Ethereum's Modular Future and the Value Flow Dilemma

Ethereum's evolution in 2025 has been defined by a dual challenge: scaling to meet global demand while ensuring that value generated by its ecosystem flows back to the base layer. With the Fusaka upgrade (December 3, 2025) and the rapid expansion of Layer 2 (L2) solutions, the network faces a critical question: Can Ethereum retain value accrual as L2s scale and institutional adoption accelerates? This analysis examines the technical, economic, and institutional forces shaping Ethereum's future, drawing on recent data and post-upgrade projections.

The Fusaka Upgrade: A Strategic Shift Toward Value Capture

The Fusaka upgrade represents Ethereum's most cohesive roadmap to date, prioritizing Layer 1 (L1) scalability and value accrual for ETH holders. Key innovations include:
1. EIP-7918: A reserve price for blob gas fees, ensuring that L2 data costs are tied to mainnet gas prices. This mechanism strengthens the economic link between L2 usage and ETH, with fees paid in ETH partially burned under EIP-1559.
2. PeerDAS (EIP-7594): A probabilistic data availability sampling protocol that reduces validator storage and bandwidth requirements, enabling higher throughput without compromising decentralization.
3. Blob Parameter Only (BPO) forks: Gradual increases in blob capacity, allowing Ethereum to process over 100,000 transactions per second via L2s while avoiding disruptive hard forks with projected increases.

According to Fidelity Digital Assets, these changes signal a maturation of Ethereum's governance and a clearer economic intent. By prioritizing L1 scalability, the upgrade aims to redirect more value to ETH holders, reinforcing its role as a cash-flowing asset. Analysts predict that EIP-7918 could increase Ethereum's revenue capture by 5–10 times by stabilizing validator revenue and ETH burn dynamics according to financial analysts.

Institutional Adoption: A Double-Edged Sword

Ethereum's institutional adoption has surged in 2025, with spot ETFs and digital asset treasuries (DATs) accumulating over 10 million ETH. By Q3 2025, institutional assets under management (AUM) in Ethereum ETFs reached $28.6 billion, driven by firms like BlackRock and Fidelity. This growth is underpinned by regulatory clarity, including the SEC's non-security determination of Ethereum and the approval of spot ETFs.

However, institutional adoption introduces a tension. While it legitimizes Ethereum as a treasury asset, it also shifts demand from speculative trading to long-term holding. This could reduce on-chain transaction volume, potentially diluting L1 fee revenue. Yet, the rise of DATs-companies staking ETH to generate yield-reinforces network security and liquidity, indirectly supporting value accrual.

The L2 Scaling Paradox: Efficiency vs. Value Capture

Layer 2 solutions like Arbitrum, Optimism, and zkSync have improved scalability and reduced transaction costs, but their expansion raises concerns about value leakage. Most L2 fees are paid in ETH, but their native tokens (e.g., ARB, OP) are governance or utility tokens that do not capture the bulk of economic value according to value analysis.

Post-Fusaka, this dynamic is expected to shift. EIP-7918 ties L2 data costs to mainnet gas prices, ensuring that even as L2s scale, a portion of their fees flows back to ETH holders. Additionally, PeerDAS and BPO forks are projected to reduce L2 data fees by 40–60%, making rollups more accessible for high-volume use cases like DeFi and gaming.

Despite these improvements, a trade-off remains: prioritizing L1 value accrual may slow L2 adoption. If L2s become too efficient, users might avoid L1 entirely, undermining Ethereum's ability to capture value. The Fusaka upgrade attempts to balance this by making L1 more competitive while still incentivizing L2 usage through lower fees and higher throughput according to research.

Quantifying the Value Flow Dilemma

Post-Fusaka, Ethereum's revenue distribution between L1 and L2 is expected to evolve:
- L1 Revenue: The gas limit increase from 30 million to 60 million and EIP-7918's reserve price are projected to boost L1 fee revenue by 20–30%.
- L2 Revenue: With fees reduced by 40–60%, L2s could capture 60–70% of transaction volume, but a significant portion of their fees will now flow to ETH holders via blob-based mechanisms according to market analysis.

Institutional adoption further complicates this picture. While ETF inflows have increased ETH's AUM, they have not yet translated into higher on-chain transaction volume. For Ethereum to maintain value accrual, it must ensure that institutional capital continues to interact with the network-whether through staking, DeFi, or L2 activity according to financial research.

Conclusion: A Modular Future, But at What Cost?

Ethereum's modular future hinges on its ability to balance scalability with value capture. The Fusaka upgrade strengthens the economic ties between L2s and L1, ensuring that even as rollups scale, ETH remains the primary beneficiary. However, the long-term success of this strategy depends on two factors:
1. Institutional engagement: Will ETFs and DATs continue to drive demand for ETH beyond mere holding?
2. L2 innovation: Can L2s maintain efficiency gains without siphoning value away from the base layer?

For now, the data suggests optimism. Ethereum's TVL ($70 billion) dwarfs competitors like Solana and BNB Chain, and its institutional adoption is accelerating. If the Fusaka upgrade succeeds in reinforcing ETH's role as a settlement and data-availability layer, Ethereum may yet navigate the value flow dilemma and emerge as the dominant infrastructure for Web3.