Inversion founder Santiago Santos and Dragonfly managing partner Haseeb Qureshi recently had a heated debate on X regarding L1 valuations. The former bluntly stated, “Most L1s are severely overvalued, and ETH may never return to its ATH,” while the latter fiercely countered, “This isn’t a company, it’s national infrastructure—you’re underestimating long-term exponential growth.”
Now, under the moderation of crypto KOL Threadguy, the two engaged in a live debate lasting over an hour, delivering an intense and profound clash on the topic: “How should L1s be valued?”
L1 Value Bubble? Santiago: Valuations Detached from Reality, Demand Doesn’t Exist
Before the debate even began, Santiago got straight to the point: “Over the past decade, more than $10 billion has been invested in infrastructure, but today’s industry structure clearly shows that demand is far behind supply.”
In his view, today’s L1s aren’t fundamentally different from tech companies when it comes to valuation logic. Ethereum’s market cap is $380 billion, with annual revenue of about $1 billion, meaning a price-to-sales ratio (PS) of over 380 times, which is far higher than its revenue warrants.
He emphasized that even at the peak of the 1990s internet bubble, Amazon only had a PS of 26:
In classic Silicon Valley memes, companies know to “never reveal your revenue,” because once the market finds out, it will bring you back to reality. I think this is exactly what’s happening in the current crypto market.
Santiago admitted that most current on-chain revenue comes from short-term speculative activity, which doesn’t constitute sustainable long-term usage. Once liquidity tightens, macro conditions weaken, and trading and settlement volumes shrink, L1 revenue will collapse as well.
For him, this unhealthy situation means most L1s today aren’t worth investing in at such high valuations:
I think Ethereum will be like Cisco, never returning to its historical high (ATH).
Haseeb Counters with “Wrong Valuation Model”: L1s Are Regions, Not Companies
Facing Santiago’s barrage, Haseeb pointed out that Santiago’s logic is based on treating L1s as tech startups, but that’s a fundamentally flawed comparison.
In his view, Ethereum isn’t a company, but more like a geographic region (like a continent or country): “It has stable rules, a mature financial environment, deep capital accumulation, and continues to attract external businesses and capital.”
He explained that cities or countries typically keep “taxes (i.e., revenue)” low in the early stages to allow the economy to grow. This is exactly like Ethereum’s strategy of maintaining low gas fees and pushing costs down to L2s:
But when a city has demand, they can raise taxes and collect the funds they need—they can do this anytime.
He used Tron as an example: “With a solid USDT network foundation, Tron has maintained robust usage even as transaction fees have risen significantly.” For him, this proves one thing:
When a chain truly has a moat, it can easily raise fees or taxes. Therefore, using current revenue to measure a chain’s true value ignores the entire exponential adoption curve of the technology.
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Should You Invest in L1s or the Application Layer? From Value Capture to Existential Meaning
As the debate progressed, Santiago pointed out that if L1s are “cities,” then wallets and other applications are “businesses.” If L1s can’t capture value, it will ultimately flow to the application layer:
Users transact via L2, swap on wallets or DEXs, arbitrage and get liquidated on exchanges—the real value capture happens at the application layer, and most L1s aren’t that meaningful as investments.
Haseeb cited his previous argument, explaining that L1s simply haven’t yet “flipped the value capture switch.” That doesn’t mean we don’t need more L1s—just as cities: “A single city can’t handle all financial activity.”
Five years ago, people debated why we needed a second chain or who would be the next Ethereum killer. The answer is: there will be many chains, each meeting different needs, interacting commercially, and forming a larger interconnected universe.
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Why Didn’t ETH Hit a New All-Time High This Bull Run? Two Different Interpretations
Later in the debate, Threadguy posed a question that sparked a second round of sparring: “Why didn’t Ethereum hit a new all-time high this cycle?”
Santiago said ETH didn’t hit a new high because the market “finally woke up.” He believes L2s have siphoned off too much revenue, ETH’s PS is too high, activity is too speculative and lacks real demand—so the current price simply reflects an inflated original valuation.
Haseeb, on the other hand, sees it as a shift in governance and repositioning:
ETH holders are the ones driving ETH’s price, and they are indeed using the price to force developers to “refocus attention on L1.”
He emphasized that Ethereum’s strategies—from L1 scaling, blob pricing, to sequencer adjustments—are all moving towards “value flowing back to L1.” This represents Ethereum’s transition from a utopia to a “mature nation,” and price volatility is just part of the process.
Clash of Rationalists and Optimists: Value Capture or Exponential Growth?
The debate between Santiago and Haseeb ended without a clear winner, instead highlighting the clash between value rationalists and growth optimists. No one knows where the crypto industry will go next, but it will only grow more mature.
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This article, “Why ETH May Struggle to Hit a New High? Dissecting the Santiago vs. Haseeb Debate: Are L1s Massively Overvalued?” first appeared on ABMedia.
