Ethereum Is Scaling Too Well: But Is It Losing Its Value?
Why Ethereum’s Rollup-Centric Roadmap May Be Undermining Its Long-Term Economic Security
Ethereum’s modular scaling has been wildly successful but it’s costing the L1 protocol its value accrual. Explore the challenges, solutions, and future of Ethereum’s economic model in this expert analysis backed by Binance Research.
Is Ethereum’s Biggest Win Becoming Its Greatest Threat?
What happens when the most secure, decentralized blockchain in the world becomes so good at scaling that it starts eroding its own value?
Ethereum’s L2-centric roadmap has delivered exactly what it promised: faster transactions, cheaper fees, and mass adoption. But beneath this technical triumph lies a deepening concern, Ethereum L1 is no longer capturing enough economic value.
In this blog post, we’ll break down:
The current Ethereum value capture crisis
Why L2s are both a blessing and a curse
What “based rollups” mean for L1 sustainability
Actionable solutions and forward-looking insights
Whether you’re an Ethereum believer, a developer, or a crypto investor, you need to understand the shifting dynamics of Ethereum’s modular future.
This article is based on insights from Binance Research.
The Scaling Paradox: Ethereum’s Roadmap Is Working Too Well
Ethereum’s embrace of a modular future via Layer 2 rollups (L2s) has resulted in a 15.95x scale factor as of April 2025. This means more users, more transactions, and a thriving ecosystem.
But there’s a catch:
Most of the transaction fees and MEV (Maximal Extractable Value) now reside on the L2s, not Ethereum L1.
Ethereum the protocol is functioning as intended, yet Ethereum the asset is struggling. Why?
The Value Accrual Crisis: Where Did the Money Go?
Ethereum used to dominate in fee generation. But with the success of rollups and the introduction of EIP-4844 (proto-danksharding), blob transactions have become so cheap that Ethereum L1 has turned inflationary.
Let’s explore the four current paths to L1 value capture and their limitations.
ETH as Pristine Collateral: A Reflexive Risk
Ethereum’s dominance in DeFi hinges on ETH’s reputation as pristine collateral. But this is more a result of historical trust and market cap (Lindy Effect) than a designed mechanism.
Real-life risk:
If ETH continues losing value due to declining L1 fee income, its role in lending platforms (e.g., Aave, MakerDAO) could collapse. This can lead to:
Lower TVL
Higher loan collateralization ratios
Contagion in DeFi protocols
It’s a classic case of reflexivity: falling value leads to lower utility, which leads to further value decline.
Data Availability Fees: A Race to the Bottom
Rollups pay Ethereum for data availability by posting call data or blobs. But data availability is a commodity, and Ethereum’s pricing power is under threat from:
Celestia
NEAR DA
EigenDA
Example:
Base, Coinbase’s L2, posted 275.28GB of data to Ethereum but only generated $4.95M in fees.
By comparison, Taiko (a “based rollup”) posted just 33.63GB and generated $11.97M in fees proving that Ethereum’s economic model favors deeper integration, not just DA usage.
Blob Fee Repricing: A Delicate Balancing Act
Proto-danksharding introduced blobs to scale cheaply, but the fees are too low. Raising the minimum blob price could increase L1 revenue, but L2s are rational businesses. If Ethereum gets expensive, they’ll jump ship to cheaper DA layers.
Actionable Insight:
Ethereum should explore dynamic pricing models for blobs, similar to EIP-1559’s base fee mechanism, with governance controls to prevent L2 exodus.
Based Rollups: A New Hope for Ethereum L1
Based rollups decentralize their sequencers back to Ethereum L1, allowing it to capture MEV and sequencing fees directly.
Examples of based rollups:
Taiko
Surge (Nethermind)
UniFi (Puffer Finance)
Unlike most rollups, these designs reintegrate Ethereum into the transaction flow.
Why this matters:
Taiko’s higher fee contribution despite lower data use proves that Ethereum benefits more when rollups are aligned at the architectural level, not just using it as a settlement layer.
Ethereum’s Modular Trade-off: Long-Term Risks
Ethereum’s current strategy has enabled it to scale without compromising security. But in doing so, it has:
Sacrificed L1 revenue streams
Relied on voluntary L2 cooperation
Allowed external DA layers to gain traction
Binance Research sums it up well:
“Ethereum gave up a huge amount of fees and MEV activity to the sequencers that are not obliged to pass any of the value back to the L1.”
The modular future is competitive. DA layers like Celestia and NEAR DA aren’t just alternatives, they’re economic threats.
Key Takeaways
Scaling has a cost: Ethereum L1 is no longer the primary value sink.
Pristine collateral status is not guaranteed: Market perception is reflexive and fragile.
Blob fees are too low: Ethereum is scaling too cheaply.
Based rollups may restore value: But adoption remains limited.
DA commoditization is real: Ethereum must compete with cheaper options.
Future Outlook: Ethereum’s Next Move Matters
Ethereum has the most robust developer ecosystem and over $45.8B in Total Value Secured, but the next phase will define its longevity.
Upcoming changes (Pectra & Fusaka Upgrades):
EOF (Ethereum Object Format) to improve contract efficiency
PeerDAS to enhance data availability throughput
However, based rollups are not yet a priority, which raises questions about Ethereum’s strategic direction.
Real-world adoption projection:
According to Messari and L2Beat data, L2s now handle 80%+ of Ethereum-native app activity. If current trends continue, L2s could become economically independent, undermining Ethereum’s security and relevance.
Actionable Suggestions for Ethereum’s Ecosystem
Incentivize Based Rollup Designs
- Offer grants or priority listing for L2s that decentralize sequencing to L1.Reprice Blob Markets Cautiously
Introduce demand-based blob pricing with volatility caps.
Encourage L2 Revenue Sharing Mechanisms
Explore opt-in models where rollups contribute a small % of revenue to L1 governance.
Strengthen Ethereum’s DA Narrative
Invest in better performance, pricing, and reliability to defend against EigenDA and Celestia.
Expand Staking Utilities
Create more use cases for staked ETH (e.g., re-staking with EigenLayer, liquid staking derivatives) to preserve ETH’s value narrative.
Conclusion: Will Ethereum Reclaim Its Value?
Ethereum’s rollup-centric roadmap has solved the scaling problem but has created a value capture crisis in the process.
The challenge now is to evolve its economics without compromising its core vision of decentralization and openness.
Ethereum has always been a trailblazer from DeFi to NFTs to proof-of-stake. But in this new modular world, technical brilliance must be matched with economic resilience.
Are you building on Ethereum or running a rollup?
Start thinking about how your design contributes back to the base layer. Let’s build a future where Ethereum scales sustainably and profitably.
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This article is for educational purposes only and should not be considered financial advice. Always conduct your own research (DYOR) before making any investment decisions.