Ethereum is the strongest Layer 1 chain—but the market doesn’t always price that in. Here’s how we think it should.
🧠 TL;DR:
We’re laying out a new framework for valuing Layer 1 blockchains—based on real onchain yield and modeled after FX and nation-state economics.
Why? Because in the long run, capital chases yield. And Ethereum’s fundamentals are far superior—even if Solana’s yield looks better today.
🇺🇸 L1s = Non-Sovereign Nation States
Here’s the simple mental model:
A Layer 1 = a nation-state
The native token = its currency
Onchain activity = its GDP
Gas/staking fees = taxes
Stakers = bondholders
Validators = central banks
Just like in foreign exchange (FX), the value of a token (or currency) is driven by capital flows. And capital flows are driven by real interest rates.
🏦 FX 101: What Drives Capital Flows?
In traditional finance, these are the key forces that determine the strength of a currency:
Macroeconomic health → GDP growth, exports, inflation
Real interest rate → Nominal interest minus inflation
Capital account openness → How easy is it to move money in/out
Speculation → Markets front-run policy or macro shifts
The real interest rate is what matters most. It reflects a country’s true ability to compensate investors for holding its currency.
🔁 Apply That to Crypto: What Drives L1 Value?
In early-stage chains like Monad, Sui, or Berachain, speculation rules.
VC hype, airdrops, and narratives move the price.
But in mature L1s like Ethereum and Solana, capital starts paying attention to fundamentals:
Fees + MEV
Assets secured
Real onchain yield
Native token issuance
User growth + DeFi velocity
Governance + monetary policy
So what’s the cleanest signal of a chain’s economic health?
🧮 Real Onchain Yield = The KPI That Matters Most
Just like real interest rates tell you the health of a country’s economy…
Real onchain yield tells you the health of a blockchain.
It answers the question:
“If I stake this token, how much real value do I earn from the network’s actual usage?”
This metric rolls up everything:
Active users
Onchain fees
Staked assets
MEV extraction
DeFi volume
L1 token issuance
If the chain isn’t generating yield through real usage, the price will eventually reflect that.
📊 Ethereum vs. Solana: The Reality Today
Despite Ethereum’s dominance in:
Developers
Stablecoins
Assets secured
DeFi depth
RWA adoption
Decentralization
…it’s underperforming Solana on real onchain yield.
Why?
Because Solana has:
Higher native token issuance
Way higher DeFi velocity (TVL is reused faster)
85%+ of new token launches (memecoins = activity = yield)
Solana turns over each $ in DeFi 15.7x more often than Ethereum L1.
📌 Meanwhile, Base (an Ethereum L2) shows similar velocity—but ETH holders only earned $2.4M in yield YTD from it.
That’s a governance issue. Ethereum has offloaded velocity to L2s but hasn’t yet figured out how to recapture the value.
🧠 Real Onchain Yield Drives Capital Flows
Like interest rate differentials drive FX flows…
Real onchain yield may drive capital between chains.
It’s not about DCF models or spreadsheet math.
It’s about capital magnetism.
Yield = reflexivity.
Yield = attention.
Yield = capital.
💸 What About Issuance & Inflation?
A quick clarification:
Issuance yield = stakers get newly printed tokens → not dilution for them
But non-stakers get diluted if issuance is high
Net Dilution Rate = Issuance - Tokens Burned
🔍 Current data:
Solana’s dilution rate = ~5% (bad for passive holders)
Ethereum’s dilution rate = ~0.68% (much healthier)
So even if SOL yields more, it dilutes non-stakers way more than ETH does.
🪙 What About Monetary Premium?
You can’t model this—but you feel it.
It’s the trust, community, decentralization, and network effect of a chain.
Just like gold or the U.S. dollar, the “brand” matters:
ETH has the Lindy effect
ETH has the culture
ETH has the values
Monetary premium creates resilience.
It’s the moat that keeps builders and capital around even when short-term yield looks better elsewhere.
🔚 Final Take
The long-term winners in Layer 1s won’t just be fast or cheap.
They’ll be the chains that:
Return real value to tokenholders
Balance growth with sustainable issuance
Govern wisely
Cultivate trust
And earn their monetary premium
Ethereum isn’t perfect.
But it’s still the most complete, secure, and credible L1 in crypto.
If it can reclaim yield from its L2s… it won’t just win on fundamentals.
It’ll price that way too.
📣 Feedback? Debate?
We welcome healthy disagreement. These ideas are evolving, and so are the data points. If this sparks any insights or critiques, reply and let’s discuss.
-Cole