Bitcoin and Ethereum: The Shifting Landscape of Global Finance and Value Accrual

The crypto industry continues to evolve, with Bitcoin and Ethereum at the forefront of this transformation. As global finance increasingly shifts on-chain, the primary assets held by investors, such as Bitcoin, Ethereum, and Solana, play a crucial role. However, the debate surrounding the value accrual of these layer 1 assets, particularly Ethereum, has sparked discussions about their future in the ever-changing crypto landscape.

The Role of Stablecoins and Layer 2 Solutions

Stablecoins and layer 2 solutions have been described as potentially parasitic to Ethereum. Nick Carter, a well-known crypto analyst, wrote an article on Bankless highlighting how stablecoins could be detrimental to Ethereum's value. This perspective suggests that the growth of stablecoins and layer 2 solutions might divert value away from Ethereum, the primary layer 1 asset.

However, the impact of stablecoins and layer 2 solutions on Ethereum's value depends on how Ethereum and other layer 1 assets define their value proposition. If Ethereum's primary reason for being held is as a collateral asset or a means of generating yield, the rise of stablecoins and layer 2 solutions could indeed pose a threat to its value accrual.

Theories of Value Accrual: Moneyness and Yield

There are two main theories for the value accrual of Ethereum and other layer 1 assets: moneyness and yield. The concept of moneyness, popularized by Bitcoiners, emphasizes the properties that make an asset desirable to hold, such as divisibility, portability, and fungibility. Bitcoin has been successful in establishing itself as a store of value, often referred to as "digital gold" or the "best meme coin ever."

Ethereum initially seemed to have product-market fit within the DeFi space, with ETH being used as collateral in large liquidity pools and as a means of obtaining leverage through platforms like Maker and AAVE. However, as the crypto market evolves, the question remains whether Ethereum can maintain its position as a pristine collateral asset.

The Future of Ethereum and Layer 1 Assets

As the crypto industry continues to grow, the future of Ethereum and other layer 1 assets will depend on their ability to adapt to changing market dynamics. If Ethereum's value proposition shifts towards generating yield and fees, it may need to focus on developing more efficient and scalable solutions to remain competitive.

Market analysts predict that the total value locked (TVL) in Ethereum-based DeFi protocols will continue to grow, reaching an estimated $100 billion by the end of 2023. However, the rise of layer 2 solutions and competing layer 1 assets, such as Solana, could challenge Ethereum's dominance in the DeFi space.

Some experts believe that Ethereum's transition to Ethereum 2.0, which aims to improve scalability and reduce transaction fees, will be crucial for its long-term success. If successful, Ethereum 2.0 could solidify Ethereum's position as a leading layer 1 asset and attract more institutional investors to the platform.

Ultimately, the future of Bitcoin, Ethereum, and other layer 1 assets will depend on their ability to adapt to the evolving needs of the crypto market. As global finance continues to shift on-chain, the industry will need to find a balance between the value accrual theories of moneyness and yield to ensure the long-term sustainability of these assets.