— From External Economic Dependency to Using VUD for ETH Fundamental Valuation
Weisha Zhu · Scott Shields · August 14, 2026
Abstract
This article is the valuation companion to “Reassessing Ethereum’s Value Through the Panoramic Investment Analysis Method — Fundamentals: From Smart-Contract Platform to Public Financial Trust Root.” The previous article has already been published on chainless.hk. This article therefore does not repeat the related fundamental analysis.
Cryptocurrency valuation has long faced a basic difficulty: unlike a company, a cryptoasset does not come with mature valuation anchors such as earnings, cash flow, and net assets. As a result, price, technical indicators, and market narratives play a much larger role in crypto pricing than they do in equity markets. Bitcoin can be partly explained through the logic of a digital store-of-value asset, but the Ethereum system is different. ETH has the attributes of a cryptoasset and also represents the value of the Ethereum system. At the same time, that system is becoming public settlement and trust infrastructure for stablecoins, real-world assets (RWA), Layer 2 networks, and smart contracts. Traditional approaches based on “fee valuation,” “monetary premium,” or “TVL valuation” cannot fully explain the value of the Ethereum system.
This article uses the Panoramic Investment Analysis Method to rebuild the valuation logic of the Ethereum system. The purpose is not to create more indicators, but to answer three questions again from first principles: What is the true source of value for the Ethereum system? Why is that value represented by ETH, and how does it become a market price? Why can market price deviate from fundamentals for long periods?
I propose VUD (Value Under Dependency) to measure the key dependency that external real economic value places on the Ethereum system, and to use it as the core scale variable for Ethereum’s fundamentals. The framework then distinguishes dependency quality, ETH value-bearing, effective supply, market narrative, and the price cycle. VUD is not synonymous with ETH market capitalization, and there is no theoretical identity under which one dollar of VUD must correspond to one dollar of ETH. Its purpose is to give the Ethereum system a fundamental anchor that is independent of market price and narrative.
The resulting core logic is:
External real economic value
→ forms critical dependency on the Ethereum system
→ creates demand for Ethereum’s trust, settlement, and security capabilities
→ creates structural demand for ETH through mechanisms such as PoS
→ meets the effective supply of ETH
→ forms a fundamental value center;
market narratives, growth expectations, and the cycle then determine the valuation multiple the market assigns to those fundamentals.
This gives the Ethereum system, for the first time, three analytically distinct layers comparable to those used for companies—fundamentals, valuation multiple, and market price—while retaining the consensus and market characteristics specific to cryptoassets.
1. Why the Ethereum System Has Long Lacked a Satisfactory Valuation Method
Equity valuation is highly contested, but its basic logic is clear.
A company has revenue, earnings, cash flow, returns on capital, and growth. Analysts can disagree about future earnings and assign a price-to-earnings multiple of 10, 20, or 50, but at least everyone knows what the debate is about.
The Ethereum system is different.
It does not have earnings in the traditional sense, so the market has long searched for substitutes: fees, TVL, active addresses, transaction counts, TPS, ETH burn, staking scale, collateral scale, “monetary premium,” L2 scale, stablecoin scale, and so on.
Most of these indicators are not meaningless; they have simply been placed in the wrong part of the causal structure.
TVL can show how much capital users are willing to place under a protocol’s rules, but those assets do not belong to the protocol. Collateral capacity can reflect confidence in the Ethereum system, but houses, gold, Bitcoin, and blue-chip stocks can also be pledged as collateral; we do not add a separate “collateral value” on top of their market value. Low inflation or even deflation can improve supply-demand conditions, but it cannot independently create scarcity value—otherwise any token with a lower inflation rate than Bitcoin should be scarcer than Bitcoin. Fees are real revenue, but they measure only part of the system’s use value and cannot explain the full economic responsibility borne by a piece of public financial infrastructure.
The problem is not a lack of data. It is a lack of causal structure among the indicators.
The Panoramic Investment Analysis Method therefore begins not by asking, “What should ETH be worth?” but by asking:
Why does the Ethereum system have value at all?
Only after answering that question does it make sense to discuss the price of ETH.
2. First Distinguish the Source of Ethereum-System Value from the Way That Value Appears in ETH
This is the first boundary of the valuation framework.
The Ethereum system consists of the network, protocol, public ledger, settlement system, and coordination system.
ETH is the system’s native asset.
The two are highly related, but they are not the same thing. Bitcoin does not represent the value of the Bitcoin system; Ethereum is different in this respect: ETH not only bears the value of the Ethereum system but also has an independent store-of-value function.
The Ethereum system is not built around currency issuance as its core function. It is a “smart-contract and decentralized-application platform,” and much of its value comes from the external ecosystem, in a way that resembles how traditional internet platforms derive value from outside economic activity. In addition to having a store-of-value attribute similar to Bitcoin and being used to pay network fees, ETH also protects the security of the Ethereum system. Roughly 40 million ETH are currently staked, forming a large pool of native security capital. As the external ecosystem expands, ETH becomes more important as the carrier of system value and as security capital, while gas fees become relatively less important in explaining ETH’s long-term value. External economic dependency is therefore an important source of value for the Ethereum system and is ultimately reflected in the value of ETH.
Why does the external economy need the Ethereum system?
The full transmission chain should therefore be:
External real economic value
→ chooses the Ethereum system to perform certain critical functions
→ forms economic dependency on the Ethereum system
→ requires Ethereum to provide settlement, verification, data, and economic security
→ ETH performs irreplaceable functions such as serving as Ethereum’s native security capital
→ creates demand for ETH
→ ETH demand and effective supply jointly determine value and price.
This is the most important causal chain in the entire valuation framework.
3. VUD: What Are the True Fundamentals of the Ethereum System?
If the fundamentals of a bank cannot be measured simply by counting how many people stand in its lobby, the fundamentals of Ethereum cannot be measured simply by transaction counts or TPS.
What matters is:
How much external real economic value is willing to build critical economic relationships on the Ethereum system.
I call this scale VUD: Value Under Dependency—the economic value that depends on the Ethereum system.
Here, “dependency” matters much more than mere “presence.”
A token that uses the ERC-20 standard does not necessarily depend on Ethereum. If it is actually issued and accounted for on another independent chain, Ethereum is providing standards influence, not the final ledger.
Likewise, an asset appearing on an L2 cannot automatically be included in Ethereum VUD. We must ask: Is the data available? Can third parties independently reconstruct the state? Does final settlement return to Ethereum? If a dispute occurs, does Ethereum provide final confirmation? Do users have an independent right to exit?
Ethereum’s own technical documentation distinguishes these relationships. In a ZK Rollup, for example, proofs of state transitions must be verified by Ethereum mainnet, and L2 transactions become final only after the L1 accepts the proof; data availability also determines whether third parties can independently reconstruct and verify the rollup state. Optimistic Rollups likewise rely on Ethereum for data availability, dispute resolution, and final settlement. (Ethereum.org)
Therefore: technical compatibility is not the same as trust dependency; ecosystem affiliation is not the same as final economic dependency.
VUD is concerned with the latter.
4. VUD Needs Its Own “Accounting Rules”
If VUD is to become a valuation indicator, the hardest problem may not be economic theory but measurement.
Suppose $100 of USDC is natively issued on Ethereum, bridged to Arbitrum, deposited in Aave, used to borrow $50, and then placed in another liquidity pool.
Traditional crypto statistics may see the same capital repeatedly across several protocols.
But society has not thereby created $350 of original economic assets.
VUD must therefore obey one basic rule:
The same economic principal may be counted only once. Dependency relationships can exist at multiple layers, but each layer of dependency cannot be recounted as a new unit of underlying economic value.
Economic value and dependency relationships must therefore be recorded separately.
The first category is asset-root dependency. The original issuance, supply, balance, or ownership state of an asset uses Ethereum as the canonical registry. This is the most direct form of dependency.
The second category is final-settlement dependency. Economic activity is mainly executed on an L2, but state roots, proofs, data, dispute resolution, or exit ultimately depend on Ethereum.
The third category is contractual-relationship dependency. Lending, derivatives, insurance, DEXs, and future automated contracts among AI Agents may rely on Ethereum to protect rights, obligations, and execution rather than a new amount of principal. Contract notional value therefore cannot simply be added mechanically on top of the underlying assets.
The fourth category is standards influence. ERC-20 and the EVM create strong network effects and path dependence, but if the final ledger is not Ethereum, this is a competitive advantage and a leading indicator of future VUD rather than current VUD.
This approach is in effect a new form of economic dependency accounting:
Instead of asking, “How much money is inside the Ethereum ecosystem?” it asks, “Exactly what does this unit of economic value depend on Ethereum for, and through how many layers?”
5. Today We Can Already See the Outline of VUD
As of August 2026, Ethereum’s institutional data hub reports approximately $170 billion of stablecoins and $18.6 billion of RWA across Ethereum and its L2s, while ETH market capitalization is about $229 billion. The same source reports approximately $260 billion of Total Value Secured. (Ethereum for Institutions)
If we make only the roughest addition of the separately reported stablecoin and RWA categories, the total is about $188.6 billion—already the same order of magnitude as ETH market capitalization.
But this article cannot therefore declare:
$188.6 billion is complete VUD.
A formal database must still check whether categories overlap and must determine, asset by asset, the degree to which different L2 assets truly form final dependency on Ethereum.
More importantly, the figure does not yet comprehensively include other tokenized assets, contractual relationships, or the future machine economy.
It is therefore better described as:
an observable external VUD base.
Its importance is not that it proves ETH is undervalued. Its importance is that, for the first time, it gives us a real-world reference point independent of ETH’s own price.
ETH market capitalization is already of the same order of magnitude as one of the easiest-to-observe portions of external economic dependency. That makes ETH market cap / VUD an indicator worth reconstructing and testing over long periods. (Ethereum for Institutions)
6. VUD Measures “Quantity,” but We Also Need “Quality”
$100 billion of stablecoins and $100 billion of short-term speculative tokens clearly do not have the same long-term meaning for Ethereum.
VUD therefore cannot be about scale alone.
Dependencies differ in duration, migration cost, legal structure, on-chain/off-chain consistency, and the degree to which final ownership depends on Ethereum.
But we should not manufacture false precision by immediately assigning arbitrary coefficients such as 0.7, 0.8, or 0.5 to different assets.
The correct method is to observe the quality variables independently and allow long-term evidence to show how they affect valuation multiples.
These variables include dependency duration, migration cost, substitutability, on-chain/off-chain consistency, L2 verifiability, network security, credible neutrality, and governance quality.
Governance deserves special treatment.
Ethereum must continue to evolve, so its rules cannot remain completely unchanged in the way physical gold does. The relevant question is not whether coordination exists, but who can propose changes, whether the reasoning is public, whether other participants can refuse, whether users have exit rights, and whether any single actor can in practice control final rules.
For a system that may one day carry tens of trillions of dollars in assets, the abstract label “decentralized” is no longer enough. What matters is the degree of decentralization:
Is coordination transparent, and is power effectively checked and balanced?
The Ethereum Foundation’s 2026 Mandate lists self-sovereignty, exit rights, and large-scale coordination among its core principles, while emphasizing that the Foundation is not the ruler or final authority of Ethereum but a steward. (Ethereum.org)
Therefore:
Coordination capacity is not itself centralization; opaque coordination without effective checks and balances is what creates a trust risk.
These factors do not add to the quantity of VUD. They affect the long-term valuation multiple that one dollar of VUD can reasonably receive.
In short:
VUD determines quantity; credibility quality determines quality.
7. The Critical Bridge: How the Value of the Ethereum System Appears in ETH
VUD is only an upstream variable in Ethereum’s fundamentals. If the analysis stops there, the theory is incomplete.
What is special about ETH is that Ethereum internalizes its economic security capital in its native asset.
Bitcoin relies on mining hardware and energy to provide PoW security. Gold relies on vaults, guards, law, and custody infrastructure. Ethereum PoS, by contrast, requires validators to put ETH directly into the protocol. Ethereum’s documentation states that validators stake ETH as capital, malicious behavior can cause staked ETH to be slashed, and different attack capabilities correspond to different thresholds of stake control. (Ethereum.org)
ETH is therefore both an asset and capital that protects the economic security of the Ethereum system.
Recently, Ethereum Launchpad showed about 39.45 million ETH staked, roughly 885,000 validators, and an APR of about 2.63%. (Ethereum Launchpad)
This creates an important mechanism through which the value of the Ethereum system is capitalized in ETH: as the external ecosystem expands, more real economic value critically depends on Ethereum; the value and credibility foundation of the system strengthen; and the value foundation and security-capital role of ETH, as the system’s native and slashable security asset, strengthen with them. At the same time, as Ethereum evolves from a “transaction platform” into “financial trust infrastructure,” gas fees remain an indicator of network use, but their marginal explanatory power for ETH’s long-term value declines. VUD becomes a more important source of value, while system credibility becomes an important quality factor determining the reliability of that value and the valuation multiple.
But this relationship still cannot be rewritten crudely as:
One dollar of VUD must correspond to one dollar of ETH.
An attacker cannot automatically capture all VUD, and mechanisms such as social recovery, stablecoin freezing and reissuance, and off-chain legal property rights can reduce the attacker’s realizable gains.
Existing Cost-to-Corrupt research has attempted to relate on-chain capital, the required security ratio, and the staking ratio. Bitwise further found that short-term changes in on-chain capital have little explanatory power for changes in ETH market capitalization, but that a statistical long-run cointegration relationship exists. Its research estimates a long-run elasticity of about 0.37 and notes that adjustment after prices diverge from the long-run relationship is slow. (Bitwise)
This finding does not contradict the framework here. Instead, it provides an important direction for verification:
VUD may not be a short-term ETH price indicator; it may be a long-term value-center variable.
Short-term prices can be driven by Bitcoin, liquidity, narratives, and market sentiment. In the long run, fundamentals must eventually do the weighing.
8. Why TVL Cannot Be Used Directly in Valuation
TVL is useful. But we must first ask what it actually represents.
Token Terminal defines TVL as assets deposited by users into a protocol’s smart contracts; those assets do not belong to the protocol itself. One important meaning of TVL is that it reflects how much value users are willing to place under a protocol’s contracts, which in turn reflects trust in the protocol’s security. (Token Terminal)
TVL is therefore, first and foremost, a vote of confidence by capital.
A bank with a large deposit base has public trust and receives operating resources. But we would not conclude that a bank with $1 trillion of deposits should have $1 trillion of equity value. We must still examine funding cost, asset quality, net interest margin, bad-debt ratios, and returns on capital.
DeFi goes even further. Much of TVL still belongs to users, and the protocol generally cannot deploy it freely through its own balance sheet in the way a bank can.
TVL can verify trust, depth of use, and user stickiness, but it cannot be equated directly with platform value.
It is a useful indicator, but it is not the fundamental valuation anchor of the Ethereum system.
9. Why Collateral Capacity Is Not an Independent Source of Value
The same conceptual error appears in the idea of a “collateral premium.”
Gold can be pledged. Houses can be pledged. Bitcoin can be pledged. High-quality blue-chip shares can also support relatively high loan-to-value ratios.
But we do not say: a house is worth one million yuan, and because it can secure a 700,000-yuan loan, the house should therefore be worth 1.7 million yuan.
The causality runs in the opposite direction: because an asset already has relatively stable value, market depth, and disposal liquidity, financial institutions are willing to accept it as collateral. The widespread acceptance of ETH as collateral is therefore important market information.
It shows that the market regards ETH as a high-quality asset. But evidence of asset quality cannot be added back to the asset as a second unit of value; doing so would double count.
In this framework, collateral capacity is an indicator of trust and asset quality, not an independent source of valuation.
10. Why Low Inflation Does Not Automatically Create “Scarcity Value”
Another common crypto error is to equate a low issuance rate or deflation directly with scarcity value.
This confuses supply with value. A painting of which only one copy exists, and of which no more copies can ever be produced, is extremely scarce in physical terms. But if nobody wants to buy it, it still has little economic value.
Economically meaningful scarcity requires at least two conditions: a credible long-term supply constraint and persistent real demand.
Bitcoin’s special characteristic is not merely a low inflation rate. Its supply path and cap are constrained by highly credible long-term institutional rules, while there is also large demand for digital wealth storage. Inflation is therefore only a supply fact; it matters for valuation only when combined with demand. Likewise, ETH burn or low net issuance can reduce dilution to holders as demand grows, but it cannot answer the prior question: why should anyone have sustained demand for ETH in the first place?
That question must return to the economic fundamentals of the Ethereum system.
11. ETH’s Store-of-Value Logic Is Different from Bitcoin’s
Comparing gold, Bitcoin, and ETH makes this distinction clearer.
Gold and Bitcoin belong to broadly similar valuation paradigms.
Their central question is: how much wealth is willing to be stored in this form over the long term?
Consensus itself can create holding demand.
ETH also has a store-of-value attribute, but the Ethereum system adds another layer.
Stablecoins, RWA, L2s, and smart contracts can generate new economic demand for Ethereum even when that demand does not depend on ETH’s prior wealth-storage value.
Bitcoin mainly creates demand through the asset itself; the Ethereum system can first generate economic value through external dependency, and ETH, as the system’s native asset, can then bear that value.
As the real economic activity carried by the Ethereum system grows, expectations of long-term survival strengthen. Because ETH is also irreplaceable native security capital, more capital may be willing to hold ETH over long periods, creating additional store-of-value demand. ETH’s long-term demand therefore has two components: one is independent store-of-value demand similar to Bitcoin’s; the other comes from the economic value of the Ethereum system itself, including security-capital demand and holding demand created by long-term system credibility.
This is more complete than simply inventing a “monetary premium” whose source cannot be explained.
12. Narratives Should Not Be Eliminated; They Should Be Put in the Right Place
A traditional company can have earnings and cash flow even without a grand narrative.
For equities, narrative therefore appears mainly as a valuation premium.
Cryptoassets without an earnings anchor are different.
In the past, the market could not answer what ETH was fundamentally worth. Narratives such as “world computer,” “digital oil,” “ultrasound money,” and “monetary premium” therefore performed two jobs at once:
They explained both why ETH had value and how much it should be worth.
That creates a problem:
When narrative itself is the valuation foundation, a collapse in narrative leaves price with little fundamental floor.
The purpose of VUD is not to eliminate narrative, but to re-establish the division of labor.
Future valuation of the Ethereum system should stand on two pillars.
One pillar is verifiable current fundamentals.
The other is the market’s shared expectation of the future.
If stablecoins, RWA, tokenized securities, L2s, and AI smart contracts actually keep growing, the statement “the Ethereum system will become global infrastructure for tokenized finance” remains a forward-looking judgment, but it is no longer a narrative without evidence. It becomes:
Facts → trend → a reviewable inference about the future.
The Ethereum valuation framework can therefore be reduced to one sentence: facts determine the anchor; narratives determine the multiple.
13. Technical Indicators Finally Have a Proper Place
The 200-week moving average, ETH/BTC, trading volume, trends, and support levels remain important.
But technical indicators do not create the fundamental value of the Ethereum system.
They answer a different question: how is the market currently voting on those fundamentals and narratives?
The Panoramic Investment Analysis framework must therefore retain two systems at the same time.
The first is the value system:
VUD, VUD growth, dependency quality, ETH value-bearing, security capital, and supply.
The second is the price system:
the Bitcoin cycle, ETH/BTC, market liquidity, narrative, capital structure, and technical indicators.
Historically, Ethereum lacked the first system, so the second system was forced to carry almost the entire burden of pricing.
Once Ethereum has its own fundamental anchor, an investor can distinguish:
Is price falling because fundamentals are deteriorating, or because the market valuation multiple is compressing?
That distinction is a precondition for meaningful investment judgment.
14. ETH Market Cap / VUD May Become a Valuation Scale Analogous to P/E
Equity markets use market capitalization divided by earnings.
For the Ethereum system, we can observe ETH market capitalization divided by VUD.
The economic meanings are entirely different, so ETH/VUD should not mechanically be called a “price-to-earnings ratio.”
But the two ratios perform a similar function: they show how much market value investors are willing to pay for one unit of fundamentals.
If a full reconstruction of VUD history from 2018 to 2026 eventually shows:
ETH market cap / VUD:
• remains near 1× in extreme bear-market regions;
• stabilizes in a middle range under normal conditions;
• reaches 3×, 4×, or more when bull-market narratives and liquidity are exceptionally strong;
then, for the first time, we would have a historical valuation ruler specific to the Ethereum system.
It must be emphasized:
The 1× level is currently only a hypothesis to be tested, not a theoretical law.
There is no mathematical reason why one dollar of dependency value must require one dollar of ETH.
If a “1× floor” is eventually validated, it can only be an empirical valuation floor formed through long market history, analogous to a company’s historical P/E range.
Long-term data must prove or reject it.
15. Fundamental Multiples and the Market Cycle Can Separate
Historically, Ethereum has been strongly influenced by the common Bitcoin market factor. Bitwise’s 2026 ETH factor research still found Bitcoin to be one of the most important explanatory variables for ETH returns. (Bitwise)
The historical pattern has therefore often been: Bitcoin rises → crypto risk appetite rises → ETH follows.
But if VUD continues to expand, the Ethereum system may gradually form an independent fundamental cycle.
One important future possibility is:
VUD grows first → ETH/VUD enters an extreme undervaluation zone → the market begins to reprice ETH → ETH/BTC strengthens → ETH develops an independent rally.
If the wealth effect, capital flows, and crypto risk appetite generated by that Ethereum repricing then transmit to Bitcoin, we may for the first time see ETH complete a fundamental revaluation before Bitcoin subsequently rises.
This is not inevitable, but it gives us a verifiable indicator of a possible paradigm shift.
What matters is not whether ETH outperforms BTC on a particular day. The relevant signal would be:
VUD continues to grow; ETH/VUD rises from a historical low; and ETH/BTC enters a long-term trend reversal before Bitcoin has initiated the new cycle.
If that happens, it would indicate that the market is beginning to move from “Bitcoin pricing ETH” toward “Ethereum fundamentals pricing ETH.”
16. Future VUD Cannot Be Extrapolated Directly from a Grand Narrative
If $100 trillion of global financial assets could someday be tokenized, that does not mean we can simply write:
The Ethereum system will have $100 trillion of VUD.
Several filters must come first:
Relevant global financial assets
→ actual tokenization penetration
→ public-chain adoption
→ Ethereum’s share, including L2s that genuinely depend on Ethereum
→ the share that forms critical Ethereum dependency
→ future VUD.
Only then does the phrase “a $100 trillion financial market” become a growth model that can be checked item by item rather than a narrative.
Ethereum’s institutional pages currently position L1 as a layer for high-value settlement, state roots, and durable records, and L2 as the execution and scaling layer; stablecoins and RWA are also major institutional applications. (Ethereum for Institutions)
If this structure continues to develop, the Ethereum system does not necessarily need to win every payment and every transaction. What it really needs to compete for is:
Which system becomes the canonical registry, final settlement layer, and public financial trust root for tokenized financial assets.
That is much more important than TPS competition. As scaling continues, unit transaction costs may keep falling, making the absolute level of gas fees less important as a core determinant of Ethereum’s long-term value and competitiveness.
This article does not repeat the theory of the public trust root. The relevant argument, as with Bitcoin, can be found in the book “Public Trust Root: Rethinking the Bitcoin System.” Ethereum as a trust root simply carries the additional qualifier “financial.”
17. VUD Theory Must Be Falsifiable
A valuation theory that cannot be falsified is simply another narrative.
VUD must therefore state its own invalidation conditions.
If future evidence shows that VUD grows rapidly for a long period while ETH’s long-term value has no stable relationship with it; that Ethereum can carry enormous economic scale while those activities create almost no structural demand for ETH; that assets can migrate at low cost so that the supposed Ethereum dependency is not real; that L2s gradually cease to depend on Ethereum for final settlement; that Ethereum governance loses transparency and checks and becomes a de facto single center of power; or that historical data ultimately shows no interpretable long-run ETH/VUD valuation range, then VUD can no longer be called a fundamental valuation anchor for ETH.
At most, it would be an indicator of the scale of the Ethereum ecosystem.
This point is essential.
This article does not assume VUD is correct and then search for evidence to prove it.
The correct sequence is:
Form a mechanism hypothesis → establish the measurement rules → reconstruct long-term data → compare with market prices → attack the hypothesis with counterexamples → only then decide whether the theory holds.
18. Existing Research Has Reached Nearby Ground, but Has Not Closed the Loop
This article does not claim that no one previously noticed the external economic value protected by Ethereum.
On the contrary, if Ethereum had been studied for many years and nobody had ever approached this direction, that itself would be a reason to suspect that the theory might be wrong.
Consensys has described the Ethereum system as “Trustware” that produces programmable, verifiable digital trust, and has described ETH as the economic bandwidth supporting those activities. (Consensys)
Cost-to-Corrupt frameworks have also tried to infer the security value required by Ethereum from on-chain economic capital. Bitwise then performed statistical tests and found that on-chain capital and ETH market capitalization have weak short-term association but a long-run cointegration relationship. (Bitwise)
Token Terminal’s definition of TVL also makes clear that TVL can show how much value users are willing to deposit into a protocol, thereby expressing trust in the security of the protocol’s smart contracts. (Token Terminal)
These studies each touch part of the problem addressed here.
What this article attempts to add is conceptual calibration and system closure:
Instead of continuously adding TVL, collateral, staking, stablecoins, RWA, fees, and so-called monetary premium, it repeatedly asks:
What fact does this indicator represent?
Where does that fact sit in the causal chain?
Does it actually create value?
Is it being double-counted?
Under what conditions does the relationship fail?
The goal is to retain only the upstream variables that cannot be replaced by other indicators.
That is the significance of VUD.
19. A Truly Operable Valuation Framework for the Ethereum System
After the above calibrations, Ethereum valuation can be compressed into a very simple structure.
Layer one:
VUD — how much real economic value critically depends on the Ethereum system.
Layer two:
Dependency quality — how persistent, difficult to substitute, transparent, and verifiable those relationships are, and whether Ethereum’s coordination and checks-and-balances structure is sufficient to support long-term credibility.
Layer three:
ETH value-bearing — how ETH, as the Ethereum system’s native asset and security capital, represents and capitalizes the value of the Ethereum system.
Layer four:
Effective supply — how much ETH is actually willing to come to market in the face of new demand.
Only at layer five do we reach:
Narrative, growth expectations, the Bitcoin cycle, and market sentiment — the factors that determine what multiple the market is willing to pay for current fundamentals.
The more accurate conceptual relationship is therefore:
VUD determines the economic scale of Ethereum’s fundamentals; dependency quality and system credibility determine the reliability of that value; ETH, as the native asset and security capital, bears and capitalizes the value of the system while also having independent store-of-value demand.
Market price then depends additionally on ETH effective supply, growth expectations, narrative, the Bitcoin cycle, and market sentiment.
ETH market cap / VUD is therefore better treated as an empirical valuation multiple that must be validated with long-term data, rather than as a pre-set mathematical identity.
At this stage, we should not assign artificial precise coefficients to each variable. Long-term data should gradually reveal the actual relationships among VUD, system credibility, the way system value appears in ETH, and market multiples.
The most important task now is not to manufacture a scientific-looking target price. It is to let long-term data determine the weights of these relationships.
20. What Can We Conclude Today?
As of August 2026, Ethereum and its L2s carry about $170 billion of stablecoins and about $18.6 billion of RWA, while ETH market capitalization is about $229 billion; meanwhile, about 39.45 million ETH are participating in PoS staking. (Ethereum for Institutions)
These facts do not by themselves prove that ETH is undervalued.
But they raise a question that previous Ethereum valuation frameworks have struggled to answer:
When a public network has become important registration, execution, and final-settlement infrastructure for large-scale external financial assets—and that external economic dependency may continue to grow—how should its native security capital be valued?
That is the real Ethereum valuation question.
The answer should not be TVL. It should not be TPS. It should not be collateral scale. Nor should everything that cash-flow analysis cannot explain simply be placed into a residual “monetary premium.”
The answer should begin with real external economic demand.
Conclusion: From Price Narratives to Verifiable Valuation
Crypto markets have long depended on narratives, and that is not simply because the market is irrational. A deeper reason is that crypto has lacked a fundamental valuation anchor analogous to corporate earnings. Bitcoin, through the digital-gold and store-of-value consensus, has already formed a relatively understandable value logic. The Ethereum system is more complex. It is both a cryptoasset system and a continuously evolving piece of public financial infrastructure; ETH can be held over the long term and is also the native security capital of the Ethereum system. Ethereum therefore does not need another story such as “digital oil,” “ultrasound money,” or “monetary premium.” It needs an answer to a more fundamental question:
What real economic facts support the long-term existence of the Ethereum system, and through what mechanisms do those facts ultimately support ETH?
VUD attempts to answer that question. It is not the final valuation formula; it is the starting point of Ethereum fundamentals.
If history ultimately shows:
Critical external economic dependency continues to grow → ETH’s long-term value center rises with it,
then the Ethereum system will have a fundamental valuation anchor that is independent of Bitcoin and broader crypto narratives.
If long-term data does not support this relationship, the theory should be modified or abandoned.
The framework can therefore be reduced to four sentences:
External economic dependency determines the scale of fundamentals;
credibility quality determines the reliability of system value, and ETH bears and capitalizes that system value;
narratives and cycles determine the multiple the market assigns;
long-term data ultimately does the weighing.
This is also the key difference between the Panoramic Investment Analysis Method and traditional crypto valuation: it does not search for explanations from price, but for sources of value from facts; it does not label every measurable statistic “value,” but uses comparison, classification, layering, and falsification to return each indicator to its proper place.
Only after this step can Ethereum valuation move from “storytelling” toward a system that can be continuously updated, independently reviewed, and overturned by evidence.
For the Ethereum system to achieve a higher long-term value, critical external economic dependency must continue to expand. The verification relationship between Ethereum and L2s is still developing: L2s need transparent structures that are verifiable and independently reconstructable, while external assets such as RWA require verification that off-chain facts remain consistent with on-chain token states. For the broader theory, see “From Double-Entry Bookkeeping to Verifiable Finance.” This article uses the Panoramic Investment Analysis Method under the framework of verifiable thinking to organize the Ethereum valuation problem. One important reason the problem has remained unresolved is that people have repeatedly tried to force Ethereum into old valuation frameworks. Just as explanations of wealth suited to the agricultural age became inadequate after society entered the industrial age, old valuation categories may be inadequate for a new kind of financial infrastructure.
Building on the preceding comparison with Bitcoin’s store-of-value logic, this article reorganizes the scattered Ethereum valuation indicators into a logically self-consistent analytical framework. If the valuation analysis above is valid and future historical data confirms that the lower range of ETH/VUD is stable, then, in relative comparison with Bitcoin’s position around its 200-week cycle, ETH currently shows more than 40% potential valuation-recovery space.
Appendix: References
[1] https://ethereum.org/developers/docs/scaling/zk-rollups/ — “Zero-knowledge rollups | ethereum.org”
[2] https://institutions.ethereum.org/data-hub — “Live Ethereum Network Data | Institutional Onchain Data Hub”
[3] https://ethereum.org/foundation/mandate — “Ethereum Foundation Mandate | ethereum.org”
[4] https://ethereum.org/developers/docs/consensus-mechanisms/pos/faqs/ — “Frequently Asked Questions | ethereum.org”
[5] https://launchpad.ethereum.org/ — “Staking Launchpad”
[6] https://bitwiseinvestments.eu/se/blog/crypto-research/from-speculation-to-security/ — “From Speculation to Security: One Approach to Measuring ETH’s True Value | Bitwise”
[7] https://tokenterminal.com/resources/articles/token-terminal-key-metrics-faq — “Token Terminal: Key Metrics FAQ | Token Terminal”
[8] https://bitwiseinvestments.eu/blog/crypto-research/ethereum_factor_model/ — “Ethereum Factor Model. What drives Ethereum’s Price? | Bitwise”
[9] https://institutions.ethereum.org/rwa — “Stablecoins & Asset Tokenization | RWAs on Ethereum”
[10] https://consensys.io/blog/ethereum-is-the-trustware-to-power-a-digital-world-economy — “Ethereum is the trustware to power a digital world economy | Consensys”
