This is not a price discussion about ETH token —this post focuses on Ethereum's evolving architecture and how current design choices affect ETH’s role within the protocol.

Specifically, I wanted to discuss (hopefully with Ethereum Foundation members and the community here) how Ethereum’s shift toward a rollup-centric architecture—combined with sequencer economics and abstracted fee mechanisms—is steadily eroding the utility of ETH as a protocol asset. As transaction execution moves off-chain and value accrues to application and infrastructure layers, ETH is becoming economically obsolete within its own ecosystem, reduced to a passive settlement token with declining relevance.

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Ethereum’s recent market underperformance reflects underlying architectural and economic challenges—namely, an increasing divergence between protocol-level activity and value accrual to the ETH token. As Ethereum transitions toward a modular architecture, with execution increasingly offloaded to Layer 2 rollups and sidechains, the locus of network activity and fee generation is shifting away from the base layer. This raises critical questions about ETH’s function as a utility and capital asset within a system where settlement and data availability remain on L1, but economic activity is abstracted and fragmented across secondary layers.

Layer 2 networks and Ethereum-adjacent sidechains increasingly leverage Ethereum’s ecosystem—its security model, TVL, and EVM compatibility—while largely bypassing ETH as a core economic asset. These platforms benefit from Ethereum’s ecosystem, but redirect liquidity, transaction volume, and value accrual to their own native tokens and network.

Polygon, for example, positioned itself early on as an Ethereum scaling solution and received support from Ethereum Foundation + Vitalik. However, its architecture relies on its own validators, consensus model, and token (MATIC/POL), which is used for both transaction fees and staking. As a result, Polygon leeches from Ethereum's network, TVL, and developer network without reinforcing ETH as a utility token or contributing to the security of Ethereum mainnet.

L2 solutions such as Base, Arbitrum, and Optimism are structurally closer to Ethereum, in that they settle data to Layer 1. However, their economic models often do not reinforce ETH demand in a meaningful way. Sequencers collect fees and periodically post transaction data to Ethereum mainnet using ETH or their own native UI currencies—but in many cases (e.g., Coinbase’s Base), this ETH is sold immediately. The result is an increase in ETH-denominated sell pressure for using a L2 network without any corresponding increase in demand or utility. The amount of ETH burned is extremely small compared to the value being moved across these L2s. For billions in daily transaction volume, the total ETH burned is typically in the hundreds to low thousands per month. So while ETH is used, it’s economically disproportionate to the scale of activity happening off-chain.

Moreover, the abstraction of ETH from end users further erodes its role as a utility token. If rollups and applications can operate entirely using other network-specific tokens, and if ETH is only used behind the scenes (and immediately sold), its function as a transactional or capital asset becomes increasingly marginal. In effect, ETH risks being reduced to a mere settlement token for rollup operators, rather than a broadly used currency or store of value within the ecosystem.

The Ethereum Foundation continues to champion a rollup-centric roadmap as the path toward scalable, decentralized infrastructure. While this model offers tangible benefits—lower transaction costs/higher throughput—it also creates new economic trade-offs. Value accrual shifts to application and infrastructure layers, rather than consolidating around the base protocol asset (ETH). This is a departure from Ethereum’s earlier design assumptions, where ETH was envisioned as a multi-functional asset: the native gas token, staking collateral, medium of exchange, and reserve currency for decentralized applications.

As a long-time participant in the Ethereum ecosystem (since 2015-2016 or so), I’ve observed this shift with increasing concern—not due to a lack of technical progress, but due to the weakening alignment between protocol growth and ETH value. Ethereum is scaling, but ETH is not capturing the upside of that scale. Competing ecosystems—such as Solana or vertically integrated L1s—are increasingly offering tighter economic alignment between usage and token utility, which may present challenges to Ethereum’s long-term competitiveness.

This is a critical juncture. Ethereum must balance scalability with economic coherence. If Ethereum becomes primarily a settlement layer for EVM-compatible rollups that abstract away ETH, then ETH’s utility—and by extension, its long-term value proposition—will disappear.

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TL;DR: ETH is being abstracted away from Ethereum network + ecosystem usage, and needs to be fixed.

I'm highlighting a critical design problem where there’s a growing disconnect between network expansion and economic incentives for the ETH token.

This is fundamentally an architectural/incentive issue that needs to be addressed to preserve ETH’s role (the token ETH not the network) in the new age of a rollup-centric ethereum, (and not be completely abstracted away)

in the comments I've outlined potential solutions—such as ETH-denominated fee-sharing models and collateral requirements for L2 sequencers—that would re-align ETH with L2 usage. Today, the Ethereum Ecosystem is growing, but ETH utility continues deteriorate as the token is sidelined from actual transaction flow and user interaction on l2s.

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