Standard Chartered revises Ethereum price target to $4,000: Find out why
A recent report from Standard Chartered has brought attention to the impact of Layer-2 blockchains, particularly Base, on the Ethereum ecosystem. The report highlights how these secondary blockchains, like Base, are extracting significant value from Ethereum without contributing proportionally to its network.
Geoffrey Kendrick, the bank’s Global Head of Digital Assets Research, drew comparisons between the profits of Layer-2 blockchains and windfall taxes imposed on foreign mining companies. He suggested that taxing the super-profits of Layer-2 networks could address this issue effectively.
The report indicates that Base, a Layer-2 blockchain developed by Coinbase, has caused a substantial decrease in Ethereum’s market capitalization. It is estimated that Base alone has drained around $50 billion from Ethereum by retaining 80% of its fee revenue and redirecting it to Coinbase, rather than back to the Ethereum network for Layer-1 settlements.
Changes within Ethereum itself, such as the transition to proof-of-stake in 2022 and the Dencun update in 2024, have further contributed to this trend. While these changes have improved scalability and reduced fees, they have also allowed Layer-2 solutions to dominate revenue generation within Ethereum’s ecosystem.
This shift has led Standard Chartered to lower its price target for Ethereum. The bank now predicts ETH to reach $4,000 by the end of 2025, a significant reduction from the earlier estimate of $10,000. Additionally, the ETH-BTC price ratio is expected to decline to 0.015 by 2027, its lowest level since early 2017.
Kendrick emphasized that the changes made to Ethereum in recent years, though necessary, have had a negative impact on the platform. He pointed out that these alterations have removed Ethereum’s unique proof-of-work status and given Layer-2 networks like Base the opportunity to generate super-profits.
To measure the value generated within Ethereum’s ecosystem, the report introduces the concept of blockchain “GDP.” This metric highlights a growing share of transaction activity and profits occurring off the Ethereum mainnet, particularly on platforms like Base.
While other Layer-2 solutions, such as Arbitrum and Optimism, do not extract profits in the same manner as Base, the report singles out Base as a significant source of market cap erosion for Ethereum. With Base continuing to attract a majority of new addresses among major Layer-2 networks, there is concern that this trend could escalate without intervention.
Standard Chartered recommends a proactive approach from the Ethereum Foundation, such as implementing a tax on Layer-2 networks, to reverse the current trajectory. Without such measures, the bank foresees Ethereum’s underperformance relative to Bitcoin persisting in the years to come.
