The Three Major Evolution Narratives of Ethereum

Source: tokeninsight Translation: Shan Ouba, Golden Finance

Ethereum has faced a negative narrative of the "value capture problem," where various Layer 2 scaling solutions divert economic activity and transaction fees from the mainnet to the second layer, weakening the value of the mainnet. However, with the recent price recovery, a new optimistic narrative around Ethereum is gradually forming, including its core role in the stablecoin space, its status as a treasury asset for enterprises, and the upcoming zkEVM technology upgrade.

Negative Narrative

Ethereum has long been the dominant smart contract platform, but over the past two years, it has faced a negative assessment that its growth has not translated into corresponding value for ETH holders. This concern—often referred to as Ethereum's "value capture problem"—stems from the observation that Ethereum's immense utility has not been reflected in the price of its native token. One of the main factors contributing to this issue is Ethereum's own scaling strategy.

To alleviate congestion on the Ethereum mainnet, Layer 2 solutions such as Rollups have emerged. By processing transactions off-chain and then batch transferring them back to the main chain, these solutions offer faster and cheaper transactions, significantly enhancing the user experience. However, this shift also poses potential challenges to Ethereum's value capture. As more transactions are processed on Layer 2s like Arbitrum and Optimism, fees and economic activities that traditionally favored the Ethereum mainnet are increasingly being shifted. This migration reduces the demand for ETH, as users engage more with the Layer 2 ecosystem rather than the base layer. Consequently, the economic incentives driving ETH value (such as base layer Gas fees and validator income) may weaken, potentially impacting ETH's price and its utility as the primary asset of the ecosystem.

Price-Description Feedback Loop

It is essential to recognize a fundamental dynamic of the cryptocurrency market: narratives often follow price changes rather than price following narratives. After significant price fluctuations, bullish or bearish narratives often emerge as participants attempt to rationalize what has already occurred in the market. This perspective redefines our understanding of the evolving nature of Ethereum. The recent rebound in ETH prices not only reflects a rekindled market interest but also creates conditions for new narratives to emerge and gain attention.

In fact, as ETH begins to regain momentum, new narratives have emerged, painting a more optimistic picture for Ethereum. These new storylines indicate that Ethereum's position within the crypto ecosystem is strengthening, potentially alleviating past concerns regarding value acquisition. Specifically, Ethereum's dominance in the stablecoin economy, the rise of ETH as a corporate financial asset, and significant technological upgrades on its roadmap aimed at expanding the Ethereum mainnet are converging to enhance Ethereum's long-term prospects. Below, we will explore these developing narratives and their significance one by one.

Narrative 1: The Dominance of Ethereum's Stablecoins

One of Ethereum's biggest advantages today is its status as the preferred settlement layer for dollar-backed stablecoins. Ethereum serves as the primary storage location for these digital dollars. By mid-2025, the Ethereum network is expected to host around 50% of the circulating stablecoin supply. This makes Ethereum the largest stablecoin infrastructure to date, surpassing all other blockchains. In fact, if the opaque Tron network, dominated by USDT, is excluded from the analysis, Ethereum’s market share in stablecoins would rise to about 75%.

It is crucial that Ethereum is also the preferred chain for regulated stablecoins. While Tron’s stablecoin activities are almost entirely concentrated on Tether’s USDT (which is often used due to its low fees but lower transparency), Ethereum supports a variety of trusted dollar stablecoins. USDC—one of the most strictly regulated and transparent stablecoins—is mainly issued on Ethereum. Currently, about 61% of the circulating USDC is in circulation on Ethereum. Other major regulated fiat-backed coins (such as BlackRock Dollar) are also primarily issued on Ethereum.

In light of the recent passage of the GENIUS Act by the U.S. Senate (to guide and establish a national innovation for U.S. stablecoins), this statement is more powerful. The act provides a clear regulatory framework for fiat-backed stablecoins, including mandatory 1:1 reserves, public audits, and licensing for issuers. While the act remains neutral in terms of technical design, its impact significantly benefits regulated stablecoins, especially USDC, which already has strong institutional support and compliance standards.

As most regulated stablecoins reside on Ethereum, the "GENIUS Act" has effectively become an important regulatory support for Ethereum itself. With increased confidence from financial institutions and fintech companies in compliant stablecoins, the demand for stablecoins like USDC may significantly rise. Given that Ethereum is the primary issuance and trading layer, this growth will directly enhance Ethereum's on-chain activity, fee generation, and validator income. In other words, the regulatory clarity surrounding stablecoins has strengthened Ethereum's position as a pillar of the digital dollar system, reinforcing its role as a crucial financial infrastructure for both cryptocurrency and traditional finance.

Narrative 2: ETH as an Asset: Companies Betting on Ethereum

Another emerging strong narrative is viewing ETH as a reserve asset for institutions and enterprises. This concept was pioneered by the narrative of Bitcoin (for example, companies like MicroStrategy holding BTC) and is now gradually taking root in Ethereum. Over the past few months, a wave of companies has started to increase their holdings of ETH on their balance sheets, essentially viewing ETH as a long-term store of value and a strategic investment.

For example, BTC Digital (BTCT), which is listed on NASDAQ, was initially a Bitcoin mining company that revealed it has transferred $1 million in cash into ETH and plans to continue increasing its holdings. Around the same time, another mining company, Bit Digital (BTBT), transferred all its funds from BTC to ETH for Ethereum staking.

One of the most striking examples of this narrative is SharpLink Gaming (NASDAQ: SBET) — this company has effectively redefined itself as an "Ethereum holding company." In June 2025, SharpLink established an Ethereum fund management strategy and raised significant funds to buy ETH. Within just a few weeks, the company accumulated approximately 280,706 ETH.

It is worth noting that Joseph Lubin, co-founder of Ethereum and CEO of ConsenSys, has joined SharpLink as chairman to guide this strategy. Lubin believes that a large reserve of ETH will help "rationalize" the supply and demand dynamics of ETH. The circulation of ETH is substantial, but historically there has been insufficient institutional holders or demand channels. By effectively locking ETH in corporate reserves, this trend can reduce circulation and align Ethereum's usage with investor value. The market has responded positively, with SharpLink's stock price soaring nearly 5 times since adopting the ETH reserve strategy, reflecting investor recognition of this move.

Overall, the argument of "ETH as a financial asset" is rapidly gaining traction. We are witnessing the early development of ETH, and in the future, it may be widely adopted by corporate finance departments, cryptocurrency funds, and even national funds.

Narrative 3: Ethereum's zkEVM Roadmap

The third emerging narrative of Ethereum is technology-related. After successfully transitioning to Proof of Stake (PoS) and implementing fee burning, the Ethereum community is now addressing the ultimate challenge: scaling the underlying network while maintaining decentralization and censorship resistance. At the core of this plan is the direct integration of zkEVM (zero-knowledge Ethereum Virtual Machine) proofs into Ethereum's Layer-1. In early July 2025, researchers from the Ethereum Foundation released the roadmap for the Layer-1 zkEVM upgrade, aimed at fundamentally improving the way blocks are validated and secured.

The concept allows Ethereum validators to verify entire blocks through concise zero-knowledge proofs without having to re-execute each transaction, which will significantly speed up the validation process and reduce the hardware requirements for running a full node. This is expected to enhance Ethereum's throughput (processing more transactions per second) and make the network more resilient to censorship or attacks, as the validation speed will be faster and anyone with moderate hardware can participate.

The goal of the Ethereum Foundation is to launch a functional Layer-1 zkEVM (Zero-Knowledge Proof Virtual Machine) within about a year. The design of the zkEVM focuses on censorship-resistant scalability—achieving what developers refer to as "real-time proofs." This means that block validation done through zero-knowledge proofs can occur within the 12-second time span of each Ethereum block, effectively achieving almost instant finality. The aim is to complete the proof and verification of 99% of blocks within 10 seconds (with only a few exceptional blocks requiring longer). Equally important is the Ethereum team's insistence that this must be achieved in a decentralized and accessible manner. They introduced the concept of "home proof," aimed at ensuring that individual stakers running nodes at home can generate and verify zero-knowledge proofs without relying on supercomputers or cloud clusters.