Ethereum's Old Dream and New Reality: Buyers are increasingly institutionalized, lowering expectations for price fluctuations

Author: @ c0 xswain , @ 0xkinnif , 0xlaiyuen & @ 0xZhouYeMen

Compiled by: Deep Wave TechFlow

The continuous development of Ethereum in the past decade gave birth to a variety of ETH Use cases, and different perspectives on their value. Crypto investors who have experienced ETH’s price surge may view it as “ultrasonic money.” Technology purists might see it as a trustworthy, neutral global computer. New players may view it as the “digital oil” powering decentralized, open-source app stores.

Ethereum investment case: What is the investment value of Ethereum?

The value of Ethereum lies in its flexibility and ability to support applications that are more complex than simple value transfers. Ethereum has the largest and most active community of software contributors who implement upgrades to enhance the functionality of the platform. These developers are not only focused on the platform's continued relevance, but are committed to contributing to a platform that can adapt and expand, providing a solid foundation for assets and activities now and into the future. Currently, the most talked about applications on Ethereum include stablecoins (payment tokens pegged to the U.S. dollar), decentralized finance (recreating traditional financial services such as lending on the blockchain), and tokenization (payment tokens pegged to the blockchain). issue financial assets).

When an application runs on Ethereum, the ether token serves as the currency required for transactions in the Ethereum ecosystem. These ethers are consumed when paying transaction fees and removed from circulation, potentially reducing the supply of ether as platform usage grows. Investing in ether therefore expresses the view that more applications will be built on Ethereum's open and permissionless programming infrastructure, with the goal of attracting more users and revenue, and expanding the scope of ether's use as a currency.

We believe that in order for Ethereum adoption to continue to increase, continued recognition will be needed from new market participants who have a unique perspective on the value of ETH. Marginal buyers of ETH may not share the same ideological leanings as crypto natives, and we should accept that. As institutional adoption increases as we enter the post-ETF timeline, we expect that applications built on Ethereum with institutional appeal will benefit most from traffic, fees, and ultimately price.

The approval of the ETH ETF will have a long-term impact on investors’ perceptions of the legitimacy of the Ethereum ecosystem and the applications built on top of it. The most obvious beneficiaries will be real world assets (RWA) and decentralized finance (DeFi) protocols.

RWA

RWA is very broad and covers asset classes such as real estate, bonds, stocks and even luxury goods. There are currently a number of protocols participating in the tokenization of Treasury yields and private credit. There are many other examples of tokenization, but the long-term viability of some of these protocols is questionable due to a variety of factors, including:

• Regulatory obstacles;
• Questions about KYC controls;
• Owned products launched by large banks will be more trustworthy;
• Lack of integration with existing traditional financial infrastructure.

There appears to be disagreement as to how agencies will execute their RWA strategies. On the one hand, institutions are pursuing a private blockchain approach, and on the other hand, institutions are looking to integrate existing solutions. J.P. Morgan’s Onyx is a private blockchain based on the Avalanche Evergreen subnet, while Blackstone’s BUIDL fund is a tokenized USD yield fund issued on Ethereum. While many crypto natives believe the debate over private versus open blockchains was settled during the 2018 cycle, real institutional adoption could revive it today.

Cobie On institutional adoption, source: Cobie

When it comes to private/consortium blockchains, interoperability may be key to facilitating the movement of assets between platforms, similar to inter-bank transfers. Infrastructure that connects various blockchain assets, such as trustless oracles and bridges (LINK, ZRO, AXL) may see some value accumulation. On the other hand, institutions leveraging existing infrastructure may be motivated to tokenize their high-value assets on Ethereum due to security budgets and trusted neutrality.

DeFi: The Financialization of Everything

DeFi kicked off a bull run in 2020 as many envisioned a future where finance would thrive. Its permissionless and decentralized nature allows anyone to interact with the protocol, lend and borrow in money markets, exchange assets on decentralized exchanges (DEXs), and form decentralized autonomous organizations (DAOs) to contribute to proposals. Cast votes and make transactions.

This emerging industry opens up many opportunities beyond what traditional markets offer. In addition to DAOs and DEXs, there are also interesting game theory experiments such as Curve Wars and the Olympus DAO (3,3) that have attracted many actors to dream about the opportunities that the new decentralized frontier may bring.

Top 20 Crypto Projects by Revenue in the Last 90 Days, Source: DeFi Projects Tagged on Token Terminal

DeFi as a sector also attracts fundamentally driven investors who want to see revenue . Among the top 20 crypto projects ranked by revenue, DeFi occupies 13 spots, second only to L1 and L2.

P/F Ratios for Selected De F i Protocols, Source: Token Terminal

Funds looking to deploy capital into crypto assets beyond ETH will likely purchase those time-tested products and Mature DeFi applications with higher relative value, rather than new protocols with lower circulation and higher fully diluted valuation (FDV). In terms of price/fee ratio (the multiple the market is willing to pay for every $1 of fees), many DeFi protocols are priced at significant discounts from a year ago when ETH was trading around $1,850. While fees may be affected by asset prices, the broader message is that these protocols with proven product-market fit trade at significant discounts in today's more favorable environment. Given the broader context of increasing institutional investor share, this appears to be an attractive investment opportunity.

Additionally, there is ample time for supply allocation among market participants over time, reducing the risk of large structural sellers. Established DeFi protocols like MKR, LDO, and AAVE are likely to gain popularity among fundamentals-driven capital deployers, while permanent decentralized exchanges (perp dexes) like DYDX and GMX are likely to gain traction if on-chain trading volumes recover. May see potential growth.

新的現實

透過 ETH ETF 的機構資本流入可能會導致區塊鏈活動的復甦，這得益於以太坊的經濟效應及其生態系統中槓桿的內在作用。然而，值得注意的是， ETH ETF 的被動買家不會像 BTC ETF 買家那樣將 ETH 轉換為山寨幣。雖然這可能會抑制投資者的預期，但我們相信， ETH 的反身性特徵將使其在 ETF 中每投資一美元時獲得比 BTC 更大的上漲潛力。

Ethereum ' s Trickle Down 經濟

無論ETH ETF 的流入是否會帶來意外的上行，加密貨幣投資者都應該意識到，隨著機構化，市場動態也在不斷變化。在後 ETF 時代，我們應該期待 ETH 隨著資產的成熟而降低波動性，但在接受新現實的同時，也不要忘記重溫舊夢。

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