Author: Jake Koch-Gallup
Compiled by: Vernacular Blockchain
If you haven't read Carlos's newsletter published this Tuesday, go read it first. Basically, he argues that Ethereum is losing its last moat—liquidity. We debated this on the 0xResearch podcast (you can listen here), and I strongly disagree with his view (can you believe it? Blockworks analysts actually disagreeing with each other).
His first example: tokenized US stocks on Ethereum have almost no trading volume, with only $25 million in volume over the past 30 days, about 3% of total supply. But Ethereum has the second-largest market share in tokenized US stock supply. Carlos anticipated this, but I still think the original purpose of tokenized US stocks is to expand global access to US markets, not for lending and DeFi. His response on the podcast was: tokenized US stocks just sit on your blockchain doing nothing, because they don't generate revenue, and only trading volume generates revenue.
Dear reader, this is precisely where you and I may truly diverge. I don't think Ethereum necessarily needs to generate revenue. Like many other L1s, it already has a monetary premium. Real economic value (REV) alone simply cannot explain the market cap of most L1s—ETH's current market cap is more than 1,100 times its REV over the past year. Since the market clearly prices Ethereum partly as a reserve and collateral asset (ETFs, treasuries, DeFi collateral), ignoring this is equivalent to asserting that ETH and most L1s will forever be 99% overvalued, and that argument is meaningless.
His second point: flagship applications are shifting their growth focus elsewhere. He cited that over the past 30 days, Robinhood Chain accounted for 43% of Uniswap's trading volume, while Ethereum accounted for only 32%. He also mentioned Ethena's growth on Base. Both points are indeed fair, but Robinhood Chain and Base are essentially Ethereum L2s. If we agree that REV is not that important for L1s, then the growth of Ethereum L2s is a victory for Ethereum itself. To be fair, Ethena has also expanded to non-L2 chains such as Solana, TRON, and Avalanche. Although Ethereum's share of USDe has fallen from 88% to 56%, it still remains dominant. Ethena is adding distribution channels, not leaving Ethereum.
However, if you do believe REV is crucial, consider this: in September of this year, Base paid Ethereum about $15,000 in "rent" to post data; in the same month, it paid the Optimism Collective as much as $711,000. Now imagine a future in which, within 3 to 5 years, Ethereum decides: "You know what? We want that cut Optimism is getting too," and raises the minimum fee for posting data. Base might not be too happy about it then, but if by that time the L2 has scaled 10x, my goodness, that would be a huge sum. Therefore, market share is crucial, even if it does not currently bring in much REV.
His last argument: Ethereum's stablecoin dominance is slowly declining, which is indeed true. But the stablecoin market is not a winner-take-all market. Even if Ethereum's dominance falls from 51% to 30% over the next 10 years, the overall stablecoin market will continue to expand. If the total stablecoin market cap reaches $3 trillion in 10 years, Ethereum will still hold nearly $1 trillion in stablecoins, almost 6 times its current $155 billion scale.
If you want to hear Carlos's response to the counterarguments I raise here, be sure to listen to the podcast. Now that we've sorted this out, let's look at why Ethereum still has value and will continue to maintain its value.
Ethereum has by far the largest DeFi TVL, accounting for 65% of the total. Since 2022, this share has never fallen below 62% in any week.
Aside from Bitcoin, Ethereum still has the deepest liquidity, the most secure network, and the largest institutional participation.
Ethereum has the largest onchain RWA AUM (although its market share has fallen from 99% in 2022 to 45% today).
Institutions treat ETH as an asset to hold, rather than valuing its revenue. Spot ETFs and treasury management companies hold about 13% of ETH's total supply.
Robinhood and Coinbase could have issued their own L1s, but in the end they both chose to settle on Ethereum.
The largest tokenized funds (such as BlackRock's BUIDL) all launched first on Ethereum mainnet.
Ethereum has run stably for more than 10 years and has never experienced a network-wide outage.
Ethereum and its L2s have the largest developer community in the crypto industry, and the EVM serves as the default toolset, with even competing L1s rushing to emulate it.
36% of ETH's supply has been staked and just hit an all-time high, providing holders with native yield, and institutions can also participate through staking ETFs.
Ethereum is the world computer of cryptography.
Ultimately, I am a fundamentals investor. Crypto projects (usually) should have revenue, and that value should be returned to token holders. Therefore, believing that ETH can endure solely on a monetary premium and meager REV may be pure bagholder cope, but perhaps—just perhaps—Ethereum was always meant to be revalued as the "world computer."
— Jake
After falling for an entire year, Plasma's stablecoin supply has nearly doubled since July to $1.41 billion, the highest level since mid-February. Although it is still quite far from its peak of $5.2 billion at launch, the competition among stablecoin public chains is far from over.