Ethereum’s Investment Case Remains Unclear According to CoinShares

Although professional investors are showing interest in Ethereum (ETH) as an application host, the investment rationale for its cryptocurrency, ether, remains ambiguous.

CoinShares recently published an Ethereum usage report, highlighting key factors impacting ether’s value. The report indicates that the main driver is the demand for transactions on the Ethereum network. Matthew Kimmell, a researcher at CoinShares, noted that this demand depends on how much users are willing to pay for Ethereum’s services.

While Ethereum’s ecosystem is growing, transaction demand is largely concentrated in a few speculative use cases. CoinShares’ Head of Research, James Butterfill, emphasized the need to cultivate sustainable on-chain utility for Ethereum’s long-term value.

Ethereum Usage Dominated by a Few Applications and Token Transfers

According to CoinShares, Ethereum transactions play a more significant role in determining ether’s value than staking yields and other factors. The network has evolved from simple asset transfers to complex interactions involving decentralized applications and financial tools but remains largely speculative.

Kimmell pointed out that a small number of services account for the majority of Ethereum’s usage, mainly decentralized exchanges like Uniswap, which represent over 90% of transaction fees. The interest in NFT marketplaces such as OpenSea has waned, leaving DeFi applications and token transfers as primary activities.

The Role of Layer 2 Solutions

Despite Ethereum’s growth, demand for its base layer is declining, compounded by the rise of Layer 2 solutions, which help address scaling issues but can undermine the value of ether. Kimmell explained that the recent EIP-4844 change incentivizes Layer 2 adoption, thus complicating the connection between ether’s value and its demand.

To ensure sustainable long-term value for users, the challenge lies in promoting on-chain utility that scales effectively.