From Changi Prison to Ethereum: How Idealism Became Code and Vision Turned Into Protocol

The story of Ethereum in 2025 reads like a cautionary historical echo. Just as Singapore’s Changi Prison experiment collided with human nature’s darker impulses in 1963, Ethereum’s carefully engineered ecosystem crashed against the reality of economic incentives in 2024-2025. The parallel is striking: visionary architects dismantled protective structures believing in goodness and rationality, only to watch their creations burn from within. Yet unlike the Changi Prison uprising, Ethereum’s developers learned from history’s lesson, implementing the Fusaka upgrade to rebuild what had crumbled.

The Changi Prison Parallel: When Idealism Meets Market Reality

In 1950s Singapore, prison reformer Devan Nair and warden Daniel Dutton launched an experiment that captivated the world. Located on Pulau Senang, a small island south of Singapore, Changi Prison’s satellite facility operated without walls, shackles, or armed guards. Prisoners worked 8am-5pm with free time after hours and weekends off. The recidivism rate dropped to just 5%—a “miracle of human transformation” that drew UN delegations and international media praise.

Then came July 12, 1963: black smoke rose from Changi Prison as inmates, given unprecedented freedom, rejected the system that freed them. Wielding the same tools they’d used to build the facility, they rioted, killed Warden Dutton, and burned everything down. History recorded it as a failure of naïve idealism.

Ethereum faced its own Changi Prison moment.

Chapter One: The Identity Crisis—Ethereum Caught Between Worlds

When 2025 began, Ethereum faced an existential ambiguity that no amount of technical innovation could resolve. The market had categorized all crypto assets into two clean boxes: Bitcoin’s “digital commodity gold” narrative on one side, and high-performance “tech stocks” like Solana on the other. Ethereum tried occupying both simultaneously—neither strategy succeeded.

The commodity problem: While ETH anchors DeFi with $100+ billion in collateral, its variable supply and staking mechanism made it impossible to claim Bitcoin’s rock-solid “digital gold” credentials. Conservative institutions couldn’t slot it into their commodity portfolios.

The tech stock problem: By August 2025, despite ETH price climbing toward all-time highs, network protocol revenue had plummeted 75% year-over-year to just $39.2 million. For traditional investors accustomed to price-to-earnings ratios and discounted cash flow analysis, this signaled complete business model collapse.

Sandwich layer pressure: Above Ethereum, Bitcoin’s ETF inflows kept solidifying macro asset status. Below, Solana’s monolithic architecture captured the entire 2025 payments, DePIN, and AI agent boom—entire ecosystems moved at fraction-of-a-cent gas fees. Hyperliquid’s perp DEX even generated fee revenue exceeding Ethereum mainnet in certain months. The market couldn’t answer the fundamental question: where exactly was Ethereum’s moat?

Chapter Two: Regulatory Clarity—The Legal Resurrection

Then came salvation, not from code but from law.

On November 12, 2025, SEC Chairman Paul Atkins unveiled “Project Crypto,” ending years of “Regulation by Enforcement.” The critical shift: assets aren’t permanently shackled by their initial offering structure. When a network achieves sufficient decentralization—where token holders don’t depend on centralized “Essential Managerial Effort” for returns—it escapes the Howey Test.

Ethereum, with 1.1+ million validators and the world’s most distributed node network, proved the point. The agency definitively stated: ETH is not a security.

Two months later, Congress passed the Clarity Act for Digital Asset Markets, explicitly placing assets “originating from decentralized blockchain protocols”—specifically naming Bitcoin and Ethereum—under CFTC jurisdiction as digital commodities. Banks could now register as “digital commodity brokers,” treating ETH like gold or foreign exchange on their balance sheets.

The regulatory framework solved Ethereum’s staking paradox: ETH itself remained a commodity (network gas and security deposit), but validator rewards represented “service provision” for network security—not investment returns. Institutional money finally had legal permission to buy.

Chapter Three: The Business Model Catastrophe and Fusaka’s Fix

With identity resolved, one question remained: where was the actual revenue?

The Dencun disaster (March 2024): The upgrade introduced EIP-4844 (Blob transactions) to slash L2 fees from dollars to cents. Technically brilliant. Economically catastrophic.

The problem: Blob pricing operated on pure supply-demand mechanics. With blob supply vastly exceeding early L2 demand, the base fee collapsed to 1 wei (0.000000001 Gwei) indefinitely. Practical result? Layer 2 networks like Base and Arbitrum charged users substantial fees but paid Ethereum L1 only a few dollars per day—sometimes less than $10. The once-noble “rollup-centric” vision became what the community bluntly called “the parasite effect.”

As transactions migrated from L1 to L2 but L2 didn’t burn enough ETH through blobs, the EIP-1559 burning mechanism broke. By Q3 2025, Ethereum’s annualized supply growth actually rebounded to +0.22%—the network was inflating, destroying its “deflationary asset” narrative.

This was Ethereum’s burning Changi Prison moment.

The Fusaka resurrection (December 3, 2025): The developer community, learning from historical failures, implemented structural repairs through two synchronized innovations.

EIP-7918—The price floor mechanism: Rather than allowing blob base fees to drift toward 1 wei, the upgrade established a minimum price: the blob base fee cannot fall below 1/15.258 of Ethereum mainnet’s L1 gas fee. As long as the network stays reasonably busy—token launches, DeFi activity, NFT minting—that floor automatically rises. L2 networks stopped getting near-free security.

Impact: Blob base fees skyrocketed 15 million times overnight (from 1 wei to the 0.01-0.5 Gwei range). While L2 users still paid fractions of a cent per transaction, Ethereum L1’s revenue increased by 1,000x. More prosperous L2s directly translated to higher L1 revenue.

EIP-7594 (PeerDAS)—Supply expansion: To prevent higher prices from strangling L2 growth, the upgrade simultaneously enabled Peer Data Availability Sampling, allowing nodes to verify data by randomly sampling fragments rather than downloading entire blobs. Bandwidth and storage pressure on nodes dropped approximately 85%.

This unleashed blob supply expansion from the original 6 per block toward 14 and beyond. Ethereum successfully built a “raise both volume and price” economic model.

The new B2B tax model: Ethereum L1 now operates as a settlement and security layer:

• Upstream: L2 networks (Base, Arbitrum, Optimism) act as “customer-facing retailers”
• Core products: High-value execution space for settlement proofs and DeFi atomicity, plus abundant blob storage
• Revenue mechanism: L2 pays “rent” for these resources proportional to their economic value; most rent (burned ETH) enhances value for all holders; portion goes to validators as staking rewards

The feedback loop: More prosperous L2s demand more blobs → higher L1 revenue → more ETH burning → network scarcity → stronger security → attracts premium assets.

According to analyst estimates, Ethereum’s ETH burning rate was projected to increase 8x in 2026 alone after Fusaka activation.

Chapter Four: New Valuation Frameworks for a Hybrid Asset

With business model restored, Wall Street faced an unprecedented valuation challenge: how do you price an asset that’s simultaneously a commodity, a capital asset, and a currency?

Discounted Cash Flow (DCF) approach: Despite commodity classification, Ethereum generates measurable cash flow (transaction fees burned). 21Shares’ Q1 2025 analysis used three-stage growth modeling, extrapolating future fee revenue under conservative assumptions (15.96% discount rate) to reach $3,998 fair value, or under optimistic scenarios (11.02% discount) reaching $7,249.

The post-Fusaka mechanism provides solid foundation for future revenue projections. L1’s guaranteed income is now linear to expected L2 growth scale—no more existential fear that revenue might collapse to zero.

Currency premium model: Beyond measurable cash flows, Ethereum possesses intangible value from its role as DeFi collateral (TVL exceeding $100 billion), settlement currency for NFTs and L2 transactions, and with ETF lockups now exceeding $27.6 billion plus corporate hoarding by entities like Bitmine (3.66 million ETH), the liquidity premium resembles gold—scarce, essential, increasingly difficult to acquire.

Trustware valuation: Consensys introduced the “Trustware” concept—Ethereum doesn’t sell computing power like AWS, but rather “decentralized, immutable finality.” As Real-World Assets tokenize and move on-chain, Ethereum L1 transitions from “transaction processor” to “asset protector.”

If Ethereum secures $10 trillion in global assets and levies a security tax of just 0.01% annually, the network’s market capitalization must be sufficiently large to withstand a 51% attack. Under this framework, Ethereum’s valuation becomes directly proportional to the economic value it protects.

Chapter Five: The Structural Market Divide

Data from 2025 revealed an inevitable market specialization:

Solana’s retail dominance: Like Visa or Nasdaq optimizing for transaction volume, Solana captured payments, DePIN infrastructure, AI agents, and memes—the high-frequency, low-value-per-transaction ecosystem. Stablecoin velocity on Solana even exceeded Ethereum mainnet in certain periods.

Ethereum’s settlement layer: Parallel to SWIFT or the Federal Reserve’s FedWire system, Ethereum processes “settlement packets”—thousands of transactions compressed and submitted by L2 networks. Low-frequency, high-value assets (tokenized government bonds, large cross-border settlements, institutional RWA) still preferred Ethereum’s superior security and proven decentralization. One decade of zero downtime constitutes the deepest moat.

For assets worth hundreds of millions or billions, speed becomes secondary to security. For assets worth mere cents, Ethereum’s security simply costs too much. The market naturally divided along value-per-transaction lines.

Epilogue: From Ashes to Restoration

Like Changi Prison’s inmates who ultimately demonstrated the fragility of idealism unsupported by structure, Ethereum’s first L2 rollout revealed that elegant vision requires economic enforcement. The Fusaka upgrade didn’t reject idealism—it weaponized it with aligned incentives.

The parallel ends there. Unlike the prison riot, Ethereum’s community didn’t burn down the architecture. They rebuilt it.

By January 2026, with ETH trading at $2.90K and facing broader market headwinds (-3.28% in 24 hours, -13.87% over seven days), Ethereum still positioned itself fundamentally differently than 2024. The business model was no longer theoretical. Regulatory permission had been granted. The valuation framework existed. The competitive position clarified itself.

Whether Ethereum’s leap toward a digital seigniorage model for the global economy lands on solid ground or repeats Changi Prison’s tragic arc remains an open question. But unlike prisoners given freedom without structure, Ethereum’s developers learned from history: incentive alignment matters more than faith in human nature.

The fire that could have destroyed everything instead refined it. That’s the real resurrection story.