After Ethereum’s Fusaka Upgrade: Scaling Usability and Value Capture

Bitcoin continues to lead the narrative surrounding “digital gold”, serving as the premier neutral reserve asset. On the other hand, Ethereum has a much more complicated future as a technology platform, as Ethereum's utility is its selling point, allowing for the creation of stablecoins, hosting of Real-World Assets (RWAs), and enabling Decentralized Financial (DeFi) options. While the potential for these areas is vast, Ethereum faces several obstacles in maintaining dominance as the primary layer of infrastructure for all of them. The key is no longer merely a technological issue but instead has become a strategic one; with so many competitors available, what keeps capital, developers and apps so focused on using Ethereum and ETH?

The Stablecoin Shift

For years, Ethereum and Tron have functioned as a duopoly in the stablecoin market. Ethereum has been the platform for a majority of DeFi transactions (including the vast majority of USDC stablecoins), while Tron has dominated the market for transactions of the USDT stablecoin due to its low fees. However, this moat is eroding as issuers move toward vertical integration.

Both Tether (USDT) and Circle (USDC) are signaling a strategic pivot toward developing or supporting dedicated blockchain infrastructures. In addition to Ethereum and Tron, we are witnessing the emergence of specialized Layer-1 networks (L1s)—such as Arc, Stable, Tempo, and Plasma—designed exclusively for the efficient settlement of fiat-pegged assets.

These new entrants into the market have created a distinct threat to Ethereum’s fee revenue. If high-volume, institutional stablecoin traffic moves to specialized chains like Arc or Stable to reduce friction, Ethereum may risk losing a non-trivial slice of transactional activity. However, stablecoin payment settlement may fragment across specialized chains, but the higher-value use cases that require complex interactions between protocols still gravitate toward Ethereum and its rollups. The threat is real, but partial: Ethereum may lose share in low-margin transactional volume, while retaining or even growing its role as the “financial operating system” behind those assets.

Stagnant TVL and Shifting Innovation

At first glance, Ethereum appears to remain the king of DeFi, commanding approximately 67% of Total Value Locked (TVL). However, relying on this metric can be misleading. If we take a closer look at the data, it shows that since 2021, Ethereum's share of the DeFi market has remained constant at around 60% - capital is no longer monocentric; a meaningful fraction of liquidity and users now resides on Solana, BSC, and other L1s.

In addition to the stagnant TVL, another area of concern is where innovation is happening. Currently, most of the newly released "breakout applications" driving retail trading volume are largely absent from the Ethereum mainnet.

Hyperliquid: a leading perpetual decentralized exchange (DEX), operates on its own high-performance L1.

Polymarket: the prediction market that captured global attention, runs on Polygon.

This indicates that retail traders are increasingly utilizing high-performance platforms for their rapid and latency-sensitive transactions. Ethereum is evolving into a high-value settlement and coordination layer—home to large DeFi protocols, institutional investment, RWA experiments, and high-security use cases.

Source: Defillama

The Economic Dilemma: Efficiency vs. Monetary Soundness

Ethereum has been working to improve its network through upgrades that provide lower transaction fees, with a focus on making the use of Ethereum's Layer-2 (L2) networks more appealing to consumers and businesses. The upgraded version of the Ethereum protocol, known as Fusaka, will increase the capacity of blobs on the Ethereum chain and provide enhancements to the processing of transactions for L2 chains. Through the addition of improved blob size and lower transaction fees, Ethereum hopes to achieve greater engagement with L2 and ultimately broaden its overall user base and activity level.

While this makes the ecosystem more usable, it introduces economic tension. Under EIP-1559, ETH is burned whenever transaction fees are paid on the base layer. During periods of intense activity and high gas prices, this burn exceeded issuance, driving the “ultrasound money” narrative: ETH as a structurally deflationary asset backed by protocol usage.

When scaling succeeds, as intended by upgrades like Fusaka, the base layer transaction fees and the resulting burn rate naturally decrease. Consequently, the network’s issuance (rewards paid to stakers) often exceeds the burn rate, flipping ETH from "ultrasound money" back to an inflationary asset. However, going forward, ETH’s value proposition will likely depend less on deflation and more on how effectively the protocol and its ecosystem can route economic value—fees, MEV, sequencer revenue, restaking yields—back to ETH stakers and holders.

Ethereum Fee Revenue

Source: https://tokenterminal.com/explorer/projects/ethereum/metrics/revenue

Ethereum Inflation Rate

Source: https://dune.com/queries/4009266/6749792

Conclusion

In some ways, Bitcoin's future path is clear-cut and straightforward: it will remain neutral, secure and scarce. Ethereum's path is much more complicated. It must pursue a competitive battle on multiple fronts simultaneously:

• Compete with fast, low-cost L1s for user attention and application deployment.
• Coexist with specialized stablecoin and payment chain solutions.
• Scale via L2s and modular design without hollowing out the economic foundation of its native asset.

Ethereum’s advantages—unrivaled decentralization, a massive developer moat, and deep liquidity, EVM standardization—are formidable, but still face challenges from other L1 ecosystems. The key question for the coming years is whether Ethereum can turn its sprawling, multi-layered ecosystem into a coherent value machine for ETH, and build a renewed economic model that ensures the immense value created by its ecosystem actually flows back to the ETH token.