If 22% of transactions are scams, how can the value of Ethereum even be justified?

Written by: Eric, Foresight News

On March 5, 2026, the well-known short-selling firm Culper Research released a bearish report on Ethereum, targeting the Fusaka upgrade completed in December 2025. This technical upgrade aimed at increasing network capacity, but instead of strengthening Ethereum’s position, it undermined the tokenomics fundamentals and pushed the network toward a “death spiral.”

The report bluntly states, “You may not believe me, but you have to believe Vitalik, who sold an additional 3,000 ETH. We followed his lead.”

At the end of January, Vitalik Buterin announced that the Foundation would enter a “mild austerity” phase, then immediately sold the preset 16,384 ETH for 19,326 ETH—16% more than initially announced. It’s like a boss telling everyone at a company-wide meeting, “We need to tighten our belts,” then moving his monitor to sell on Xianyu and casually taking two potted green plants from the reception.

Where does Ethereum’s “death spiral” come from?

Before diving into Culper Research’s views, it’s necessary to understand who Culper Research is.

Though not as famous as Muddy Waters, this firm, founded in 2019, was named one of Wall Street’s five most aggressive short sellers by Activist Insight in 2021, known for exposing misleading or fraudulent practices in public companies’ operations, risk disclosures, and fund usage.

While some investors believe their reports are often subjective or opportunistic, Culper has a notable track record. In February 2025, Culper published a short report on AppLovin, accusing it of forcing app installations via backdoors on users’ phones to boost revenue. On the day of the report, AppLovin’s stock dropped 12.2%.

Returning to Ethereum, Culper attributes the “death spiral” to the Fusaka upgrade, which caused gas fees to drop unexpectedly, triggering a chain reaction:

By increasing Ethereum’s gas limit from 45 million to 60 million units, the Ethereum Foundation initially expected the upgrade to reduce transaction fees by 10-30%, stimulating Layer 1 adoption and strengthening ETH’s deflationary properties through increased fee burns. However, gas fees did not decrease smoothly; instead, they plummeted about 90%, from roughly 25 GWei before the upgrade to 0.5 GWei (currently, Ethereum gas fees have fallen to 0.032 GWei).

The foundation’s plan to “inflate” the network’s capacity was abruptly derailed.

This collapse in fee structure caused catastrophic chain reactions. Culper’s analysis of on-chain transaction data from January 2025 to February 2026 shows a surge in address poisoning attacks (scams where a tiny transfer like 0.0001 USDT is used to trick users into copying malicious addresses). Post-upgrade, up to 22.5% of Ethereum mainnet transactions were address poisoning; 95% of new wallet growth was attributed to such scams; and in the first two months of 2026 alone, estimated losses from these scams reached $348 million—more than eight times previous estimates.

In field tests, two newly created addresses were attacked within five minutes after just one round of transfers.

The report argues that these active addresses and transaction volume growth, seen by many as signs of “strong fundamentals,” are actually symptoms of systemic security crises.

From Deflation to Inflation

The deeper crisis caused by the Fusaka upgrade lies in its disruption of the validator economic model. In Ethereum’s PoS system, validators rely on transaction tips (priority fees) and rewards from burning base fees to sustain operations. But when blocks are filled with low-value spam and poisoning attacks, legitimate transactions can be included without bidding, causing validator earnings to collapse.

Currently, ETH staking yields around 3%, while the US 10-year Treasury yields about 4.1%-4.2%. Meanwhile, Ethereum’s 30-day annualized inflation rate has exceeded 0.8%. Since the Merge, circulating ETH has increased by nearly 1 million, reversing the previous decline of over 450,000 ETH. These figures are far from optimistic.

Even more concerning, Ethereum plans to further increase the gas limit to 100 million or even 200 million with the upcoming Glamsterdam upgrade, potentially fueling a vicious cycle. According to Culper, as long as Ethereum cannot regain the on-chain activity levels seen during the DeFi and NFT booms, the death spiral is unavoidable.

High-level Sarcasm

Vitalik selling an extra 3,000 ETH isn’t a big deal; perhaps it’s just funding Ethereum’s development. But Culper interprets this inconsistency as: “Vitalik, while claiming to build Ethereum, is actually being honest with himself.”

Using Vitalik’s additional sales as evidence that he’s bearish on Ethereum is overly simplistic. Culper’s real intent seems to mock Ethereum’s persistent bulls like Tom Lee. The report’s title, “What Vitalik Knows, and Tom Lee Doesn’t,” translates to: “The founder knows this ship is sinking, so he’s looking for a lifeboat; meanwhile, analysts are still playing ‘My Heart Will Go On’ on the deck.”

Culper compares Ethereum to the old Netscape and Nokia—once industry standards, but now potentially out of control due to the failure of token value capture mechanisms. Meanwhile, Ethereum’s competitors are making impressive strides. In 2025, Solana’s developer count grew by 29%, far surpassing Ethereum’s 6%. Major financial giants like Stripe, Visa, and Citigroup are adopting Solana for stablecoin settlements and asset tokenization. Additionally, Solana’s DEX trading volume now exceeds twice that of Ethereum.

Looking at Ethereum’s price trend, Culper’s short report hasn’t triggered a strong market reaction. Perhaps the issue is already priced in, or investors believe it’s still manageable. Comments on Culper’s tweets also mock the firm, suggesting that this “amateurish” FUD might actually be a bottom signal.

Quality doesn’t come cheap

Four years ago, when Yuga Labs announced they were developing a game, I saw a unique perspective on X: if Bored Apes Yacht Club (BAYC) is a limited-edition luxury item representing status, its value has no ceiling. But if you force a GameFi narrative onto it, its valuation hits a ceiling.

Culper applies this logic to Ethereum. They believe that while reducing gas fees was a good initial move, the execution may have gone too far.

Yes, Ethereum’s gas fees are now cheaper—sometimes even lower than Layer 2 solutions. But this low cost, before attracting truly valuable applications, has already been targeted by hackers. It’s like platform subsidies that fail to attract real users, instead drawing in a swarm of arbitrageurs.

Vitalik and the Ethereum Foundation have high hopes for Ethereum, pouring money into improving the chain’s performance. But they may have overlooked a crucial point: Ethereum is an organic economy. Overbuilding without considering economic fundamentals could destabilize the entire ecosystem.

From my perspective, Culper’s concerns are valid. The core reason for Ethereum’s prolonged low prices over the past two or three years is the lack of high-quality applications, leading to low on-chain activity. The sharp drop in gas fees has worsened economic issues, which will likely continue to suppress ETH’s price for some time.

What Culper might not realize is that Web3 isn’t a rational market. As long as these issues don’t threaten Ethereum’s core, a new concept explosion could reverse the trend. Ethereum has already experienced a collapse from $2,000 to a few dozen dollars, with the chain dead and unresponsive. We can always start over with better infrastructure.

Culper mocks our understanding of economics; we mock their ignorance of Web3.