFi protocols. you know that you could have a more capital efficient AMM uh versus another one that has a ton of TVL but is not as capital efficient and doesn't have as good of DEX volume. I I think we're all trying to get to uh the best uh holistic view of these different protocols and I think you've called out a number of those metrics uh not any single one of those being the silver bullet to valuing any single protocol or

any single chain. >> Exactly. The point is it's not just one metric, it's a number of them. And and the point is that now we have a number of them to look at and it's the totality of them that [clears throat] will allow one to make a decision or to form an opinion about uh the validity and the value of a of a specific whether it's D5 protocol or a blockchain and it's it's more comp in a nutshell it's more complicated than a number. >> Okay. So, like when we're talking about this kind of asset specific model, I feel like we're form fitting the perfect um you know uh valuation methodology for our specific asset just to make it look the best. And and that bothers me. But I

also see that you have to do that because these are totally new different things. You can't just take pluck something out of Tradfi and be like, "Hey, this is how we're going to value Ethereum now." It's like, no, you actually do need to cater to the asset, but I have this like internal conflict that we're just making the the best outcome for the asset that we hold. If that makes sense. >> I mean, yeah, it might be a short answer. What I would say is that it's an evolution. It's an evolution. And uh same way with the internet when we we moved off uh page views and got into uh other things that were more meaningful like SAS companies became uh kind of um more prevalent and then then now it's um

ecosystem um it it's going to be an evolution and uh as it turns out the the the projects that have the most uh that are the most advanced are going to have the most richness in the metric. traits and uh and Ethereum is not a onetrick pony. It's it's on it has many levels uh of many layers and you have to peel all these layers. And when I just think about this personally too, I again I feel like I can cherrypick what I think is the most meaningful metric and it is TVL for me because TVL equates to trust.

And like you said, if it's assets under management, where am I willing to put my hard-earned assets? Where do I trust them the most? And and that's why I still think TBL is such a pristine metric. Like sure, great volume uh is is great too. People using uh using and transacting, but hey, where are people willing to store uh the bulk of their own, you know, personal worth? But I mean, it's it's it's kind of uh what I would say what I would add is that um TVL is necessary but not sufficient I would say and um you need to look at other metrics. It will be a bit like of course with banks like for take banks for banks one of the key metrics for

them is assets under manage uh because that that is that's how ranks that's that's how banks are ranked right the bigger the bigger bank has the most assets on the manage but imagine if you were to uh go to a a a branch a u a bank a retail and then you would you would look at the number of clients going in and out of that bank and as a measure uh to see whether there is activity there. Uh but that doesn't tell you anything. For all you know, they could all be going in to withdraw their money. So it's so it's but if there is activity and the uh AUM is growing then no there is activity they are depositing money

and they are taking loans and doing stuff with it. So you you need to look at the holistic uh set of metrics. I think what we're all getting to is one of the challenges over the years with Ethereum has been this confusion over whether Ethereum is a public good or whether it should be treated more as a company. I think your argument, William, is that it is a public good. I I want to talk more about that. Uh I think that this is where the the origin of uh having challenges to value it come from.

you know, you have folks who want to forcefitit a valuation framework based on uh how we value publicly traded companies, but Ethereum, I I think it clearly meets the definition of a public good because one person's use of it doesn't exclude another and one person's use doesn't mean that again someone else uh is is I guess more challenged to be able to use that. Uh but can you dive more into this about why is Ethereum a public good? Like let's talk about that before we get into how you value Ethereum then as a public good.

>> Sure. Well, Ethereum is the best thing we have today in terms of uh looking at it as a public good. Uh Ethereum is not a one-trick pony. It has multiple personalities. It has multiple use cases and depending how you interact with it, you're going to see one or the other. And what's common to this is that it is it is not a platform that is going to extract value from users. It's the opposite. It's it's a platform that is giving value to um to others. Uh and public goods create outsiz benefits that are collective and that goes beyond what any one individual or any one company can capture financially. If something

benefits everybody, if it can be used without diminishing somebody else's use and if it under if it underpins economic uh activity and innovation uh then you have to see it uh as a public good and and and that's where Ethereum uh shines today. It's a prime example of a public good. It depends on multiple contributors that are outside of Ethereum proper and and who who are these critical contributors. It's the client teams like G, Metamine, uh Lighthouse and Nimbus, you name it. It's the global research community uh that

are advancing research whether it's in the zero knowledge proofs or others. It's the standard process uh that is producing the ERC's. It's the uh security reviewers, the auditors that are making the system harder and harder. It's the developers that are maintaining the open-source tooling. It's the educators, the documenters that are lowering the barriers to entry. And it's even us, the supporters, the the talking heads that explain it to others. Uh all of these are foundational elements. Uh and none of these could be taken for granted.

and but they are essential and they have nothing to do with the Ethereum Foundation. It's all around it. So it's not a company. There's nothing central about this. The other thing that we have to understand like what what are public goods? Public goods are are defined by three properties. Three one is there are non there's non rivalry meaning one person's use does not diminish somebody else's use. Use Ethereum anybody can use this. Second one is nonexcludability meaning uh you cannot prevent access uh so anybody can it's open it's it's uh so that these are two important ones and u the third one is that they are

systemically enabling it means they they create more value than they capture and and and when you apply those properties to Ethereum it ticks the boxes And and to give you an example as to why this is the case um in the non [clears throat] uh Ethereum world uh what is a non rival versus good uh scientific research uh knowledge open-source software GPS signals if I use the GPS it doesn't diminish your use of GPS it's available uh satellite weather it's available to

everybody. TCPIP packets, it's available. Um, second category, non-excludable goods. What's non an example of non-excludable goods? Street lighting, clean air, uh, base layer internet technology, infrastructure that that is non-excludable. Um, we we can all use it and uh we're not competing with each other's use of it. Uh the issue is that markets tend to undervalue what they cannot meter, what they cannot monetize, what they cannot restrict and and public goods and Ethereum uh for that matter uh exemplify uh this paradox. It's a paradox. That's

why it's difficult to to explain. It's difficult to understand. At least I'm trying to explain it. But people will have to assimilate this explanation and realize uh that [clears throat] u there are some things that you cannot see that are valuable and we're going to get into that. It's one of the one of the tenets of u valuing public goods because you take them for granted [clears throat] and when you take something for granted you only see the value if you don't have it. If somebody takes it away from you, if somebody took away email from you, then you understand really the value of it. Imagine what happens when the internet goes down for 10 minutes. Some people go crazy, right? And you start to

value the value of of the email and communications. Um and uh and so that that's kind of where we are uh with uh looking at uh Ethereum uh with with a public goods uh lens uh but at the same time it's necessary. It's there. It's an infrastructure uh and it enables a lot of economic value externally. When you say non rivalry, you know, this is one of the points you're using to qualify Ethereum as a public good. If I were a critic of Ethereum, I'd be arguing what about gas spikes?

How do you explain that? Is it more about where the end state of Ethereum is with the L2 road map and and the idea that there there will be a bunded block space or or right now is this uh maybe a a fair criticism that like we're not there to that end state? >> Well, I I I think this is more of a tactical uh element. Uh but eventually I mean you you get in line and you you get it, you pay a little bit more and you get it. So it's not really a stumbling block. Uh it would be um I mean the analogy would be uh um if you're driving on a on a highway. I mean there there are some tools there are some peak hour

um fees. Okay. I mean it it's a fact of life. It doesn't prevent you from using it. It's a little bit more expensive. Uber has peak fees, right? It doesn't stop you from taking it, but you just happen to be there at 5:00 p.m. or 6 and and you just pay a little bit more, but you get in. It's never going to be stopping you from using it. So, I'm looking at uh non rivalry at the strategic uh with a strategic lens, not necessarily only at the tactical lens. William, I want to dive a bit deeper into Ethereum and the internet. Can you maybe take us into how you think uh Ethereum mirrors the internet maybe from like an architectural and economic

standpoint? And for those listening, we're going to we're going to flash a graphic up on the screen um that kind of tells the story as well that William can kind of will be walking through here. So, let's look at the four layer birthday cake basically of the internet versus Ethereum. At the base layer, what you see at the bottom here is really the common basic layer. It's the pipes. It's the fiber, the cables, uh the towers, the physical network, and it both the Ethereum and the internet uh rely on that and and that's what's common. But that's where the commonality stops. Then each one has its own uh layers above that. So so for the internet, it's well

known the protocols. The TCP IP is the layer one of the internet and then the access networks it kind of go on top of that and then the applications even on top of that and each layer needs the one below it right this is how it works each layer needs the one below it to operate. You look at the Ethereum side, uh the base layer, layer one is Ethereum proper, the protocol itself and then layer two is the all the layer twos around I mean above and around now there's almost close to 200 of them and and and they keep growing and then at the top layer it's the apps and the institutions that are uh using the

bottom layers whether it's uh tokenization or defy uh stable coin for transfers all of this is on top of uh the lower architectures. Uh the interesting thing is that what's a public good and what's not. The public good is really the layer one only and you go to layer two the access the access networks like in the internet uh world is like a club grid. a club, you have to pay to get into the club, right? You pay your ISP, you you pay for internet access, right? Whatever it is, if it's $20 or $50 installing and so on, it it's like being part of a club. Uh and in the same way, layer 2, they have

some fees and you pay that. You pay that. And then the private goods is kind of the application >> [clears throat] >> uh side. It's it's kind of uh a bit more sophisticated. you have to be uh not just paying a an entry fee but you you become uh a part of it and and and that's kind of the analogy private club or public goods and the uh Ethereum is really a public good uh and then we can dive into that as well. >> So William, how would you say the internet has been valued up up to this point in time?

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So this is nothing new. I mean there has been some well doumented and schol scholarly sound uh methodologies to uh evaluate the internet's worth and I mentioned them uh in the research paper uh the blueprint of uh Ethereum uh that follows the internet and it's along three uh three dimensions. The first one is you look at the market cap of the internet centric companies. So this is the visible value. So any any companies that are internet specific and there uh the range is about 12 to$13 trillion when you add them all up. The second factor is the digital economy slice uh of GDP. [clears throat] Think of it the flow value. So you you you you think about the fact that the

internet is probably accounting for about 15% of the total world GDP. World GDCP is about 110 trillion today. So that's about 16 trillion uh of the world economy that depends on the internet per year. So you want to capitalize that on a specific discount rate and you get $160 trillion. The third item, the third uh value uh is what the GDP does not see. It's the it's the invisible part is and and they called it the consumer surplus. This is on price value because a lot of the internet value doesn't show up as revenue. It shows up as uh uh uh benefits. But think of the value of

search of uh looking at maps of email of messaging social platforms content that's free Wikipedia knowledge and uh it's been quantified. I'm I'm not making this up. There's been u research published in uh um in in various academic journals uh all referenced in the paper that I I published. Uh search engines are valued at you know how much $17,500 per user per year in the US. US is a bit higher because the standards of living are higher GDP per capita is higher. So email is valued at $8,000 per year.

video streaming. YouTube is valued at $1,000 per year. Facebook $40 to $50 per month. Uh that's 500 per year. You multiply that by 5 billion users and you average down because some countries are more rich than others, right? You get about $1,000 of surplus value per user. That's 5 trillion per year. You capitalize that at 5% uh discount rate, you get 70 to hundred trillion. So you put all of these together and you get a an internet a variation equivalent of a 100 to $300 trillion equivalent. Imagine if TCPIP

had a token, it would be valued at that and that's three times the annual GDP of 100 trillion possibly. So that's kind of how the internet models have been valued. And what I did is I took that and I tried to draw the parallel for Ethereum. And we can dive into that if you'd like. Just a reminder for listeners and viewers, uh the report that we're referring to, the title again is the internet's blueprint for Ethereum and that is uh published by uh the Ethereum market research center which uh

William leads. So anyways, we'll put that into the show notes uh just for your convenience. >> Okay. Okay. I love I love this breakdown of how you kind of value these different aspects of the internet that I've always assumed kind of had an invisible value that I I couldn't quantify. So taking this holistically, how would you apply this what you've done for the internet to Ethereum? So same uh methodology more or less along three parameters. The first one is capture value. Capture value is what you see. It's a visible.

is a financial layer basically and uh the capture value uh for ETH uh as the asset the native asset is as along again three uh three pillars one is consumptive function the gas it's gas right and the second is a security function is a staking and the third is a reserve function is collateral uh that has a use so that is something we see we can put a number on it and I'll come back to that the second uh uh wrong is the economic flow uh that Ethereum uh powers. So that flow is dependent on Ethereum. It's kind of the equivalent of the digital GDP and the the economic uh flow value. Uh today Ethereum secures uh

trillions of dollars of value transfers because that's important. It includes stable coin settlements, uh, you name it, whether it's USDC, USDT, uh, the DeFi liquidity cycles, all the dexes, the the lending, the the per the options, uh, the structured products, uh, layer 2 uh, rollup settlements, uh, tokenized assets and RWA, uh, the, uh, NFTs, transactions and royalties, the, uh, the DAO operations, ident proofs uh attestations credentials verification uh, all of this is measured through value settled, not fees collected.

Again, fees are are just a, uh, a footnote here almost. Um so when you aggregate all of that uh these flows easily easily exceed today $50 trillion today uh and you [clears throat] capitalize that uh and you get 300 billion to $3 trillion in uh in in capital value. Now the third uh item that's very interesting and we don't talk about too much is a trust surplus. That's the invisible layer and we can pop a chart there as well. And and what what is what is that? It's it's what the users would pay would have paid for trust minus what they actually pay on Ethereum.

So one is high, one is low. And the difference is a trust surplus. And and and that's real, but it's it's unpriced unless you quantify it. And what are some examples of trust surplus examples? Stable coins that reduce crossber friction but made by maybe 98%. Uh that's that's a real uh uh surplus. Um uh DeFi that eliminates market maker monopolies for example. uh tokenized treasuries that reduce the premiums that custodians

uh dictate. Um Dows that make operations more efficient. Uh onchain identity that can reduce uh verification costs for example. Smart contracts as a whole uh that that reduce uh contractual disputes. U so all of these are are a measure of trust. So you can think of trust as a monetary premium, collateral premium, and security premium. And you add all of these together, and you have a net trust surplus. Uh, and I've estimated it to be between 50 to $150 per year per user. Again, we're not at

the internet scale yet of the thousand per year. We're we're we're a little bit less. and we have 20 to 30 million users let's say for Ethereum and you get about one to four five maybe billion dollars if you push it uh in trust surplus per year and and capitalized it's important now it's not just per user it's also systemic systemic meaning uh you have tokenized assets that's one to two trillion uh you have um open interest in DeFi that's uh maybe one to two trillion in you have stable coin flows another two three trillion on the L2s uh and and [clears throat] you have

all of the connected systems uh like the EVM uh connections that could be 5 to10 trillion dollar so all of that you aggregate everything together and on the low case I I came up with three three different valuations on the low case which is where we are today Ethereum should be valued at between one and $1.2 2 trillion. So it's a bit more than double what it is today. This is today. This is today. This is not a prediction on the price, but this is a modeling which shows that the price could be could be probably $9,000 today easily, two to three times what it is.

Uh go four to five years from now. uh in the middle and like 26 27 28 maybe 29 it can go even higher to two to three and a half trillion dollars. So we'll move up a little bit and the high case is uh in the range between 2030 to 2035 then we can go 4 to6 trillion. So easily you can see uh the chart uh we can see a a value uh of Ethereum that's a lot more than it is today. If you uh add all of these uh different sectors and and this is how we arrive at the

true valuation of Ethereum as a public good infrastructure that mirrors the internet specifically. So if you follow along in the report, I'm on page 25. And so this is where you've unpacked these three different pillars of the Ethereum valuation model. Captured value was one. Two was Ethereum dependent economic flow and three was the trust surplus. The most obvious followup here is like where's the the mispricing of ETH coming from? And so is one of these three pillars to blame? Like where do you see the

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Okay. Sure. Yeah. Well, the mispricing is in the second and the third one. The the second one is the flow the flow aspect. Um because we're not talking about it too much, but I think we need to talk about it because what's what's more important is the assets uh not not just the fees. Again, back to the the strength of the balance sheets and the collaterals. And then the trust surplus uh is going to be increasing and and and we we have to measure it uh because Ethereum we don't want Ethereum to depend on speculative euphoria. uh we don't want Ethereum to depend on traders that see the volatility as a playing

ground and uh and and we need to go back to the fundamentals and be able to measure uh those um so um the uh ways that uh uh unfortunately markets undervalue infrastructure. Uh markets undervalue trust. Uh they undervalue neutrality. they undervalue network effects and and systems that diffuse uh that have [clears throat] a lot of beneficiaries. Uh because Ethereum is not a onetrick pony. It has a lot of beneficiaries. So how do we quantify that? Um uh but that that's that's the the unfortunate thing. But we we we have to make sure that these are more

visible. We have to talk about the fact that Ethereum's revenue understates its importance that it's its supply >> [clears throat] >> uh it kind of obscures a little bit the systemic function that it has. It's the system that matters. The system is very strong. Uh and as decentralization defies corporate analogies, there's nothing like it. uh the the L2's growth in the L2s it it hides the base layer dependencies because it's growing now uh outside of the core uh and um the visible activity uh is is is important because it's about the institutional flows and and all of these uh valuation

models uh will trail the economic role. uh but we have to talk about it because it's a public infrastructure uh that is valuable and the way I look at it is that uh you have to look that uh uh to Ethereum as the thinking that its true valuation is not the sum of its revenues but it's the sum of the world's dependence on it is how we depend on it that's the value we depend on the internet for email for publishing for connections, for communications, and we're going to be more and more dependent on Ethereum specifically. So, this requires a mental shift of sorts.

Uh, and the shift is from a feebased valuation, which some analysts want you to believe that this is it. We have to think from shift from feebased valuation to flow based valuation from TPS comparisons to economic settlement that's more important from short-term revenues to long-term trust minimization. As we get used to uh these new systems we trust them more. And it's not about blockchain competition and comparing speeds and feeds. It's about institutional adoption and the impact and the growth of the digital GDP. That

is what Ethereum is enabling. And we need to look forward. Uh the next wave of uh of onchain uh uh activity institutionally speaking is going to include tokenized uh money market fund, tokenized treasuries, uh tokenized credit, uh private debt, uh [clears throat] all the ETF products that are continue to grow proving on Ethereum, uh corporate treasuries, uh [clears throat] using Ethereum for hedging, uh central and collateral networks. We we've barely scratched the surface there. Uh AI agents, AI is going to be a big front end uh to uh

interacting with onchain assets. Uh a lot of people criticize the user interface and the user experience uh on blockchain wallets specifically. AI has already figured out the user experience. We don't have that issue. Imagine now a layer of AI on top of a wallet where you just talk to it in English and you ask it to create a an asset or to transfer an asset. Machine to machine commerce uh with the trust in the middle and uh prediction markets that are embedded not just kind of you go and you read about the prediction markets but they become part of a transaction. Um so so in the same way that a the internet has

organized information, Ethereum is organizing value. That is why in my opinion the future of of Ethereum is to be measured in trillions, not billions. And that is not an ambitious goal. It is something that is unavoidable. Unavoidable. We are going to get there. William, I just want to say this is this is such a fascinating model to me in in part because we've been having a lot of discussions on this podcast about the intangibles of of Ethereum and you know we talk about them at Nauseium like the uptime, the multiple client diversity and all this stuff that I think um very hard to measure and I actually haven't seen

anybody try to measure it or or quantify it and I think this is the closest I've seen to somebody actually measuring those intangibles with um a a really interesting and unique model. So, um yeah, just like kudos to you for kind of coming up with this like this is like a primary research uh model piece and you know I of course I would say this as somebody that holds the asset and I like the outcome but I think it tracks like it all tracks uh the whole way through.

So, um, yeah, very interesting approach and like a a new approach that I really personally haven't seen, uh, applied to to Ethereum. >> Yeah, thanks guys for allowing me to amplify and explain >> [clears throat] >> uh, these messages because it's all about education. And when something is complicated, when something is not a one-trick pony, it takes longer to explain it. In the same way that if you ask anybody what does the internet mean to them, you will get a different answer depending on their experience with it. For some people it's uh publishing, for some others it's communication. For others it's a transaction platform where they uh see it as a financial network and so on and so forth. The same thing

is happening with blockchain and Ethereum specifically. It's more than a onetrick pony. So it requires a more sophisticated lens and depending on how you interact with Ethereum, you are going to have a different answer and you are going to see it differently and that's what's important that it to see it in a more sophisticated and in a more multilateral and and multi-level uh uh lens and and that's the right right way of looking at it. >> Yeah. And I think something that we're seeing, I think everybody who's paying attention is that institutions are starting to um realize this trust surplus. They're starting to gravitate towards these intangibles um and see their worth. And again, hard

to quantify that, you know, in numbers, but qualitatively they're choosing Ethereum or Ethereum L2s uh time and time again, right? like we we just had uh uh Johan Kerbat from Robin Hood on and he basically explained their whole reasoning of picking uh to develop on Ethereum L2 and fascinating to hear it firsthand from him and and he's an engineer and like have him walk through step by step their mental process there. But again, yeah, by and large I think we're just starting to see even more uh institutional awakening on what's happening in the Ethereum sandbox. So, um, yeah, I think I think they're

they're on to your model. >> William, could you apply your valuation framework here for Ethereum to other blockchains, something like Bitcoin? I mean, Bitcoin wants to be digital gold. So, you can't apply digital gold uh valuation in the same way that uh if something else is being valued as an infrastructure. So for Bitcoin, the digital gold analogy means that it has to withstand stress and crisis around the world and it has to be this sort of value. Um so to sum it up, Bitcoin is a one trick pony. It's

a digital goat. That's it. Uh whereas Ethereum is a multiple tricks pony and it's an infrastructure that does a lot of things. Now if other uh blockchains want to uh mirror this valuation framework, be my guest. Uh but they will not be as rich uh and as uh um uh perhaps uh there won't be as many metrics available uh when you look at each one of these uh prompts and uh they will fall short perhaps. Uh but yeah, I I'd be happy to compare the Ethereum flows to uh whoever is behind them. Uh and uh uh sure, let them be compared,

but Ethereum will will be on top. Guys, I think this is a great place for us to start to uh close out. So, first I want to remind our listeners, they can learn more about the Ethereum Market Research Center by going to emrc.com. That is where they can find [music] the link to the report, the internet's blueprint for Ethereum. Uh we will also link that in the show notes so you can easily find it. Follow Ethereum_MRC on Twitter. Also check out Williams uh personal site uh which is where you can find awesome blog posts like uh the fundamentals coming back to crypto post we referred to here. That's at wugayar.xyz.

XYZ. And then lastly, follow William's handle on >> [music] >> uh Twitter. It is woo r m o g a y a r. William, thank you so much for coming on and talking through some, you know, really complex topics. Uh really would love to have you back in the future. And I just want to give you the final word before we go. Thank you guys. I really enjoyed the conversation and um the best is yet to come. Thanks everyone for tuning in. To stay uptodate with future episodes, plus get expert tips, [music] strategies, and exclusive content, subscribe to our free newsletter at the edge.xyz.

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