Don't Fade Ethereum

If you didn't read Carlos’s newsletter from this past Tuesday, go read it first. Basically, he argues that Ethereum is losing its last moat, liquidity. We debated this on the 0xResearch podcast (check it out here), and I strongly disagree with him (can you believe it? Blockworks analysts have differing opinions).

His first example is that tokenized equities on Ethereum are barely traded, with $25M in volume over the past 30 days, about 3% of supply. But Ethereum has the second-largest share of tokenized equity supply. Carlos saw this one coming, but I'd still argue that tokenized equities are meant to expand global access to US markets, not to be used for lending and DeFi. On the podcast, his response is that tokenized equities sitting on your blockchain do nothing because they don't generate revenue, while volume does.

This is where you and I, my dear reader, may really start to disagree. I don’t think Ethereum necessarily needs to generate revenue. It already has a monetary premium, like many other L1s. Real economic value (REV) alone doesn’t come close to explaining most L1s’ market caps – ETH trades at over 1,100x its trailing-year REV. Since the market clearly prices Ethereum partly as a reserve and collateral asset (ETFs, treasuries, DeFi collateral), ignoring that would just say ETH and most L1s are 99% overvalued forever, which isn’t useful.

His second point is that flagship applications are prioritizing growth elsewhere. He gave the example of Robinhood Chain accounting for 43% of Uniswap’s past 30-day trading volume, compared to 32% on Ethereum. He also mentions Ethena’s growth on Base. Both of these are fair points, but Robinhood Chain and Base are both Ethereum L2s. If we concur that REV matters less for L1s, then the growth of Ethereum L2s is a win for Ethereum. To be fair, Ethena has also expanded to Solana, TRON, and Avalanche, which aren’t L2s. Ethereum's share of USDe has fallen from 88% to 56%, but it's still the majority. Ethena is adding distribution, not leaving.

However, if you do think that REV is extremely important, consider that in September, Base paid Ethereum about $15,000 in rent to post its data. Over the same month, it paid the Optimism Collective $711,000. Now imagine a world where in 3 to 5 years, Ethereum goes, “you know what, we want what Optimism’s getting,” and raises the minimum fee to post data. Base probably wouldn't love it, but if L2s are 10x bigger by then, boy, that's a lot of money. So market share matters, even if it's not generating much REV right now.

His last point is that Ethereum’s stablecoin dominance is slowly declining, which is true. But the stablecoin market is not winner-takes-all. Even if Ethereum’s dominance declines from 51% to 30% over the next 10 years, the stablecoin market will keep growing. If total stablecoin market cap reaches $3T in 10 years, Ethereum would have almost $1T in stablecoins, almost 6x the $155B it holds today.

If you want to hear Carlos’s rebuttal to the counterarguments I posit here, make sure to check out the podcast. Now that we've got that out of the way, let's look at why Ethereum is still valuable and will continue to be.

1. Ethereum has the largest DeFi TVL by far, with 65% of the total. It hasn’t dropped below 62% in any week since 2022.

2. Ethereum still has the deepest liquidity, the most secure network, and the most institutional participation of any blockchain besides Bitcoin.

3. Ethereum has the largest RWA onchain AUM (though its share has declined from 99% in 2022 to 45% today).

4. Institutions hold ETH as an asset, not for its revenue. Spot ETFs and treasury companies hold ~13% of the total ETH supply.

5. Robinhood and Coinbase could have launched their own L1s, but they chose to settle on Ethereum.

6. The largest tokenized funds, like BlackRock’s BUIDL, launched on Ethereum mainnet first.

7. Ethereum has run for over 10 years without a full network halt.

8. Ethereum and its L2s have the largest developer base in crypto, and the EVM is the default toolkit which even competing L1s copy.

9. 36% of ETH supply is staked and just hit an ATH, giving holders native yield that institutions can access through staking ETFs.

10. Ethereum is the cryptographic world computer.

At the end of the day, I am a fundamental investor. Crypto projects (generally) should have revenue, and that value should accrue to tokenholders. So it may be bagholder cope to think that ETH can survive on its monetary premium and little REV, but maybe, just maybe, Ethereum should be valued as the World Computer.

 — Jake

After falling all year, Plasma’s stablecoin supply has nearly doubled since July to $1.41B, its highest since mid-February. Still a far cry from its $5.2B launch peak, but the stablechain race isn’t over yet.

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