Ethereum's Value Proposition Divides Community Amid Layer-2 Challenges

The Ethereum network is currently facing a significant challenge known as a “narrative crisis.” This crisis has led to a division within the Ethereum community regarding the core value proposition of ETH. The debate centers around whether ETH should be primarily valued as a store of value (SoV) or as a revenue-generating asset.

Zach Rynes, a community liaison at Chainlink, highlights that Ethereum lacks a unified economic narrative. He points out that there are two main camps within the community: those who believe that revenue is the most important aspect of ETH’s value proposition, and those who argue that ETH’s role as a store of value is more crucial. This division has led to constant narrative pivots, which Rynes believes weakens investor conviction in Ethereum.

Rynes explains that the revenue narrative was dominant during Ethereum’s peak fee revenue in 2021. However, the rise of Layer-2 (L2) networks such as Arbitrum and Optimism has absorbed a growing share of gas fees and MEV (maximal extractable value). This shift has resulted in reduced Layer-1 (L1) revenue for Ethereum and a decline in its economic dominance. Rynes suggests that Ethereum now needs an insane amount of on-chain volume to make its economics work, given that it has forfeited the most valuable part of the stack to L2s while optimizing for the least valuable part.

On the other side of the debate, Ethereum educator and angel investor Sassal emphasizes that ETH must fully adopt its role as a store of value, rather than chasing fee-based valuation metrics. Sassal argues that a sustainable store of value status depends on a widely held narrative and a shared belief, similar to Bitcoin’s digital gold status. However, Ethereum’s fragmented positioning contrasts sharply with Bitcoin’s consistent branding.

Critics like PlanB, the creator of the Stock-to-Flow model, have called out Ethereum for its centralization and pre-mined origins. PlanB described Ethereum as a “technocratic governance coin” rather than a decentralized hard asset, highlighting the pre-mine as a significant red flag. Additionally, internal developer tensions over Ethereum’s roadmap and L2 design philosophies have amplified these concerns, further clouding Ethereum’s narrative.

In contrast, rival chains like Solana and BNB Chain are forging ahead with unified narratives focused on speed, cost efficiency, and developer experience. As long as Ethereum lacks a clear economic identity, it risks losing relevance to competitors with simpler, more cohesive messaging. To maintain its market dominance and intellectual leadership in Web3, Ethereum may need to design a narrative that integrates its programmability, security, and decentralization without relying too heavily on flawed comparisons or revenue illusions.

Rynes remarks that ETH needs to be its own asset with its own story, and this narrative has yet to be fully defined. The outcome of this debate will determine whether ETH remains the second-largest altcoin by market capitalization or becomes an example of fractured innovation.