Ether, the native cryptocurrency of the Ethereum blockchain, is thought to be trading at a 27% discount to its intrinsic value, according to recent analysis conducted by the research-focused joint venture, RRx. This valuation is based on a variant of the Metcalfe law-centric model that takes both the Ethereum mainnet’s active users and the user adoption of its ever-evolving layer 2 scaling networks into consideration.
Under the fundamental Metcalfe’s law, the value of a network corresponds to the square of its user count. So, with Ether having a wide range of applications – from transactional activities on the Ethereum blockchain, to earning interest, partaking in network security via staking, to storing non-fungible tokens and more – it’s not surprising that its value has been long associated with network usage.
Lewis Harland, an analyst at RRx, stated that the updated variant of this model, which includes the user base of Ethereum’s scaling networks, predicts ETH’s value at $275 billion (with current market capital at a 27% discount) assuming zero growth in the user base for an indefinite period.
Harland further noted the vital change in April 2021; Ethereum’s block space started receiving substantial contributions from scaling networks. For instance, platforms like Curve, Sushiswap, Decentraland, and Aave launched on Polygon between April and May 2021, pushing the overall value-bridged to Polygon to $10 billion. Fast forward to the present, more than 250 apps on Ethereum have a total value-locked exceeding $1 million.
In contrast, traditional models’ over-reliance on the mainnet’s active users raises an eyebrow. Some argue they may overlook the ever-growing activity on the layer 2 networks and off-chain solutions that have been developed to cut down the bottlenecks associated with scaling and data. Consequently, these models that forego layer 2 could merely present Ether as overvalued.
In the past two years, the value locked in layer 2 protocols has reportedly tripled, crossing the $9 billion mark view appropriate data source, L2Beat. Layer 2’s evolution paints a fascinating picture in the market, with core protocols like Coinbase’s BASE and almost 30 layer 2 networks consolidating their niches.
Clearly, RRx’s blended Metcalfe law model assists in getting a more holistic valuation of Ether, especially given the spike of activity in layer 2. An analysis that considers only the mainnet user base while ignoring the flurry of activities taking place off the mainnet could read Ether’s value inaccurately.
Source: Coindesk
