Ethereum is the Only Institution-Friendly Smart Contract Chain

Co-authored by my friend Dan McArdle and me

Some have recently come to doubt where Ethereum sits in the crypto ecosystem. With Bitcoin as the clear “digital gold” store-of-value chain, and Solana as the fastest, cheapest, and bridgeless smart contract chain, this leaves the 100-IQ crowd viewing ETH as awkwardly stuck in the middle.

But Ethereum has durable and unreplicable advantages right now. It is simultaneously

• The most Lindy smart contract chain
• The only smart contract chain that crossed the regulatory chasm
• The only chain with which Coinbase is aligned
• The only chain that has a “yield”

These advantages make it ripe for a wave of institutional adoption in a way that its competitors just aren’t. The community just needs to focus on these advantages and quit playing defense.

Lindy

Ethereum is the first fully expressive smart contract chain. If we start counting from the white paper as Day 0, Ethereum is nearly a decade old. It has survived two full crypto bull/bear cycles, entering its third. It has never gone down aka liveness issues. The tooling has almost a decade of maturity, and through trial-by-fire and a culture of embracing open source, much of the potential attack surface with smart contract bugs in Ethereum is now understood. Finally, Ethereum has ~40 trillion dollar-days of TVL (value locked times number of days, in aggregate) under its belt compared to around 1T dollar-days for Solana. The only tainted part of its history is the TheDAO hack, but that was 7 years ago and kids today barely know what it is.

This all adds up to the risk of putting institutional-sized capital into the Ethereum ecosystem being much lower than into the Solana ecosystem. You, dear manlet, may argue that the rewards in Solana make up for the risk, but keep in mind that you are not a money manager at Goldman Sachs who cares most about his career. He’s trying to make partner for the 8-figure annual bonus until the end of time while you’re trying to make $1mm on WIF once. Crypto is risky enough to TradFi; advocates within these institutions probably want to keep their chances of getting fired due to some idiosyncratic consensus or contract bug to a minimum.

Regulatory Chasm

One enormous medium term advantage Ethereum has in the institutional world is that the CME lists an ETH futures contract. BTC is the only other cryptoasset that’s listed on CME. Now with almost 3 years of history, this contract has given regulators, notably the SEC, some level of comfort with trading around ETH that just doesn’t exist for SOL.

Furthermore, the SEC named SOL as a security in their suit vs. Coinbase, casting a large regulatory shadow over SOL until that case is resolved (which may take years). Although the SEC has not officially declared that ETH is not a security, most lawyers would agree that ETH is by far the most likely cryptoasset to be deemed as a non-security after BTC. All this matters in terms of general comfort level, but also in terms of the likelihood that an ETH spot ETF is approved in 2024, which would increase the ease of institutional flows considerably.

Coinbase

Coinbase’s alignment with Ethereum is apparent through the Base rollup. Technology aside, Base is arguably the most interesting chain in all of crypto. Over 100mm KYC’ed users from the most compliant US-based exchange are ready to be funneled into Base. Not only is Coinbase a massive distribution channel for Ethereum, but also this 100mm-user KYC layer makes Base — and by extension Ethereum — the perfect home for “compliant DeFi”.

An example of compliant DeFi is RWAs. In order to tokenize traditional assets onchain, most institutional asset issuers will require KYC, want to work with a trusted partner like Coinbase, and use a Lindy chain. Many crypto purists are still allergic to the idea of RWAs. But what if I told you hundreds of millions of people in emerging economies want not only USD stablecoins, but also trillions of dollars of US treasuries, US stocks, and US real estate? Sure USD is already superior to local currencies by a large margin, but an additional 5–10% annual return is still a game changer.

Yield

Thanks to the launch of EIP1559 in Aug 2021, and “the merge” in Sept 2022, Ethereum now boasts “real yield”. Specifically, those who stake their ETH earn an ETH-denominated return, where part of the return comes from newly issued ETH supply, and part comes from fees that users of the Ethereum network pay to get their transactions processed. Since the fees generally exceed the newly issued supply, Ethereum has a yield in excess of its inflation rate. This is the definition of “real yield”, and is unique to Ethereum in the crypto world.

Institutions love yield. Especially real yield. It’s not hard to imagine a world where a bit of crypto risk-appetite in general comes back, and some institutional money managers realize that Ethereum can be viewed as both a tech-growth risk-on play, AND a real-yield play. It only takes a few to start a trend.

Call to Action

It’s time for the Ethereum community to rally around a clear go-to-market strategy. The likes of “restaking”, “4844”, “account abstraction”, and “data availability” are not go-to-market strategies. They are at best product roadmaps, at worst technical jargons that confuse the hell out of the end users. In case you still haven’t noticed during this recent degen mania, users care very little about the things that ETH maxis care about.

Retail users care about fees, speed, and not having to bridge. Here Ethereum can’t close the gap with Solana tomorrow. Institutional users on the other hand care about Lindy, regulatory comfort, a trusted partner like Coinbase, and real yield. All of which only Ethereum is equipped with today. Becoming the de-facto institution-friendly smart contract chain therefore is a highly viable go-to-market strategy. And to me, by far the most obvious go-to-market strategy.

Now all we need is for the dot eth influencers to stop awkwardly defending themselves vs Solana and Bitcoin. Stop being in denial about Solana offering a better UX for degens. Stop obsessing about trivial, fixable technical and economic flaws of Solana. Stop the silly “ultrasound money” narrative that only makes institutions not want to take you seriously.

And instead, focus on the non-replicable advantages that Ethereum currently enjoys. Fulfill the vision that Ethereum is uniquely positioned to fulfill. Before it really does become too late.