Is Ethereum Losing Its Moat? 10 Reasons to Counter ETH Bearish Arguments

A rebuttal to Carlos and 10 reasons why ETH is still important.

Written by: Jake Koch-Gallup

Compiled by: Baihua Blockchain

If you haven't read the newsletter Carlos published this Tuesday, you should check it out. Essentially, he argues that Ethereum is losing its last moat—liquidity. We debated this on the 0xResearch podcast (you can listen here), and I strongly opposed his viewpoint (can you believe it? The analysts at Blockworks actually disagreed).

His first example is that tokenized US stocks on Ethereum have almost no trading volume, with only $25 million traded in the past 30 days, accounting for about 3% of the total supply. However, Ethereum holds the second-largest market share in tokenized US stock supply. Carlos anticipated this, but I still believe that the original intention of tokenizing US stocks is to expand global access to the US market, not just for collateral and DeFi. His response on the podcast was that tokenized US stocks are just lying dormant on your blockchain, doing nothing, because they don't generate income, and trading volume is what generates income.

Dear readers, this is where you and I might genuinely diverge. I don't think Ethereum necessarily needs to generate income. Like many other L1s, it already possesses a monetary premium. The market cap of most L1s cannot be explained solely by real economic value (REV)—ETH's current market cap is over 1,100 times its REV from the past year. Since the market clearly prices Ethereum partly as a reserve and collateral asset (ETFs, government bonds, DeFi collateral), ignoring this would imply that ETH and most L1s are forever overvalued by 99%, which is a meaningless assertion.

His second point is that flagship applications are shifting their growth focus elsewhere. He cited that in the past 30 days, Robinhood Chain accounted for 43% of Uniswap's trading volume, while Ethereum only accounted for 32%. He also mentioned Ethena's growth on Base. These points are indeed valid, but Robinhood Chain and Base are essentially L2s of Ethereum. 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 like Solana, TRON, and Avalanche. Although Ethereum's share in USDe has dropped from 88% to 56%, it still maintains a dominant position. Ethena is increasing distribution channels, not leaving Ethereum.

However, if you truly believe REV is crucial, consider this: in September this year, Base paid approximately $15,000 in "rent" to Ethereum for data publication; in the same month, it paid up to $711,000 to Optimism Collective. Now imagine a future where, in 3 to 5 years, Ethereum decides, "You know what? We also want the revenue share that Optimism gets," and raises the minimum fees for data publication. Base might not be too happy about it, but if L2 scales up 10 times by then, wow, that would be a huge amount. Therefore, market share is crucial, even if it currently brings in little REV.

His final argument is that Ethereum's dominance in stablecoins is slowly declining, which is indeed true. However, the stablecoin market is not a winner-takes-all market. Even if Ethereum's dominance drops from 51% to 30% over the next decade, the entire stablecoin market continues to expand. If the total market cap of stablecoins reaches $3 trillion in 10 years, Ethereum will still hold nearly $1 trillion in stablecoins, almost six times its current size of $155 billion.

If you want to hear Carlos's response to the rebuttals I presented here, be sure to listen to the podcast. Now that we've clarified these points, let's look at why Ethereum still holds value and will continue to do so.

1. Ethereum has the largest DeFi TVL to date, accounting for 65% of the total. Since 2022, this percentage has never dropped below 62% in any week.
2. Besides Bitcoin, Ethereum still has the deepest liquidity, the most secure network, and the largest institutional participation.
3. Ethereum has the largest on-chain RWA AUM (though its market share has dropped from 99% in 2022 to 45% now).
4. Institutions view ETH as an asset to hold rather than focusing on its income. Spot ETFs and asset management firms hold about 13% of the total ETH supply.
5. Robinhood and Coinbase could have issued their own L1s, but they ultimately chose to settle on Ethereum.
6. The largest tokenized funds (like BlackRock's BUIDL) were first issued on the Ethereum mainnet.
7. Ethereum has been running stably for over 10 years without any network downtime.
8. Ethereum and its L2s have the largest developer community in the crypto industry, with EVM as the default toolkit, which even competing L1s are trying to emulate.
9. 36% of the ETH supply has been staked and just hit an all-time high, providing native yield for holders, and institutions can also participate through staking ETFs.
10. Ethereum is the computer of the cryptographic world.

Ultimately, I am a fundamental investor. Crypto projects (generally) should have income, and this value should be returned to token holders. Therefore, believing that ETH can thrive solely on monetary premium and thin REV may just be a psychological comfort for bagholders, but perhaps—just perhaps—Ethereum should be revalued as the "world computer." --- Jake

After a year of decline, the supply of Plasma's stablecoins has nearly doubled since July, reaching $1.41 billion, the highest level since mid-February. Although it still has a considerable gap from its peak of $5.2 billion at launch, the competition among stablecoin public chains is far from over.

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