Is Ethereum Undervalued?

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Ethereum has long been considered a cornerstone of the decentralized web, often dubbed "digital oil" for its foundational role in powering smart contracts and decentralized applications (dApps). Yet, as the current market cycle progresses, some investors are questioning whether Ethereum is underperforming — or even undervalued — compared to Bitcoin and emerging competitors like Solana. While Bitcoin continues its steady climb, Ethereum appears to be lagging in price momentum, sparking debates about its future relevance.

But is Ethereum truly losing ground — or is it quietly building the infrastructure for the next phase of Web3? Let’s explore six key dimensions that reveal why Ethereum may still be one of the most strategically positioned blockchains in crypto.

Ethereum’s Growth & Innovation Are Still Accelerating

Address Growth Shows Strong Network Adoption

Despite price fluctuations, on-chain metrics tell a different story. According to data from OKLink, Ethereum has seen consistent growth in total addresses, daily active users, and non-zero balance addresses since 2017. This sustained user adoption reflects deepening network effects — not stagnation.

Layer 2 Scaling Is Now Mature and Dominant

One of the most persistent criticisms of Ethereum — high gas fees and slow transactions — has been effectively addressed through Layer 2 (L2) scaling solutions. The evolution from sidechains to rollups (both Optimistic and ZK-Rollups) has unlocked scalable, secure, and low-cost transaction layers.

As of now, Ethereum’s L2 ecosystem hosts over 50 active projects, with a combined Total Value Locked (TVL) of approximately **$38 billion**. Leading networks like Arbitrum One, Optimism, Base, Blast, Mantle, and Starknet each hold over $1 billion in TVL.

👉 Discover how Ethereum's Layer 2 revolution is reshaping DeFi and user experience.

What sets Ethereum apart is the security model behind these L2s. Unlike Bitcoin’s experimental Layer 2s — which often rely on centralized validators or external consensus mechanisms — Ethereum supports trust-minimized fraud proofs and zero-knowledge validity proofs via smart contracts. This means L2s can inherit Ethereum’s base-layer security, making them far more robust than alternative architectures.

In fact, many other blockchains, including Bitcoin L2s, are adopting Ethereum’s OP-Rollup and ZK-Rollup frameworks. This widespread technical influence underscores Ethereum’s role as the de facto innovator in blockchain scalability.

Unmatched Advantages That Remain Unchallenged

Diverse and Sustainable Ecosystem

Ethereum isn’t just a platform — it’s an ecosystem where foundational protocols have matured into industry standards:

These are not speculative ventures but battle-tested infrastructures that support billions in value. Their presence creates a compounding effect: new projects build on top of them, accelerating innovation while benefiting from proven security.

Best-in-Class Developer and User Infrastructure

Ethereum leads in developer tooling, wallet support, and cross-platform accessibility. Despite not being the first blockchain, it hosts the largest number of wallet providers, covering browser extensions, mobile apps, hardware integrations, and multi-sig solutions.

Support for ERC-20 tokens exceeds even Bitcoin across both centralized (CEX) and decentralized exchanges (DEX). Wallet features like gas customization, RPC import, social recovery, and domain services (e.g., ENS) enhance usability for global users — with language support spanning nearly 60 languages.

The upcoming rollout of Account Abstraction (ERC-4337) will further lower barriers to entry by enabling smart contract wallets with improved UX — think recoverable accounts, sponsored transactions, and session keys.

Moreover, the widespread adoption of the Ethereum Virtual Machine (EVM) allows new chains to leverage Ethereum’s tooling, libraries, and user habits. Chains that adopt EVM aren’t competing — they’re extending Ethereum’s reach.

EVM: The Web3 Standard No One Can Ignore

The EVM has become a de facto standard in blockchain development. A recent study by Paradigm found that 47% of central bank digital currency (CBDC) experiments among G20 nations are built on EVM-compatible platforms.

This isn’t accidental. By open-sourcing its execution environment, Ethereum has created a network effect similar to Google’s Chromium project. Just as most modern browsers (including Microsoft Edge) now run on Chromium, countless blockchains — even those marketed as “Ethereum killers” — run on EVM.

👉 See how EVM compatibility is fueling a unified Web3 developer ecosystem.

When a chain adopts EVM:

In essence, every EVM chain strengthens Ethereum’s centrality. They may compete at the application layer, but they depend on Ethereum’s standards at the foundational level.

ETH as “Ultra-Sound Money”

With the implementation of EIP-1559 and the transition to Proof-of-Stake (The Merge), Ethereum introduced deflationary mechanics. ETH is now burnable: every transaction destroys a portion of fees, counteracting issuance from staking rewards.

This dual mechanism — fee burning + limited issuance — means ETH has the potential to become permanently deflationary during periods of high usage. Coined “ultra-sound money” by Ethereum researcher Justin Drake, this model balances economic sustainability with value accrual.

Unlike purely inflationary systems that dilute holders or deflationary ones that stifle usage, Ethereum achieves equilibrium: secure validation without excessive supply growth, while returning value to stakeholders through scarcity.

Do Layer 2s Weaken Ethereum’s Value Capture?

A common critique is that L2s divert transaction fees away from Ethereum, reducing its gas revenue. But this view misunderstands ETH’s value proposition.

Gas fees are just one component of value. Consider Bitcoin: despite minimal smart contract functionality and lower average fees than Ethereum, it holds the highest market cap due to its role as digital gold — a store of value.

Similarly, ETH functions as digital oil: its value lies in utility and circulation. Every time an L2 secures transactions using Ethereum as its settlement layer, it reinforces ETH’s role as the backbone of Web3.

Furthermore:

Far from weakening Ethereum, L2s amplify its influence through modular architecture.

Is Ethereum a Security? The Regulatory Debate

The U.S. SEC has reignited debate over whether ETH qualifies as a security. This matters because if classified as such, it could impact ETF approvals and regulatory treatment.

However:

While an ETF decision may be delayed beyond May 2025, the broader trend points toward regulatory clarity — not suppression.

FAQ: Your Questions Answered

Q: Why isn't Ethereum outperforming Bitcoin this cycle?
A: Market sentiment favors simplicity and scarcity (Bitcoin’s narrative), while Ethereum’s complexity requires longer-term recognition. However, its fundamentals remain strong.

Q: Can Solana or other L1s overtake Ethereum?
A: While competitors offer speed and low cost, they lack Ethereum’s depth of security, decentralization, and ecosystem maturity. Most still rely on EVM tools indirectly.

Q: Does fragmentation hurt Ethereum?
A: No — fragmentation via L2s enhances scalability and choice while maintaining unified security. It's a feature, not a bug.

Q: Will ETH become deflationary permanently?
A: Under sustained network usage, yes. Fee burns already exceed new issuance during peak activity.

Q: Are EVM chains helping or hurting Ethereum?
A: They strengthen it. By adopting EVM, chains integrate into Ethereum’s broader ecosystem, increasing demand for its standards and settlement layer.

👉 Explore how ETH staking and deflationary mechanics are shaping the future of digital assets.

Despite short-term price underperformance, Ethereum continues to lead in innovation, adoption, and infrastructure. Its network effects are compounding quietly beneath the surface — positioning it not just for recovery, but for long-term dominance in Web3.