Wall Street rushes into Ethereum as stablecoin gets the green light and RWA expands

In the past week, the price of Ether (ETH) has risen to the sky by 23%, surpassing the 13% increase of Bitcoin and the 10% of the crypto market in general. However, with the current price at 3,500 USD, ETH is still far from its all-time high of 4,855 USD reached in November 2021. While Bitcoin has entered a price discovery phase, Ethereum still seems to have a lot of potential for further growth if the right narratives are tapped into.

Every major price surge needs an engaging story. In 2021, Ethereum's price rose due to the explosion of NFTs and DeFi. However, currently, the expensive JPEGs and decentralized exchanges no longer generate the same excitement in the crypto market. Instead, Ethereum's appeal now lies in its increasingly close ties with traditional finance (TradFi), primarily through its role in the issuance of stablecoins and the tokenization of real assets (RWA).

ETH as a reserve asset

A recent report from Electric Capital has highlighted Ethereum's leadership role in the issuance and settlement of stablecoins. Despite declining confidence in the US dollar, global demand for ETH remains strong from both individuals and businesses. Thanks to blockchain technology, for the first time in history, anyone with an internet connection can hold and use digital dollars without going through a bank. Since 2020, the adoption of stablecoins has increased 60 times, now exceeding 200 billion USD.

These stablecoins are gradually turning into financial instruments. Interest-bearing versions, which have now surpassed 4 billion USD in market capitalization, are becoming the fastest-growing segment, allowing users to earn passive income from stable assets.

Ethereum still dominates this field, holding over 54% of the total stablecoin supply. Electric Capital has pointed out three important criteria for stablecoin platforms: global accessibility, institutional security, and political neutrality. Ethereum is the only network that continuously meets all three of these criteria. Tron ranks second with 32%, but its low-cost advantage is gradually being eroded as high usage increases transaction fees. Meanwhile, Ethereum's transaction fees have decreased thanks to upgrades and a state of reduced load, creating an opportunity for it to solidify its role as the core layer for the dollar economy on-chain.

As this ecosystem develops, the function of ETH as a reserve asset also increases. Like treasury bonds or gold in TradFi, ETH provides collateral, payments, and interest. It is scarce, non-custodial, can be staked, and has been deeply integrated into DeFi, currently supporting over 19 billion USD in loans. Electric Capital believes that in the long term, ETH could capture a share of the global store of value market worth 500 trillion USD. It offers the durability of Bitcoin, plus interest, a feature favored by American households, who currently hold 32 trillion USD in dividend-paying stocks but less than 1 trillion USD in gold.

ETH as a store of value

Fidelity's latest report suggests that blockchains like Ethereum are better understood as independent digital economies rather than Web2 platforms. Like an open economy, Ethereum allows anyone to consume or produce services, and ETH serves as the base currency, coordinating decentralized participants.

Fidelity proposes using a framework similar to GDP to measure blockchain economic activity, in which "consumption" refers to protocol fees, "government" reflects spending by the Ethereum Foundation, "investment" includes staking ETH and changes in DEX liquidity, and "net exports" encompass value flows between blockchains, to the physical world through DePIN, and to traditional economies through the issuance of stablecoins.

According to analysts at Fidelity, ETH serves as a medium of exchange and a store of value within this framework. As the Ethereum ecosystem expands, the demand for ETH also increases. To date, this trend supports this hypothesis: according to Artemis, the number of daily active wallets on Ethereum has now surpassed 2.5 million, and the number of transactions has reached an all-time high of around 19 million.

The Ethereum ecosystem and daily active addresses | Source: FidelityFidelity's framework can be applied to most blockchains, providing TradFi with a simpler way to evaluate smart contract platforms, similar to how they have understood Bitcoin. The emphasis on Ethereum may be due to its position as the most advanced blockchain economy, indicating the increasing recognition by institutions of its potential.

ETH as digital oil

A third perspective has been raised in a recent report from leading stakeholders of Ethereum. The authors argue that ETH functions as a productive commodity, generating profits at the center of the on-chain economy. As the global financial system shifts towards a fully digital and decentralized infrastructure, Ethereum is emerging as the core payment layer, security provider, and reserve asset. While Bitcoin represents the "digital gold" narrative, Ethereum combines value storage with utility, providing decentralized computation and finance, while also offering natural yields through staking.

The analogy of "digital oil" reflects many roles of ETH: it is burned as fuel for each transaction, used as collateral for about one third of its supply backing stablecoins, tokenized assets, and DeFi protocols, and remains scarce by design, with a limited issuance rate of about 1.51% per year. The report also mentions Ethereum's fee revenue, which has plummeted from a peak of 82 million USD during the 2021 bull run to only 3 million USD today. According to the authors, this is not a failure, but a strategic move for expansion. Like Amazon or Tesla during their early growth stages, Ethereum has prioritized long-term adoption over short-term revenue, reducing transaction costs through layer-2 scaling. Although this temporarily constrains fee income, it has expanded Ethereum's overall addressable market and will ultimately increase both ETH burning and staking rewards.

Ethereum mainnet and daily TPS of Rollups | Source: L2BeatAlthough the underlying logic of these three reports can be applied to other smart contract platforms, each report implicitly indicates—or clearly states—that Ethereum holds a distinct advantage. This advantage often comes from its "industrial-grade" quality: Ethereum remains the most decentralized blockchain, with the most secure protocol and the most developed ecosystem in the space. As Ethereum becomes increasingly attractive to TradFi, even its well-known scalability limitations, which have now been mitigated by layer-2 solutions, seem to become less of a barrier to institutional adoption. Just as institutional interest has driven the Bitcoin bull run in this cycle, it is now ready to do the same for Ethereum.

Mr. Teacher