The Important Position and Prospects of ETH in the Wave of Stablecoins

The global demand for the US dollar is growing explosively. Over 4 billion people and millions of businesses are actively acquiring dollars through stablecoins, representing the largest expansion of the dollar's network effect in decades.

This has created unprecedented opportunities for Ethereum. Stablecoins provide a channel for individuals globally to access US dollars, growing 60 times since 2020, exceeding $200 billion. Millions of new US dollar holders not only need digital cash but also require yields, investment opportunities, and financial services. Traditional finance struggles to serve this massive new market due to regulatory and infrastructure limitations.

Ethereum has unique advantages in providing a global financial infrastructure for this new digital dollar economy, and ETH will directly benefit from this growth.

Stablecoins Drive Expansion of USD Holders

There is a huge potential demand for the US dollar from individuals and businesses worldwide.

People around the world hope to secure safety with the US dollar:

• Over 4 billion people face significant currency risks stemming from political instability, poor monetary policy, and structural inflation.
• It is estimated that 21% of the global population lives in countries with an annual inflation rate exceeding 6%, rapidly eroding savings and purchasing power.
• For these groups, holding US dollars means financial security. The US dollar is seen as a means of storing value, a medium for cross-border transactions, and a way to hedge against local currency fluctuations.

Companies need US dollars to conduct transactions:

• The US dollar remains the dominant currency in global trade, with 88% of foreign exchange transactions involving the dollar on at least one side.
• Emerging market companies rely on US dollar liquidity for international payments, imports, and supply chains, while local banks and foreign exchange markets in these markets are often limited or unstable.
• Small and medium-sized enterprises and freelancers are increasingly in need of digital dollars to receive payments and avoid currency mismatch risks.

For the first time in history, anyone in the world can hold US dollars through stablecoins:

• Anyone with internet access can hold and trade dollars, without the need for banks or government permission, available globally 24/7.
• Since 2020, the market value of stablecoins has increased by 60 times.
• Focus on emerging markets that were previously excluded from dollar-denominated finance. Nigeria has become the second largest cryptocurrency market in the world.

Stablecoins are creating a new group of dollar holders among the largest population groups globally, with businesses pricing in stablecoins and families saving in stablecoins. They are driving a fundamental expansion of the dollar financial services market.

New Dollar Holders Seek Yield, Creating New Financial Infrastructure Opportunities

Stablecoin holders want to make their money work.

Today, millions of people can hold US dollars through stablecoins. But their aspirations go far beyond this. Individuals and businesses naturally want to use their funds to earn returns, invest, and grow their wealth.

Traditional finance cannot serve this new market:

• The US banking system requires compliance with regulatory rules, excluding most global participants.
• Cross-border financial services are still expensive, slow, and geographically restricted.
• Traditional finance is built for institutions and high-net-worth individuals rather than global retail.
• Geographical and regulatory barriers hindered billions of dollars from participating in dollar-denominated financing.

This has created a demand for new financial infrastructure that can serve billions of stablecoin holders worldwide, enabling them to utilize the new dollar.

Ethereum meets the three major requirements of global stablecoin holders

The new financial infrastructure serving stablecoin holders must meet three key requirements:

1. Globally available - must be applicable anywhere with internet access.

2. Security for Institutions - It is essential to provide the security, reliability, regulatory clarity, and customizability needed for institutions to build financial products worth billions of dollars.

3. Resist government intervention - Must not be under the control of any single government.

Ethereum meets all three requirements:

1. Globally Accessible: Anyone in the world with an internet connection can use Ethereum 24/7.

2. On institutional security:

   • Security - The most economically secure and decentralized among all programmable blockchains.
   • Reliable - Able to maintain 100% uptime for 10 years, regardless of market crashes or geopolitical events.
   • Complies with regulatory requirements - US regulators classify ETH as a commodity, providing a clear regulatory framework.
   • Customizable - The Ethereum L1+L2 framework has achieved customizability.
   • Excellent track record - Home to the world's largest digital financial economy.

3. Resistance to government intervention: The government cannot occupy a single control point to control or restrict the network.

Ethereum uniquely meets these requirements with its powerful decentralized features, and its origin story is nearly impossible to replicate today.

• The powerful decentralization makes Ethereum globally accessible, secure, and reliable, and able to withstand government intervention.
• This level of decentralization is rooted in the origins and culture of Ethereum.
• The result is that Ethereum has a decentralized advantage that other chains cannot easily replicate, which also provides Ethereum with a lasting moat.

No other alternatives can meet all three requirements at the same time.

ETH is expected to become a reserve asset in the new digital dollar economy.

In any financial system, reserve assets are the credible foundation that supports everything. They are the collateral, savings, or liquidity assets held by institutions, protocols, and users, used for value storage, loan collateral, and transaction settlement.

As billions of dollars flow through stablecoins on Ethereum, participants need a secure, permissionless, and efficient asset to support lending, staking, and yield generation. ETH has inherent advantages in this regard because:

• Scarce and Reliable: The supply of ETH is predictable, with a low inflation rate and no central control.
• Productive: Unlike gold or static dollars, ETH generates returns through staking.
• Collateral Utility: ETH is already the largest on-chain collateral asset in the Ethereum ecosystem.
• Anti-seizure and anti-censorship: ETH will not be frozen or seized by the government.
• Programmable and highly liquid: ETH is deeply integrated into the entire on-chain financial system, providing unparalleled liquidity for large transactions.

As more and more users hold stablecoins and require financial services, they need a reserve asset to support these activities. ETH can earn yields, secure the network, and support DeFi lending, thus the demand for ETH will naturally grow as the system develops.

In short: more stablecoins adopted → more on-chain activities → more demand for ETH as collateral → institutions and users hold more ETH.

The growth of Ethereum Layer-2 has further stimulated demand for ETH. By reducing transaction costs, speeding up transaction times, and enabling new use cases, Layer-2 has opened up more areas for ETH to be used as collateral. This expands the reach of ETH and strengthens its position as a reserve asset in the digital dollar economy.

ETH is expected to become a global store of value

The growing demand for ETH has also allowed it to capture a significant share of the traditional value storage market.

• Like Bitcoin, Ethereum has superior store of value(SoV) characteristics compared to traditional assets such as gold.
• ETH and BTC will not compete with each other, but may instead share a piece of the $5 trillion traditional SoV assets (, such as gold, government bonds, stocks, and real estate ) in the coming years.
• In addition to having the SoV attributes of Bitcoin, ETH also provides returns to its holders.
• Income generation is a significant advantage, as investors generally favor income-generating assets. American households hold about $32 trillion in dividend stocks, while the value of the gold they own is less than $1 trillion.

Conclusion: Holding ETH may be the best way to participate in the growing stablecoin economy.

The growth of the stablecoin economy has created a powerful flywheel for Ethereum and ETH. As more and more stablecoins are put into use on Ethereum, the demand for ETH has also increased. Higher ETH value and a more secure network attract more institutions and services, further promoting the adoption of stablecoins.

Alternative solutions face significant challenges when replicating this flywheel:

• Traditional finance cannot serve the billions of people excluded due to geographic and regulatory barriers.
• Government-controlled systems are still subject to political influence and jurisdictional restrictions.
• Bitcoin lacks the programmability of complex financial services.
• Other blockchains lack the security, reliability, and customizability required by institutions, and also lack the decentralization to resist government intervention.

The result is: Holding ETH may be the simplest and most effective way to engage with the rapidly growing stablecoin economy.

• You can also choose to invest in specific DeFi protocols that benefit from the expansion of stablecoins. However, this carries higher risks and requires expertise.
• For most retail and institutional participants, ETH provides the simplest access to the entire digital dollar ecosystem.

Risk Factors

Like any emerging global system, Ethereum also faces significant risks. Among them, three major risks pose the greatest threat to the argument that "Ethereum will use ETH as a reserve asset to build a permissionless, dollar-based financial system."

1. The US dollar becomes a reserve asset, not ETH

If stablecoins dominate and are used for lending, collateral, and settlement, the US dollar may replace ETH as the reserve asset of the system. In this scenario, ETH may be seen primarily as "gas money"( fuel fees), rather than a core value storage medium. However, given that ETH accounts for 44% of on-chain lending collateral on the Ethereum mainnet and Layer 2, and generates a staking yield of 3-5%, replacing ETH seems quite challenging. More importantly, ETH is the only truly decentralized asset on Ethereum, while stablecoins are centralized and can be frozen or seized, fundamentally undermining their ability to serve as anti-censorship collateral like ETH. It is more likely that ETH and the US dollar will play complementary roles, with the dollar committed to stability and transaction optimization, while ETH provides decentralized, anti-seizure value storage and network ownership.

2. CBDC competition to replace the adoption of USD stablecoins

Central Bank Digital Currency ( CBDC ) can provide similar all-weather access to digital dollars, with full sovereign support, which may crowd out private stablecoins and restrict the permissionless dollar system currently supported by Ethereum. CBDC is essentially national in nature, often lacking true cross-border interoperability, and may limit access for open developers due to compliance and identity requirements.