A New Perspective on Digital Goods: Will the Value of ETH Rebound?
Frax founder deeply analyzes the true value positioning of ETH.
Source: sam.frax X account
Author: sam.frax , Founder of Frax Finance
Compiled by: zhouzhou, BlockBeats
Editor's note: This article explores the distinction between digital commodities (such as L1 tokens) and quasi-equity tokens, proposing a new framework for evaluating digital assets, particularly regarding the value of ETH. The author argues that ETH should be viewed as a sovereign commodity rather than a quasi-equity token, as commodities do not generate cash flows or dividends. It also points out how to eliminate the ambiguous definition of ETH assets, reaffirms the importance of commodity premiums, and highlights potential future valuation errors.
Below is the original content (reorganized for readability):
In the cryptocurrency space, I propose a completely new system for evaluating digital commodities, such as L1 tokens, and the distinction between sovereign commodities and governance/equity tokens. This perspective is crucial for ETH and various L2 tokens and may completely eliminate the ambiguity surrounding ETH assets.
In cryptocurrencies, there are essentially only two types of tokens: digital commodities (typically L1 sovereign assets) and quasi-equity governance tokens. I have elaborated on this in previous discussions.
By definition, commodities cannot pay "dividends" or possess "cash flows," so if an asset is indeed a digital commodity rather than a governance/quasi-equity token, we must discard this erroneous evaluation standard. Just as a sovereign nation cannot meaningfully default on debts denominated in its own currency (only inflation can occur, not default), digital commodities do not have a real issuer; they are a scarce sovereign asset. Therefore, if it is indeed a commodity, it cannot meaningfully provide dividends or cash flows.
The asset itself is the product, like BTC. Labor and other tangible products can only generate economic demand for commodities.
Ethereum (network + chain) is currently the largest digital nation, a sovereign economy filled with global laborers and builders' innovations. This labor is tokenized in the form of governance/quasi-equity tokens, which are distinctly different from quasi-digital commodities like BTC, ETH, and SOL. Wherever an entity pays holders of digital commodities for any operation, whether liquidity provision rewards, DeFi incentives, or LSD and LRT, these can be measured empirically.
This metric should be defined as the commodity premium of the asset, rather than currency premium, sovereign premium, or speculative premium, which is a legitimate and fundamentals-based evaluation term for a class of assets.
In the global economy, wherever someone pays another in the form of labor or quasi-equity tokens to hold some form of sovereign asset, we can track the flow of labor's value to digital commodities. This demand is paid to all forms of ETH holders globally, including those using it in liquidity pools, re-staking, L2, and future DeFi innovations yet to emerge.
This is the global economic demand for commodities, namely the commodity premium. Clearly, this has a far greater effect on the price and market value accumulation of sovereign assets than any PE DCF framework. This is also why BTC's market cap is close to $200 billion without any gas consumption. But in my framework, note that there is no PE DCF premium within a class of tokens, as that is simply not possible.
Only quasi-equity tokens can have cash flows; what we perceive as "dividends/buybacks/burns" in a class of assets is actually just the commodity premium. Similarly, there is no commodity premium in quasi-equity tokens.
This leads to the 1559 burning mechanism, often viewed as the core value accumulation mechanism for ETH, as it is considered "the enterprise of Ethereum" paying dividends/cash flows to ETH commodity holders.
But this is an absurd concept because commodities cannot generate cash flows. If a company uses gold in a new industrial application, thereby altering the molecular structure of gold and permanently removing that element from circulation, we would not start performing PE or DCF cash flow analyses on gold; we would simply recognize it has a new high-demand industrial use that consumes the commodity. No one would perform PE or DCF analyses on gold.
Similarly, no one performs PE or DCF analyses on BTC. It exists like gold but in digital form. PE DCF premiums are not within the socially acceptable range for real or digital commodities. Furthermore, the 1559 burning mechanism arises from user demand within Ethereum and its L2 sovereign economy. This is merely another economic demand for the $ETH sovereign asset, representing another industrial use case. That demand is paid through the Ethereum blockchain protocol itself, not through labor or manually distributed equity/governance token rewards.
Ethereum is the first project to face the "final Boss" challenge in defining its social identity, but SOL is next, and once it reaches this stage, it may struggle at this step as well. Other sovereign assets will face similar issues as they mature to these stages.
My view of the lifecycle of digital commodities and their associated pitfalls is illustrated in a chart. $SOL has not yet reached the second stage, noting that in my view, $BTC and $ETH took different turns at the second stage.
For $ETH, it is crucial to establish this social contract now to show the world before it is too late that it is not just $BTC that possesses this privilege. In fact, this is not a privilege but a social contract of commodity premiums—a very specific, quantifiable, rules-based system.
Note that I did not mention the vaguely defined "speculative premium" in the paper. This is because I focus on a well-defined and measurable framework for fundamental value. The speculative premium merely attempts to quantify trading activities based on a future fundamentals-based value system. The speculative premium is not a fundamental framework like the commodity premium or PE DCF premium. The speculative premium is simply market activity attempting to calculate how that asset will be valued under some framework in the distant future.
Until now, PE DCF has been the only fundamentals-based framework for discussing digital assets, aside from $BTC. It has been misapplied to all assets (except BTC) but should only be used to evaluate assets representing labor, products, and governance rights, not sovereign digital commodities.
In the next part of this series, I will explain how and why certain technical steps, such as defined gas tokens, sovereign supply, and consensus, are necessary conditions for establishing the social contract of commodity premiums. If $ETH can inadvertently and slowly transition into a second-class token, it is also possible to transform a second-class token into a first-class token, but this is a very difficult and sensitive process that is prone to error.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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