Key Points
In crypto, it’s a truism that wherever liquidity sits, the biggest money will congregate. Scale makes every transaction cheaper, cleaner, and safer to execute, and given that crypto markets are only now starting to become liquid enough for financial institutions to really engage with deeply, there’s simply no way to beat it.
That’s one big reason to buy Ethereum (CRYPTO: ETH) today. Let’s take a closer peek at the most important asset class that’s providing the liquidity to this chain to see why it’s worth buying.
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This liquidity base is hard to ignore
Ethereum is home to the deepest pool of fiat currency-pegged stablecoin liquidity in crypto. If you want exposure to one of the networks that global finance is most likely to use, buying the network that already holds the most dollars is a good move.
Stablecoins are crypto tokens designed to hold a steady value, typically $1. They’re the grease for nearly everything in decentralized finance (DeFi), from lending to trading, payments, and settlement.
By value, Ethereum hosts the largest stack of stables in the industry, with roughly $146 billion in stablecoin value on its base layer alone, far ahead of all of the runner-up chains. To put that into context, Tron holds about $82 billion in stables, and Solana holds about $12 billion.
So Ethereum’s broader ecosystem commands the largest on-chain dollar float by a wide margin. That helps explain why its DeFi total value locked (TVL) also leads all other networks. It’s also why new DeFi projects have a big incentive to operate on the chain. If you want your project to bring in a lot of revenue, positioning it on the network where the most money is parked and flowing is an obvious move.
In other words, the biggest pools of tokenized cash beget more inflows of value seeking to capture a portion of that cash, making a virtuous cycle of sorts.
Big money is coming, but competition remains an issue
For a pension fund or asset manager, moving capital with size through thin pipes is operationally risky and expensive. Liquidity lowers slippage and simplifies post-trade workflows, saving costs.
On that front, stablecoin settlement is scaling rapidly, with $27.6 trillion in transfer volume across various major blockchains in 2024.
That matters because these dollars need a home with reliable rails. Overall, there’s thus a good chance that at least some financial institutions will flock to do business on Ethereum. And the institutional inflows are another facet of why stablecoins are such an important part of the investment thesis for buying the coin.
But Ethereum’s victory over the long term is not assured, as its biggest competitive threats are real. Tron dominates retail peer-to-peer stablecoin flows in several regions, and it often processes more transfer volume than Ethereum for those use cases. If those flows become the benchmark for liquidity for financial institutions, Ethereum’s lead could compress over time.
In contrast, Solana’s high speed and low fees make it a formidable venue for certain stablecoin-heavy applications as well, which ensures that some liquidity will continue to be siphoned from Ethereum. Assuming that low-latency payment apps become a larger share of on-chain finance, Solana could take larger slices at the margin, even if Ethereum remains the anchor for institutional purposes. It could also just attract those institutions to its chain directly, so it’s a major threat.
Nonetheless, Ethereum is still worth buying today, and it has a long runway for growth in stablecoins and DeFi, among many other segments that operate on its chain.
If stablecoins keep growing and institutions continue to prefer the deepest, most connected liquidity pools — and both of those things are very likely to continue — Ethereum is positioned to benefit for years. The precise mix of venues, applications, and assets will ebb and flow, but the center of financial gravity is already likely set, at least for now.
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Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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