• According to new on-chain research, Ether (ETH) is trading below its worth by a staggering 27%.
• The report hinges its analysis on user adoption levels of Ethereum’s layer 2 networks.
• Layer 2 networks have ballooned in popularity with Optimism and Arbitrum probing new functionalities.

A new report has placed Ethereum’s network valuation north of $275 billion, relying on a modification of Metcalfe’s Law.

RxR, a joint venture between Re7 Capital and Republic Crypto, has pegged ETH’s fair valuation at $275 billion in its latest analysis. According to the report, the network is currently trading below fair value by 27% if certain key factors are considered holistically.

The report made use of a modified Metcalfe-centric model to arrive at its conclusion, noting that existing models do not take the scaling dynamics into account. Traditional models place a premium on the number of active users on the network’s mainnet, but RxR’s models rely on data from Ethereum’s layer 2 networks.

Metcalfe’s law states that the financial value of a network is directly proportional to the square of the number of connected users, but extending the model to layer 2 activities yields new results.

“Ethereum’s network valuation tracks the updated ML index better when the active user base of Ethereum’s scaling networks is factored into the model than when omitted,” said Lewis Harland, an RxR analyst.

In the report, the research analyst noted that including the L2 activity proved more reliable for long-term forecasts. The analysts pointed out that ignoring off-chain and L2 activities may paint a grim picture that the Ethereum network may be overvalued.

At the moment, ETH trades at $1,655 with a total market capitalization of $199 billion, showing glimpses of a rally on the horizon. RxR’s blended model suggests that contrary to popular opinion, the market is yet to “price in” Ethereum’s network adoption levels.

“User growth on Ethereum as an application platform is set to outpace simple value-transfer networks over time implying higher relative valuations based on Metcalfe’s law,” said Harland.

Ethereum’s thriving L2 ecosystem

Ethereum’s L2 space has been a beehive of activity, with several projects experimenting with novel ways around the network’s scaling issues. Arbitrum and Optimism are pushing the frontiers of Ethereum’s scaling with their novel offerings, with Coinbase’s BASE recording sky-high adoption levels.

With over 30 L2 networks in play, aggregate total value locked (TVL) has surged to $10 billion given the reliance on rollups and other novel scaling solutions. Experts have hailed the spike in L2 activity as preventing single points of failure and playing a key role in reducing congestion.