Standard Chartered Slashes ETH Price Target to $4K from $10K, Saying L2s Are Draining Revenue

Standard Chartered Bank has dropped its price target for Ethereum’s ether to $4,000 from $10,000 by year’s end, citing concerns that Layer 2s are draining its revenue.

The investment bank said changes made to Ethereum over the past few years, including the switch to proof-of-stake and its Layer 2-based scaling roadmap, have been “value destructive.”

This is particularly true of Coinbase’s Base Layer 2, which the banking giant estimates has cut $50 billion off of Ethereum’s market capitalization.

“We expect this number to rise over time as Base’s dominance among layer 2s continues,” analyst Geoff Kendrick, global head of digital assets research, said in a research note released on March 17.

Calling the problem a “midlife crisis,” Kendrick said that “Ethereum has essentially commoditized itself within its self-created layer 2 framework.”

Potential Solutions

There are two basic ways for Ethereum to reverse this decline, he said.

Over the long term, if the tokenization of real-world assets (RWA) grows dramatically, ETH’s security-based dominance of this market will help it overcome its structural problems, he said. Kendrick said he believes security will help Ethereum maintain its 80% share of this business.

In the near term, Ethereum could tax its Layer 2s, something Kendrick said he finds “unlikely” to happen.

“We see ETH underperformance continuing,” he said. “We believe that hopes for ETH are giving way to a less positive reality.”

Base Versus Other L2s

As Ethereum approaches its tenth birthday on July 30, blame for the collapse of its Layer 2 fees can be placed at the feet of its Dencun update, which incorporated data “blobs” that added data capacity to the Ethereum ecosystem, Kendrick said.

Another big problem is Base, Kendrick said, noting that 80% of its revenue is removed from the Ethereum ecosystem as profits to Coinbase. That is, he argues, lost value.

On both Arbitrum and Optimisim's OP Mainnet, fees are paid in ETH and the native tokens are used for governance.

“As a result, we think Base subtracts from ETH’s market cap, whereas Arbitrum and OP Mainnet do not,” Kendrick said.

“We think lost market cap is highly likely to increase from here,” he added. “New unique addresses on Base have accounted for 87% of all new unique addresses for the three largest Layer 2s – Base, OP and Arbitrum – over the past month. Base’s GDP as a percentage of Ethereum’s GDP is likely to continue to grow.”

Corrected at 3pm ET to reflect that gas fees on Arbitrum are paid in ETH.