Determining the true value of any cryptocurrency, including Ethereum (ETH), has always been a complex and speculative endeavor. Unlike traditional assets, crypto prices fluctuate wildly based on market sentiment, hype, technological developments, and broader economic conditions. But is it possible to distill a baseline or “fair” valuation for Ethereum that reflects its underlying economic significance, rather than pure speculation? Recent insights from Sharplink Gaming’s earnings call shed light on a compelling approach that might just give us a more grounded perspective.
Understanding Ethereum's Economic Backbone: Total Value Secured (TVS)
When evaluating blockchains, many investors focus on Total Value Locked (TVL). This metric measures the amount of cryptocurrency locked inside decentralized finance (DeFi) protocols on a given blockchain. For Ethereum, TVL has long been considered an essential gauge of activity and adoption. The more crypto locked in DeFi contracts, the greater a chain’s perceived utility and network strength.
However, TVL only captures a portion of Ethereum’s true economic ecosystem. It excludes vital components such as staked ETH (important after Ethereum’s shift to a proof-of-stake consensus), assets bridged to Layer 2 scaling solutions, stablecoins and wrapped assets issued on Ethereum, and various DeFi positions outside of TVL aggregations.
This is where Total Value Secured (TVS) comes into the picture. TVS is a broader metric that captures the entire spectrum of economic activity secured by Ethereum. It reflects the value of all assets and activities dependent on Ethereum’s base layer security, including:
- Staked ETH not counted in TVL
- Assets on Layer 2 solutions connected to Ethereum
- Stablecoins and tokenized assets issued on the chain
- All DeFi positions across smart contracts built on Ethereum
By encompassing these diverse facets, TVS offers a more comprehensive view of Ethereum’s economic footprint.
What Does TVS Tell Us About Ethereum's Fair Value?
Sharplink Gaming used the TVS metric to explore Ethereum’s valuation during its recent earnings call. Their analysis hinges on the idea that Ethereum’s token market capitalization shouldn’t just be the price per ETH multiplied by circulating supply but should also reflect the value of all assets that depend on Ethereum’s security.
Sharplink proposes that the ETH market cap should grow by approximately $1 for every $2 of TVS. In contrast, data from Token Terminal suggest a stronger 1:1 correlation between TVS and fully diluted market cap. Simply put, if $1 trillion worth of assets is secured on Ethereum, then a conservative floor valuation for Ethereum’s market capitalization should be around $1 trillion.
While market speculative behavior often drives ETH prices well above this baseline during bull runs, the TVS-based valuation can serve as a meaningful anchor during bear markets or price corrections. The current valuations show that Ethereum’s market cap is roughly equal to its TVS, implying an estimated price of about $2,585 per ETH based on this method.
Why TVS Matters for Investors
- Dependency Drives Value: The more assets and applications depend on Ethereum’s security, the more valuable Ethereum becomes. It acts as the bedrock for the entire ecosystem.
- Holistic Measure: Unlike TVL, TVS captures all forms of locked and staked assets, Layer 2 activities, and stablecoins – providing a fuller picture of on-chain economic activity.
- Fair Valuation Anchor: Investors can use TVS to identify undervalued or overvalued market conditions by comparing Ethereum’s market cap against the assets it secures.
The Bigger Picture: How Much Value Will Ethereum Secure?
Ultimately, the true growth and valuation of Ethereum depend on how much economic activity continues to migrate and secure itself on its blockchain. Increasing TVS suggests growing trust, usage, and reliance on the platform, which should underpin ETH’s valuation growth.
While speculation and market sentiment will always play a role in price movements, metrics like TVS bring a more fundamental perspective. They encourage investors to think about Ethereum less as a speculative token and more as a critical infrastructure asset securing trillions of dollars of value.
Conclusion
Ethereum’s true value transcends the simplistic price times supply calculation often seen in crypto markets. By considering Total Value Secured, investors gain a richer understanding of the economic activities and assets relying on Ethereum’s network. The evolving TVS metric highlights Ethereum’s critical role in the crypto economy and sets a reasonable floor for ETH’s valuation, currently suggesting a baseline price around $2,585 per coin.
As Ethereum continues to expand its ecosystem and onboard more assets and applications, its fair value is likely to grow in tandem. Observing TVS over time can provide important clues for investors looking to navigate the volatile crypto landscape with a more grounded valuation approach.
By Wolfy Wealth - Empowering crypto investors since 2016
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Disclosure: Authors may be crypto investors mentioned in this newsletter. Wolfy Wealth Crypto newsletter, does not represent an offer to trade securities or other financial instruments. Our analyses, information and investment strategies are for informational purposes only, in order to spread knowledge about the crypto market. Any investments in variable income may cause partial or total loss of the capital used. Therefore, the recipient of this newsletter should always develop their own analyses and investment strategies. In addition, any investment decisions should be based on the investor's risk profile.
