Fair valuation of ETH: When will the market recognize the truth?

When will the market agree on a fair price for Ethereum? This is not a new question, but ultimately it has become extremely important. Recently, Hashed – a reputable research platform – published 10 different valuation methods for ETH, of which 8 models indicate that Ethereum is currently undervalued by the market. Based on a weighted average calculation considering reliability, the fair value of ETH could reach $4,766 – nearly 1.5 times the current price of $3.16K.

But what do these numbers really mean? How can investors use these methods to assess risks and opportunities?

Simple but Controversial Methods

When starting the analysis, Hashed categorizes the 10 models into three groups based on confidence levels: low, medium, and high. “Unilateral” valuation models usually fall into the first group.

TVL Multiple: DeFi Attraction

One of the earliest methods links market capitalization to total value locked (TVL) on DeFi platforms. Hashed uses an average multiple from 2020-2023 of 7x, then applies a formula comparing the relative error: TVL × 7 ÷ Total Supply. The result suggests a fair price of about $4,128.9, which is 36.5% higher than the current price.

However, this method considers only a very narrow perspective. High TVL does not necessarily mean a safer network or long-term value, especially when these assets can be withdrawn within minutes.

Scarcity from Staking: A Problematic Assumption

When ETH is locked in staking, it cannot circulate on the market, increasing “theoretical scarcity.” Hashed applies the formula: Current Price × √(Total Supply ÷ Circulating Supply). Using the square root to “soften extreme cases,” this model calculates a value of $3,528.2, 16.6% higher.

The issue is: the actual value of locked tokens does not necessarily exceed the market price. When these tokens are released via staking (LST) products, the effective supply increases, weakening the “scarcity” argument.

Combining Mainnet and Layer 2

A variation of the TVL model adds TVL from Layer 2 solutions, with a doubled weight because L2 consumes Ethereum. The formula: (TVL + TVL_L2×2) × 6 ÷ Total Supply = $4,732.5, 56.6% higher.

Although improved, this method still relies heavily on TVL data, which is unstable and easily manipulated.

More Sophisticated Models

Moving to the “medium confidence” group, the methods become more complex but offer better balance.

Mean Reversion: Returning to History

Instead of just current TVL, this model compares the market cap-to-TVL ratio with its historical average (6 times). The formula: Current Price × (6 ÷ Current Ratio) yields $3,541.1, 17.3% higher.

This approach is more conservative, based on the assumption that historical ratios are likely to repeat.

Metcalfe’s Law: Network Value Squared

This is an academically validated method. The law states that the value of a network is proportional to the square of the number of nodes or users. Hashed uses TVL as a proxy for network activity, with the formula: 2 × (TVL/1 billion)^1.5 × 1 billion ÷ Total Supply.

Result: $9,957.6 – 231.6% above the current price! Although academically validated, this model is still overly dependent on a single indicator.

Discounted Cash Flow: When ETH Becomes a Stock

Some methods treat Ethereum like a company, with staking rewards viewed as profits. However, Hashed’s formula (Price × (1 + APR) ÷ (0.10 - 0.03)) has mathematical issues. Using a 10% discount rate and a perpetual growth of 3%, the result is only 37% above the current price – surprisingly low.

This suggests Ethereum should not be valued like a traditional growth stock.

Transaction Ratio: Industry Standard

Token Terminal uses this approach, comparing the market to annual fee revenue. Using a 25x multiple (standard for tech stocks), the model yields $1,285.7 – 57.5% below the current price.

This indicates that applying traditional valuation methods consistently results in Ethereum being overvalued, a sign that it is not a typical application.

The Only “Premium” Model

Only one model is classified by Hashed as “high confidence”: Yield Bonds.

Traditional finance analysts see cryptocurrencies as alternative assets, valuing Ethereum like a bond. The formula: Annual Revenue ÷ APR Rate ÷ Total Supply = $1,941.5, which is 36.7% below the current price.

In fact, only one “high confidence” model produces a lower result – possibly indicating that Ethereum should not be treated as a typical financial security.

On-Chain Total Assets: Protecting the Network

This model stems from an interesting perspective: to protect the entire asset value on Ethereum (stablecoins, ERC-20 tokens, NFTs…), the market cap of ETH must be proportional. The simple formula: Total Asset Value ÷ Total ETH Supply = $4,923.5, 62.9% higher.

Although somewhat counterintuitive, its logic is hard to dismiss.

When the Weighted Average Is the Answer

After reviewing all 10 models, Hashed calculates a weighted average based on the confidence level of each method. The result: approximately $4,766 – close to the previous all-time high.

However, some formulas (like discounted cash flow) may be miscalculated, so the actual figure could be slightly lower.

Supply and Demand: The Hidden Formula

If there is one approach to valuing ETH, analysts tend to revert to supply and demand. Ethereum is “money” with practical use – needed to pay Gas fees, buy NFTs, or create trading pairs.

A potential method: measure network activity → estimate ETH demand over a period → compare actual transaction costs with historical data → determine a fair price.

However, in the past two years, despite activity sometimes surpassing the 2021 bull run, costs have decreased significantly. Result: ETH demand has not surged, supply exceeds demand, and prices have not risen accordingly.

This method has a single limitation: it does not account for Ethereum’s “imagination”. When DeFi booms again, we might need to multiply the “dream factor” into the formula.