Ethereum co-founder believes that focusing on fee burning creates risks for decentralization and the network's resilience to capture.

According to him, the main value of Ethereum as an asset lies in its properties as a store of value, which are ensured by decentralization, privacy, and security.

Buterin emphasized that the EIP-1559 fee-burning mechanism should be preserved, but it should not be made the foundation of Ethereum's economic model.

Ethereum co-founder Vitalik Buterin explained why he considers the concept of Ethereum as a store of value (SoV) more promising than the model in which the token is primarily viewed as a fee-burning instrument.

In his opinion, the first concept aligns better with the network's key properties — decentralization, resistance to censorship and capture, open source, privacy, and security (CROPS).

Buterin noted that the EIP-1559 mechanism, which involves burning the base transaction fee, remains useful and should be preserved. At the same time, he urged not to worry if fee burning remains below 10% of the break-even level for an extended period. According to him, Ethereum's value is not formed solely by this mechanism.

Buterin questioned the widespread argument that token burning creates a natural lower bound for their market valuation. It is based on the net present value (NPV) model: an asset's market capitalization supposedly should correspond to the annual burn volume divided by the discount rate.

As an example, he cited a token with $1 billion in burning per year, assuming this figure remains stable in the long term. At a 4% discount rate, such a model yields a valuation of $25 billion. If market capitalization falls below this level, an investor could theoretically buy the asset below its calculated value and sell part of the holdings each year while maintaining their share of the total token supply.

In 2021-2023, Ethereum burned millions of ETH annually. However, according to Buterin, this did not create a reliable price "floor," since a significant portion of demand for the blockchain came from internal cryptocurrency use cases.

In particular, if the price of Ethereum falls tenfold, revenues from such use cases could also decline: users would have less funds to pay fees. As an example, Buterin mentioned the sale of digital monkeys, during which $180 million in fees was burned in a single day, as well as more ordinary operations, including lending.

In his opinion, the minimum valuation argument works only when the source of income has external backing. Ethereum is gaining more grounds for such a model through the development of the real-world assets (RWA) market, but Buterin does not expect that a mature network economy will regularly generate activity spikes on the scale of the aforementioned sale.

Focus on fees could weaken decentralization

Focus on commissions may weaken decentralization

Buterin's second argument is that an attempt to justify Ethereum's current market capitalization of around $270 billion through fee burning would require Ethereum to function as a large corporation.

He cited the example of L'Oréal, which ranks approximately 55th in the world by market capitalization. According to Buterin's estimate, the company spends about 0.58% of its market value on research and development annually. If Ethereum were to follow a similar approach, the Ethereum Foundation could not independently cover such expenses.

Instead, the network would need in-protocol funding of about 700,000 ETH per year. According to Buterin, this would cause political disputes, and validator income would decline by approximately two-thirds. At the same time, research and development costs would be only one of the budget items.

In addition, corporations are forced to make subjective management decisions to adapt to technological changes, enter new markets, and create products for different audiences. Buterin believes that Ethereum would have to introduce significantly more centralized governance, which would contradict its basic principles.

Another risk is that maximizing fee burning could incentivize higher gas costs. This would potentially crowd out some users, particularly those who most need privacy and security. Buterin noted that the price that maximizes the product of the fee value and the number of uses implies lower activity than a model with maximum feasible use of network resources within safe limits.

Why does Buterin consider SoV a better model?

According to the Ethereum co-founder, decentralization and CROPS are the main properties that distinguish the network from other blockchains and traditional financial systems. They have practical value not only for individual users but also for institutions.

In particular, privacy for companies is not just an ideological principle but part of risk management and compliance with data protection requirements. Security and the ability to run a node independently also have practical significance for business.

Buterin believes that Ethereum holders who view the token as a store of value will evaluate it primarily by its ability to preserve value in the long term. And he called the ability to survive the most important characteristic of such an asset.

In this context, the Ethereum co-founder mentioned several areas of work on the network:

post-quantum security. Buterin advocates conservative solutions, formal security proofs, and the use of more protection rounds than minimally necessary;

protocol ossification. After the main work on the network core is completed, development should gradually move to higher levels of the technology stack.

multisignatures. They should simplify the secure storage of Ethereum;

privacy. Buterin mentioned work on Kohaku, as well as the EIP-8288 and private account abstraction (AA) directions;

censorship resistance. The FOCIL mechanism should guarantee that a coin holder can send a transaction even if