Fidelity Digital Assets’ latest report on Ethereum outlines three distinct development trajectories for the market’s largest smart contract platform.
It also positions Ethereum’s decentralization approach as a middle ground between Bitcoin’s extreme security and Solana’s speed-centric model.
Three Scenarios for Ethereum from Fidelity
In the bull scenario, smart contract platforms could reshape how people collaborate and build trust, positioning Ethereum as a global coordination infrastructure due to its transparency, censorship resistance, and security. Thanks to dense transaction activity on Layer-2, user costs remain low.
In the base scenario, smart contracts enhance certain financial and non-financial sectors, acting as a “checks and balances protocol” within traditional systems dominated by governments and large corporations.
Ethereum retains its lead as the dominant platform, though growth slows amid financial constraints and increasing competition. Its market share consolidates in sectors demanding high security and trust.
In the bear scenario, smart contract platforms fall into speculative cycles, struggling to create products that meet mainstream needs; sluggish user growth weakens cash flow accumulation for ETH holders, and market share may erode to competitors offering cheaper, faster experiences.
Modular Scaling and Its Impact on Value: Ethereum vs. Solana
Fidelity emphasizes that as application demand grows, demand for ETH (gas fees, security, staking) will likely rise. However, Ethereum’s modular scaling strategy (offloading processing to Layer-2 and using “blobs” for data) sacrifices some value capture at Layer-1.
“The requirement of ether to use the network is at the core of its investment thesis. In theory, if the demand to use applications on the Ethereum network increases over time, so should the demand for the token, ether,” the report stated.
Data following recent upgrades shows that Layer-2 fees now account for only ~1% of total costs, reflecting that economic value increasingly “stays” with rollups. At the same time, Ethereum intentionally maintains its role as an open, secure, and decentralized data layer. While this benefits users through lower fees, it raises concerns for investors about whether Layer-2 growth can compensate for reduced Layer-1 value capture.
This value tradeoff leads to an important comparison with Solana, which takes a fundamentally different approach. Ethereum prioritizes decentralization and security, while Solana optimizes raw performance (TPS/cost) on Layer-1.
Market cap of Bitcoin, Ethereum & Solana. Source: Fidelity
The cost of this approach is that Ethereum “cedes” some value accrual (net fees) to the rollup layer. Meanwhile, Solana’s raw performance can directly translate into value for SOL holders. This poses a real competitive risk in the short term, as Solana gains market share with its cheaper, faster experience, albeit at the cost of decentralization.
In the long term, the critical question is which aspect of the “blockchain trilemma” the market will value most: decentralization, security, or scalability.
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