Artemis: Ethereum evolves towards on-chain reserves of assets

Author: Kevin Li, Artemis Researcher, Translated by: Shaw, Golden Finance

Abstract

• Ethereum (ETH) is transitioning from a misunderstood asset to a scarce, programmable reserve asset, providing security and power for a rapidly institutionalized on-chain ecosystem.
• The adaptive monetary policy of ETH is expected to see the inflation rate decline— even if 100% of ETH is staked, the cap will only be about 1.52%, dropping to around 0.89% by the 100th year (2125). This is far lower than the average annual growth rate of the US M2 money supply of 6.36% (1998-2024), and can even be comparable to the growth in the supply of gold.
• Institutional adoption is accelerating, with companies like JPMorgan and BlackRock building on Ethereum, driving sustained demand for ETH to secure and settle on-chain value.
• The annual correlation between on-chain asset growth and ETH native staking is as high as 88%, highlighting a high degree of economic consistency.
• The U.S. Securities and Exchange Commission (SEC) released a policy statement on staking on May 29, 2025, which reduced regulatory uncertainty. The application documents for the Ethereum Exchange-Traded Fund (ETF) now include staking provisions, which both enhance returns and facilitate alignment with institutional investors.
• The deep composability of Ethereum makes it an efficient asset — usable for staking/re-staking, as collateral in decentralized finance (DeFi) (e.g., Aave, Maker), liquidity for automated market makers (AMM) (e.g., Uniswap), and as a native fee token on Layer 2.
• Although Solana has gained attention in the Meme coin activity, Ethereum's stronger decentralization and security give it a dominant position in the issuance of high-value assets - a larger and more sustainable market.
• Marked by the rise of the Ethereum treasury reserve strategy launched by Sharplink Gaming (SBET) in May 2025, there are currently over 730,000 ETH held by listed companies. This new demand trend is reminiscent of the reserve craze for Bitcoin in 2020 and has driven the recent outstanding performance of ETH relative to Bitcoin.

Not long ago, Bitcoin was widely regarded as not a legitimate store of value, and its classification as "digital gold" seemed absurd to many. Today, Ethereum (ETH) is facing a similar identity crisis. ETH is often misunderstood, its annual return performance has been poor, and it has missed key hot cycles, while its retail adoption rate has also slowed in many areas of the cryptocurrency ecosystem.

A common criticism is that ETH lacks a clear value accumulation mechanism. Skeptics argue that the rise of Layer 2 solutions has eroded the fees of the base layer, undermining ETH's role as a monetary asset. When ETH is viewed primarily from the perspective of transaction fees, protocol revenue, or 'real economic value', it begins to resemble a form of cloud computing security—more like Amazon stock than a sovereign digital currency.

In my opinion, there is a categorical error in this framework. Evaluating ETH solely based on cash flow or protocol fees would confuse fundamentally different asset classes. Instead, it is better to understand ETH through a commodity framework similar to Bitcoin. More accurately, ETH constitutes a unique asset class: a scarce yet productive, programmable reserve asset whose value accumulates through the role it plays in securing, settling, and driving an increasingly institutionalized and composable on-chain economy.

Currency Devaluation: Why the World Needs Alternatives

To fully understand the evolving monetary role of ETH, it must be considered within a broader economic context, especially in an era characterized by fiat currency devaluation and monetary expansion. Due to ongoing government stimulus and spending, inflation is often underestimated. Although official consumer price index (CPI) data suggests an annual inflation rate of about 2%, this figure may be revised and could mask a decline in actual purchasing power.

From 1998 to 2024, the average annual CPI inflation rate was 2.53%. In contrast, the annual growth rate of the M2 money supply in the United States was 6.36%, which exceeded both the inflation rate and the increase in housing prices, and was close to the return rate of 8.18% for the S&P 500 index. This even suggests that the nominal growth of the stock market may largely stem from monetary expansion rather than an increase in productivity.

Figure 1: The returns of the S&P 500 Index, Consumer Price Index, M2 Supply, and Housing Price Index (HPI). Source: Federal Reserve Economic Data

The rapid growth of the money supply reflects the government's increasing reliance on monetary stimulus and fiscal spending plans to address economic instability. Recent legislation such as Trump's "Build Back Better Act" (BBB) has introduced radical new spending measures that are widely believed to trigger inflation. Meanwhile, the implementation of the Department of Government Efficiency (DOGE), strongly advocated by Elon Musk, seems to be ineffective. These developments have led to a growing consensus that the existing monetary system is flawed and there is an urgent need for a more reliable form of value-preserving asset or currency.

What Constitutes a Store of Value - The Positioning of ETH

A reliable store of value typically meets four criteria:

1. Durability - it must withstand the test of time without degrading.
2. Value Preservation - It should maintain purchasing power throughout the entire market cycle.
3. Liquidity - it must be easy to trade in an active market.
4. Adoption and Trust - It must gain widespread trust or adoption.

Currently, ETH performs excellently in terms of durability and liquidity. Its durability comes from the decentralized and secure network of Ethereum. Its liquidity is also high: ETH is the second-largest cryptocurrency by trading volume, with a strong market presence on both centralized and decentralized exchanges.

However, when evaluating ETH from a purely traditional "store of value" perspective, its value preservation, application, and trustworthiness remain contentious. This is precisely where the concept of "scarce programmable reserve asset" is more fitting, highlighting the positive role and unique mechanism of ETH in value maintenance and trust building.

ETH's Monetary Policy: Scarce yet Adaptable

One of the most controversial aspects of ETH's role as a store of value is its monetary policy, particularly its handling of supply and inflation. Critics often point out the lack of a fixed supply cap for Ethereum. However, this criticism overlooks the architectural elegance of Ethereum's adaptive issuance model.

The issuance of ETH is dynamically related to the amount of staked ETH. Although the issuance increases with higher staking participation, this relationship is nonlinear: the growth rate of inflation is lower than the growth rate of the total amount of staked ETH. This is because the issuance is inversely proportional to the square root of the total amount of staked ETH, which naturally regulates inflation.

Figure 2: Rough formula for the inflation of staked ETH

The mechanism introduces a soft cap on inflation, where the inflation rate gradually decreases over time even as staking participation increases. In the worst-case simulation (i.e., 100% of ETH being staked), the annual inflation rate cap is approximately 1.52%.

Figure 3: Explanatory inference of the maximum issuance of ETH, assuming 100% of ETH is staked, with an initial staking amount of 120 million ETH and a term of 100 years.

Importantly, even under this worst-case issuance rate, it will decrease as the total supply of ETH increases, following an exponential decay curve. Assuming 100% of ETH is staked and no ETH is burned, the inflation trend is expected to be as follows:

• Year 1 (2025): ~1.52%
• Year 20 (2045 Year ): ~1.33%
• Year 50 (2075 Year ): ~1.13%
• Year 100 (2125): ~0.89%

Figure 4: An explanatory inference of the maximum supply of ETH, assuming 100% of ETH is staked, with an initial staking amount of 120 million ETH, as the total supply increases.

Even under these conservative assumptions, Ethereum's continuously declining inflation curve reflects its intrinsic form of monetary discipline—enhancing its credibility as a long-term store of value. The situation improves further when considering the burn mechanism introduced by Ethereum through EIP-1559. A portion of the transaction fees will permanently exit circulation, which means that the net inflation rate could be far below the total issuance, and at times even deflationary. In fact, since Ethereum transitioned from proof of work (PoW) to proof of stake (PoS), the net inflation rate has remained below the issuance and has periodically shown negative values.

Figure 5: Annualized ETH Supply Inflation Rate

Compared to fiat currencies like the US dollar (which has an average annual M2 money supply growth rate of over 6%), the structural constraints on ETH's supply (and potential deflation) enhance its appeal as a value asset. Notably, the maximum supply growth of ETH is now comparable to that of gold, although slightly less, which further solidifies its status as a robust monetary asset.

Figure 6: Growth Rate of Gold Supply. Source: ByteTree, World Gold Council, Bloomberg, Our World in Data

Institutional Adoption and Trust

Although Ethereum's currency design effectively addresses the supply dynamics issue, its actual utility as a settlement layer has now become the main driver of adoption and institutional trust. Major financial institutions are building directly on Ethereum: Robinhood is developing a tokenized stock platform, JPMorgan Chase will launch its deposit token (JPMD) on Base (an Ethereum Layer 2 network), and BlackRock is tokenizing a money market fund on the Ethereum network through BUIDL.

This on-chain process is driven by a strong value proposition, capable of addressing legacy inefficiencies and unlocking new opportunities:

1. Efficiency and cost reduction: Traditional finance relies on intermediaries, manual operations, and slow settlement processes. Blockchain simplifies these processes through automation and smart contracts, thereby reducing costs, minimizing errors, and shortening processing time from days to seconds.
2. Liquidity and fractional ownership: Tokenization enables fractional ownership of illiquid assets such as real estate or art, broadening access for investors and unlocking locked capital.
3. Transparency and Compliance: The immutable ledger of blockchain ensures verifiable audit trails, simplifying compliance and reducing fraud through real-time visibility into transactions and asset ownership.
4. Innovation and Market Access: Composable on-chain assets enable new products (such as automated lending or synthetic assets) to create new revenue streams and expand the financial scope beyond traditional systems.

ETH Staking as a Means of Synergy Between Security and Economy

The on-chain migration of traditional financial assets highlights two main driving factors for the demand for ETH. Firstly, the continuous growth of real-world assets (RWA) and stablecoins has increased on-chain activity, raising the demand for ETH as a transaction fee token. More importantly, as Tom Lee has observed, institutions may need to purchase and stake ETH to secure the infrastructure they rely on, thus aligning their interests with the long-term security of Ethereum. In this context, stablecoins represent Ethereum's "ChatGPT moment", which is a significant breakthrough use case that showcases the platform's transformative potential and wide-ranging utility.

As more and more value is settled on-chain, the consistency between Ethereum's security and its economic value becomes increasingly important. Ethereum's finality mechanism, Casper FFG, ensures that blocks can only be finalized when the vast majority (two-thirds or more) of the staked ETH reach consensus. While attackers controlling at least one-third of the staked ETH cannot finalize malicious blocks, they can completely disrupt finality by breaking consensus. In this case, Ethereum can still propose and process blocks, but due to the lack of finality, these transactions may be reverted or reordered, posing significant settlement risks for institutional use cases.

Even when operating on a Layer 2 that relies on Ethereum for final settlement, institutional participants depend on the security of the base layer. Layer 2 not only does not harm ETH, but actually enhances the value of ETH by driving demand for the security and transaction fees of the base layer. They submit proofs to Ethereum, pay base fees, and typically use ETH as their native fee token. As the scale of Rollup executions expands, Ethereum continues to accumulate value through its fundamental role in providing secure settlement.

In the long run, many institutions may move beyond the practice of passive staking through custodians and begin operating their own validation nodes. While third-party staking solutions offer convenience, operating validation nodes allows institutions to have greater control, enhanced security, and direct participation in consensus. This is particularly valuable for stablecoin and real-world asset (RWA) issuers, as it enables them to capture maximum extractable value (MEV), ensure reliable transaction inclusion, and leverage privacy execution—features that are crucial for maintaining operational reliability and transaction integrity.

Importantly, broader institutional participation in the operation of validator nodes helps address one of Ethereum's current challenges: the concentration of stakes in the hands of a few large operators, such as liquid staking protocols and centralized exchanges. By diversifying the collection of validator nodes, institutional participation helps enhance the level of decentralization of Ethereum, strengthen its resilience, and improve the network's credibility as a global settlement layer.

A significant trend from 2020 to 2025 has reinforced the consistency of this incentive mechanism: the growth of on-chain assets is closely related to the growth of staked ETH. By June 2025, the total supply of stablecoins on Ethereum reached a record $116.06 billion, while tokenized real-world assets (RWA) surged to $6.89 billion. Meanwhile, the amount of staked ETH grew to 3,553, highlighting how network participants enhance security as on-chain value increases.

Figure 7: On-chain ETH total value vs Staked native ETH value. Source: Artemis

From a quantitative perspective, the annual correlation between the growth of on-chain assets and the native staking volume of ETH among major asset classes has remained above 88%. Notably, the supply of stablecoins is closely related to the growth of staked ETH. Although quarterly correlations can exhibit significant volatility due to short-term fluctuations, the overall trend remains unchanged— as assets are transferred on-chain, the incentives for staking ETH also increase.

Figure 8: Monthly, quarterly, and annual native correlation of staked ETH and on-chain value. Source: Artemis

In addition, the increase in staking volume also affects the price trend of ETH. As more and more ETH is staked and removed from circulation, the supply of ETH tightens, especially during periods of strong on-chain demand. Our analysis shows that the annual correlation between the amount of staked ETH and the price of ETH is 90.9%; on a quarterly basis, the correlation is 49.6%. This supports the following view: staking not only ensures network security but can also create favorable supply and demand pressure on ETH itself in the long run.

Figure 9: The intrinsic correlation between staking ETH and price. Source: Artemis

The U.S. Securities and Exchange Commission (SEC) recently issued a policy clarification that alleviates the regulatory uncertainty surrounding Ethereum staking. On May 29, 2025, the SEC's Division of Corporation Finance stated that certain staking activities (limited to non-entrepreneurial roles, such as self-staking, delegated staking, or custodial staking under specific conditions) do not constitute the issuance of securities. While more complex arrangements still need to be determined based on the actual situation, this policy clarification encourages institutions to participate more actively. Following the announcement, Ethereum ETF application documents began to include staking provisions, allowing funds to earn rewards while maintaining network security. This not only enhances the rate of return but also further solidifies institutions' acceptance and trust in the long-term adoption of Ethereum.

Composability and ETH as a Productive Asset

One significant feature that distinguishes Ethereum from pure value storage assets like gold and Bitcoin is its composability, which in itself drives demand for ETH. Gold and Bitcoin are non-productive assets, while ETH has native programmability. It plays an active role in the Ethereum ecosystem, supporting decentralized finance (DeFi), stablecoins, and Layer 2 networks.

Composability refers to the ability of protocols and assets to work together seamlessly. In Ethereum, this means that ETH is not only a currency asset but also a fundamental building block for on-chain applications. As more protocols are built around ETH, the demand for ETH has also increased—not only as transaction fees but also as collateral, liquidity, and staking funds.

Today, ETH is used for various key functions:

1. Staking and Re-staking - ETH can protect Ethereum itself and can be re-staked through EigenLayer to provide security for oracles, aggregators, and middleware.
2. Collateral in Lending and Stablecoins - ETH supports major lending protocols like Aave and Maker, and serves as the foundation for over-collateralized stablecoins.
3. Liquidity in AMM - ETH dominates decentralized exchanges like Uniswap and Curve, enabling efficient swaps across the entire ecosystem.
4. Cross-chain transaction fees – ETH is the native transaction fee token for most Layer 2 solutions, including Optimism, Arbitrum, Base, zkSync, and Scroll.
5. Interoperability - ETH can be bridged, wrapped, and used in non-EVM chains (such as Solana, Cosmos), making it one of the most widely transferable assets on-chain.

This deep integration of utility makes ETH a scarce yet productive reserve asset. As ETH gradually integrates into the ecosystem, conversion costs rise and network effects strengthen. In a sense, ETH may resemble gold more than Bitcoin does. Much of gold's value comes from industrial and jewelry applications, not just investment. In contrast, Bitcoin lacks this functional utility.

Ethereum vs. Solana: Layer 1 Divergence

During this period, Solana appears to be the biggest winner in the Layer 1 space. It has effectively captured the meme coin ecosystem, creating a vibrant network for the issuance and development of new tokens. Although this momentum does exist, the decentralization level of Solana is still not as high as Ethereum due to the limited number of validators and high hardware requirements.

That said, the demand for Layer 1 blockchain space may present a hierarchy. In this layered future, both Solana and Ethereum can thrive. Different assets need to make different trade-offs between speed, efficiency, and security. However, in the long run, due to Ethereum's stronger decentralization and security guarantees, it may capture a larger share of asset value, while Solana may occupy a higher transaction frequency.

Figure 10: Quarterly trading volume of SOL and ETH

However, in the financial markets, the market size for seeking robust and safe assets is much larger than that for purely pursuing execution speed. This dynamic trend is favorable for Ethereum: as more and more high-value assets are transferred onto the chain, Ethereum's role as the foundational settlement layer becomes increasingly important.

Figure 11: Total Value Secured by Chain (in billions). Source: Artemis

Ethereum Reserve Driving Force: The Microstrategy Moment of ETH

Although on-chain assets and institutional demand are long-term structural drivers of ETH, Ethereum's treasury reserve management strategy—similar to how MicroStrategy (MSTR) utilizes Bitcoin—could become a continuous catalyst for the value of ETH assets. A key turning point in this trend was Sharplink Gaming (SBET) announcing its Ethereum treasury reserve management strategy at the end of May, led by Ethereum co-founder Joseph Lubin.

Figure 12: ETH treasury reserve holdings. Source: strategicethreserve.xyz

The treasury reserve strategy provides a channel for tokens to access liquidity in traditional finance (TradFi), while also enhancing the stock asset value of related companies. Since the emergence of the Ethereum-based reserve strategy, these companies have accumulated over 730,000 ETH, and the performance of ETH has begun to outperform Bitcoin—something that is rare in this cycle. We believe this marks the beginning of a broader trend toward the adoption of Ethereum-focused asset reserves.

Conclusion: ETH is the reserve asset of the on-chain economy

The development of Ethereum reflects a broader paradigm shift in the concept of monetary assets within the development of the digital economy. Just as Bitcoin overcame early skepticism and was ultimately recognized as "digital gold," ETH is establishing its unique identity—not by mimicking the narrative of Bitcoin but by growing into a more universal and foundational asset. ETH is not merely a security similar to cloud computing, nor is it only used for paying transaction fees or as a source of protocol revenue. Instead, it is a scarce, programmable, and economically vital reserve asset—underpinning the security, settlement, and functionality of an increasingly institutionalized on-chain financial ecosystem.