Key Takeaways
- Vitalik Buterin argued Ethereum should pivot to a Store of Value (SoV) rather than optimizing as a fee-burning token.
- Focusing on fee burning requires company-like behavior that threatens Ethereum’s core decentralization values.
- The SoV shift relies on robust decentralization and growing adoption like real-world asset tokenization.
Vitalik Buterin: Ethereum as SoV Aligns With Its Unique Decentralization Strengths
While Ethereum was not created with the idea of becoming a store of value (SoV), its most representative leader now believes that it makes sense for the asset to pursue this new ethos.
In a dissertation posted on social media on Sunday, Ethereum leader Vitalik Buterin stressed that Ethereum, as it stands today, should focus on becoming a Store of Value (SoV) rather than following its roots as a fee-burning token.
Buterin explained that optimizing Ethereum’s performance as a fee-burning token would demand that the project behave more like a company, which would be in opposition to the values of decentralization that the Ethereum Foundation has promoted.
For Buterin, the thesis for Ethereum as a fee-burning token was never strong, as he remarked that demand for token burning came from use cases with no staying power, internal to the crypto industry, having no real opportunity to grow or expand. Nonetheless, he valued changes like EIP-1559 (including its burn) as positive.
“If ETH had dropped by 10x, then the profits from those use cases would have also dropped, because all the buyers would have had much less money to pay with,” he assessed, stressing that this would affect both non-fungible token (NFT) activity and lending strategies on top of ETH.
This state of affairs is unlikely to repeat now as Ethereum has a “normal stable mature business” use case, supported by tokenization cases that, in most cases, would not spark a fee-burning season as the one experienced at the top of the NFT mania, Buterin concluded.
The Fee Burning Focus Dilemma: Efficiency or Decentralization?
Buterin stressed that for Ethereum to justify its current $270 billion market capitalization, it would have to behave as an equivalent company, comparing the chain to cosmetics giant L’Oreal.
For him, this would be economically infeasible, as estimates put L’Oreal’s R&D spending at 0.58% of its capitalization, meaning nearly 700K ETH a year would have to be destined for this purpose; spending these funds would bankrupt the Ethereum Foundation immediately.
The second element is that companies make opinionated decisions to appeal to a target demographic. Applying this to Ethereum would break the Foundation’s mandate of remaining censorship-resistant, open source, private, and secure (CROPS), pricing out some users due to high fees to maximize profitability.
Why a Store of Value?
Buterin argued that Ethereum’s best features are decentralization and CROPS, and that those two elements have a large relevance for companies to build on top of its network. But for the average retail ETH holder, it depends on whether they want the network to become a trend follower or to make minimal changes to ossify its protocol and survive the coming wave of changes, including privacy work, minimizing infrastructure dependence, among others.
The more adoption that the network gets, with real-world assets (RWA) being issued natively, the more you can do with the asset, strengthening the SoV proposal, as the token is free to be exchanged for other digital assets and to be used as collateral.
“The best social reason to care about Ethereum is because it makes decentralization and CROPS properties a reality for more people and uses. The best private reason to hold ETH is its SoV properties, which are a direct consequence of that decentralization and CROPS,” he concluded.
Mixed Reactions
Buterin’s renewed pitch of ETH as a SoV received mixed reactions, with some praising the idea and others blasting it due to the sudden focus shift.
MetaLeX CEO and founder Gabriel Shapiro labeled these statements a ‘nature is healing’ moment from Vitalik, stressing that they highlighted what many ETH holders had believed for years, stressing that smart contracts would be a net positive as they power a circular economy in Ethereum.
Stack co-founder Muneeb Ali, on the other hand, stresses that this new pivot toward a SoV use case will face similar challenges to those faced before, when it promoted itself as ultrasound money after EIP-1559 was introduced.
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