What Drives L1 Value

What drives L1 value?

The short answer: On any horizon a trader cares about, L1 tokens trade on BTC beta. I regressed monthly log changes in each L1's market cap on BTC, then added the four onchain series (REV in native units, active addresses, DEX volume and stablecoin supply). 

Here’s the long answer. USD-denominated metrics tend to flatter fundamentals because a fee paid in the native token is worth more when it rallies, and TVL is largely the native token marked to market.

Ethereum is the clearest break between REV and value. Trailing-12M REV was $3.3B the week of Dencun and $1.3B by August 2025, down 60%. Market cap went the other way, $460B to $540B. This is a policy choice, not a demand collapse. Blob fees and gas limit increases cut the price of L1 blockspace by design. Instead, the 2025 rally ran on ETF and treasury company demand (discussed later). 

Solana is the case where the two lines do travel together. Trailing REV and market cap both rose about 15x from January 2023 and peaked in the same week, at $2.50B and $130B. Both have since fallen to $400M and $58B.

I then looked at Active Addresses and DEX Volumes. Active addresses and market cap drift together over a cycle, most clearly on Solana and TRON. However, week to week the link is significantly weaker and the divergences are large. Since January 2022, ETH's addresses are up 26% while its market cap is down 34%, and Solana's addresses are up 17x against a 17% rise in market cap. 

DEX volume tracks market cap more closely than addresses, especially on Solana, where both rose from the 2023 low and peaked together. But DEX volume is in USD, so part of that fit is the token price itself. As tokenized assets rise in volume share, we can test if this relationship still holds.

Metcalfe’s law offers one model for valuing these L1s. It says network value scales with users squared (exponent of 2).

Market cap against active addresses gives exponents of 0.56 for ETH and 0.62 for SOL and BNB. So value scales closer to the square root of addresses than the square.

The problem is that active-address growth fades, not the exponent. Since January 2016, AA on BTC is up 1.3x, while its market cap is up 252x. ETH has not broken away. Since February 2018, its AA is up 2.6x and its market cap 4.5x, so AA accounts for 84% of the move. SOL is still a bit too early to judge, but still included.

I then tested six valuation multiples on the same chains: Metcalfe, Odlyzko (users × ln users), NVT on stablecoin transfer volume, mcap/DEX volume, mcap/REV and mcap/stablecoins. A usable model needs a multiple that mean-reverts and a cheap reading that predicts returns. However, no multiple reliably mean-reverts. Mcap/REV is the only one where cheapness predicted 13-week returns on more than one chain (Ethereum and TRON).

Looking at the behavior of holders, no L1 has Bitcoin's long-held base. Counting native staking, 4% of SOL's supply and 10% of ETH's have sat for over three years, compared with 42% of BTC.

Meanwhile, the 100 largest unstaked SOL addresses hold 49% of liquid SOL, against 27% for ETH and 17% for BTC. Only about 66k SOL addresses hold $10k or more, against 538k for ETH and 3.67M for BTC (maybe more a reflection of market cap).

Zooming in on ETH, what’s interesting is that it’s priced relative to its peers’ capital base rather than activity. It accounts for 59% of the peer group’s reported market cap, alongside 53% of stablecoin supply, 60% of stablecoin transfer volume, 70% of DeFi TVL, 75% of tokenized RWAs and 76% of lending TVL. Its shares of active addresses and transactions are much smaller, at 5% and roughly 1%.

The same pattern holds across chains. Ranked by market cap, chains line up with their rank in TVL (Spearman coefficient of 0.87) and stablecoin supply (0.63), but barely with transactions (0.17) or active addresses (0.45).

Notably, TVL on Ethereum is no longer majority ETH, so the metric is less self-referential.

However, this is a ranking, not a model, but it fits the time-series result (even when run against 40+ chains). Another difference is who holds it. Spot ETFs and listed treasury companies hold 11.9% of ETH's supply, level with BTC's 12.2% and above SOL's 7.9%. 

The takeaway is that L1 valuations are driven less by how much activity a chain processes and more by how much capital it attracts and retains. BTC remains the dominant driver of short-term price movements, and for now the market appears to value L1s less as businesses generating revenue and more as monetary assets competing for capital.

— Marc

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