Inversion founder Santiago Santos and Dragonfly managing partner Haseeb Qureshi recently engaged in a heated debate on X regarding L1 valuations. Santos asserted that "most L1 is severely overvalued, and ETH may never return to ATH," while Qureshi fiercely countered, "This is not a company, but national infrastructure; you are underestimating long-term exponential growth."
The two engaged in a debate livestream for over an hour, moderated by crypto KOL Threadguy, delivering a heated and insightful exchange on the topic of " how should L1 be priced ."
Is L1 a value bubble? Santiago: Valuation is out of touch with reality, demand doesn't exist.
Before the debate even began, Santiago cut to the chase, stating, "Over the past decade, more than $10 billion has been invested in infrastructure, but the current industrial structure clearly shows that demand is far behind supply."
In his view, L1 today is no different from a tech company in terms of valuation logic. Ethereum has a market capitalization of $380 billion and annual revenue of only about $1 billion, which means a price-to-sales (PS) ratio of over 380, indicating that the company's price is much higher than its revenue.
He emphasized that even Amazon at the height of the dot-com bubble in the 1990s only had a PS ratio of 26 at its peak.
In classic Silicon Valley memes, businesses know to "never reveal your revenue to others" because once the market finds out, it will bring you back to reality. I think this is how the current crypto market has evolved.
Santiago frankly stated that most of the current on-chain revenue comes from short-term speculative activities and does not constitute long-term sustainable use. Once liquidity tightens, the macro environment weakens, and transaction and liquidation volumes shrink, L1 revenue will also collapse.
For him, this unhealthy situation symbolizes that most L1 licenses are not worth such overvaluation and investment.
I believe Ethereum will be like Cisco, never returning to its all-time high (ATH).
Haseeb counters "using the wrong valuation model": L1 is a region, not a company.
In response to Santiago's barrage of criticism, Haseeb pointed out that Santiago's logic is based on the premise of "treating L1 as a technological innovation," but this is a flawed comparison.
In his view, Ethereum is not a company, but more like a geographical region (like a continent or country): "It has stable rules, a mature financial environment, and abundant capital reserves, and it continues to attract external companies and funds to enter."
He explained that cities or countries typically keep their "taxes (referring to revenue)" deliberately low in the early stages to allow the economy to grow first. This is exactly the same strategy Ethereum uses to maintain low gas fees and delegate fees to L2.
However, when the city has a need, they will raise taxes and collect the required funds; they can do this at any time.
He cited Tron as an example: "Based on the robust USDT network, Tron has been able to maintain stable usage even with significant increases in transaction fees." To him, this proves one thing:
Once a blockchain possesses a true competitive advantage, it can easily raise fees or taxes. Therefore, measuring a blockchain's true value solely by its current revenue ignores the exponential adoption curve of the technology as a whole.
Should we invest in L1 or the application layer? From value capture to meaning.
Midway through the debate, Santiago pointed out that if L1 is the "city," then applications like wallets are the "enterprises," and if L1 fails to capture value, it will ultimately flow to the application layer:
Users capture real value through L2 transactions, swapping on wallets or DEXs, arbitrage on exchanges and liquidation, etc., all of which occur at the application layer, while most L1 transactions do not have such high investment value.
Haseeb, citing previous arguments, explained that L1 is simply a switch that hasn't been turned on for value capture yet, and this doesn't mean that more L1, or cities, are no longer needed: "A city can't handle all financial activities."
Five years ago, everyone was debating why there should be a second chain and who would be the next Ethereum killer. The answer was that there would be many chains, each fulfilling different needs, engaging in business with each other, and forming a larger interconnected universe.
Why hasn't ETH reached a new high in this bull market? Two different interpretations.
Towards the end of the debate, Threadguy's question ignited a second round of arguments: "Why hasn't Ethereum reached a new high in this cycle?"
Santiago stated that ETH failed to reach new highs because the market "finally woke up." He believes that L2 has taken away too much revenue, ETH's price-to-sales ratio is too high, and the market is filled with speculation and lacks real demand, so the current price naturally reflects the original overvaluation.
Haseeb, however, sees this as a governance shift and repositioning:
ETH holders are the ones who drive the price of ETH, and they are indeed using price to force developers to "refocus their attention on L1".
He emphasized that Ethereum's operations, from L1 scaling and blob pricing to sorter adjustments, are all moving towards a "value return to L1" strategy. This represents Ethereum's shift from a utopia to a "mature market," and price fluctuations are just one part of the process.
A clash between rationality and optimism: value capture or exponential growth?
The debate between Santiago and Haseeb ultimately ended in a draw, reflecting instead a clash between the ideologies of value rationalism and optimistic growth. No one knows where the crypto industry will go in the future, but it will only become more mature.
This article, "Is Ethereum Failing to Reach New Highs? Analyzing the Santiago vs. Haseeb Debate: Is L1 Significantly Overvalued?", originally appeared on ABMedia .
