Ethereum continues to host the largest concentration of stablecoins and decentralized finance (DeFi) capital, even as newer blockchains promise higher throughput and lower costs. Newer blockchains have promised higher throughput and lower costs, raising questions about whether institutional capital could eventually migrate away from Ethereum. Kevin Lepsoe, founder of ETHGas and a former Morgan Stanley derivatives executive in Asia, said he expects Ethereum’s lead to endure, as institutions tend to prioritize capital depth over flashy performance. The capital is on Ethereum; the stablecoins are there, and traditional finance is looking at where the liquidity is.
Institutional capital brings scale and stability to a blockchain’s ecosystem. Large asset managers and tokenized fund issuers move capital in volumes that deepen liquidity and anchor stablecoin supply. Their presence can establish a network’s position beyond hype-driven retail activity that surges in bull markets and fades in downturns. Liquidity keeps Ethereum ahead of faster rivals.
If institutions prefer to operate where most of the money already sits, then simply making a faster blockchain will not pull capital away from Ethereum. Solana has emerged as Ethereum’s high-speed alternative, dubbed an “Ethereum killer,” though that label is debated. It onboarded retail traders through the non-fungible token (NFT) boom and the memecoin frenzy, but the heightened activities weren’t sustained in the long run. Solana now has its own generation of “Solana killers” that advertise higher theoretical transactions per second (TPS).
But Ethereum’s liquidity grants tighter spreads, lower slippage for large trades and the capacity to absorb institutional-sized transactions without heavily distorting prices. “I think of Ethereum as like downtown,” Lepsoe said. “You could build a marketplace uptown somewhere in the suburbs and you could get far off market prices there, maybe it’s more convenient or maybe you like the vibe.” “But if you want the deepest liquidity, you go downtown, and that’s Ethereum.” Though past crypto booms featured high-stakes retail speculation, the next phase is shaping up to include more institutional capital.
As it stands, institutional players have expressed interest in practical use cases such as stablecoins and real-world assets (RWAs). Even the world’s largest asset manager is leaning into RWA products. BlackRock’s USD Liquidity Fund (BUIDL) is its tokenized Treasury fund that started on Ethereum and branched out to several blockchains. Ethereum holds over a 30% BUIDL market capitalization.
Ethereum is the largest network for stablecoins as well, which BlackRock’s global head of market development, Samara Cohen, said are “becoming the bridge between traditional finance and digital liquidity.” Ethereum leads the industry in stablecoin market cap, with $160.4 billion, according to DefiLlama. Ethereum’s L2 liquidity is returning to L1. Lepsoe described the liquidity fragmentation as a blessing in disguise for Ethereum.
He argued that if L2s didn’t take away liquidity from the main chain, capital would have flown out to competitors. Recently, Ethereum has shifted its focus back to scaling the main chain. Co-founder Vitalik Buterin said that many layer 2s have failed to decentralize, while the main chain is now sufficiently scaling. “Both of these facts, for their own separate reasons, mean that the original vision of L2s and their role in Ethereum no longer makes sense, and we need a new path,” Buterin said in a recent X post.
Scaling upgrades strengthen Ethereum’s liquidity advantage. With transaction fees tamed, Ethereum is expected to execute the Glamsterdam fork in 2026, raising the block gas limit to 200 million from 60 million and putting its layer 1 on the road to 10,000 TPS over time. For Ethereum, the timing coincides with institutions evaluating blockchain infrastructure for the next generation of financial services. Alongside protocol upgrades, infrastructure providers are experimenting with ways to improve execution efficiency. Projects like Lepsoe’s ETHGas aim to optimize Ethereum’s block construction process through offchain execution and coordination, while Psy Protocol uses zero-knowledge technology to bundle multiple transactions into one.
Marcin Kaźmierczak, co-founder of blockchain oracle RedStone — which supplies data feeds for tokenized assets and institutional blockchain applications — said that Ethereum has the edge, as institutions prefer blockchains that have been battle-tested and around “for a very long time.” However, while institutions are “aggressively” expanding into Ethereum, they’re also shopping around. They look at Solana, which is getting good traction. Canton is extremely important for them because it gives them privacy, which they value very much.
Lepsoe said he sees “zero threat” from Solana or Canton, arguing that Ethereum still has the deepest liquidity pool, which is the primary draw for large allocators. In blockchain markets, speed can attract users during booms, but capital tends to stay where the deepest markets already exist.
Leave a Reply