Ethereum is winning right now in crypto, but that doesn't mean Ethereum holders are in the best position for the future. This is a shocking idea that I'm going to present here, and I'm going to keep it in an outline so I don't wander all over the place and just repeat the same thing a whole bunch of times. Here's the big question, though. Right now, if you don't realize it, Ethereum is dominant in crypto. It looks like Ethereum has the largest actual community in crypto, the most building, and the most activity out of anything in crypto when you include all the Ethereum Layer 2s like Base, Arbitrum, and now Robinhood, and especially if you expand into the EVM chains that are basically copies of or interoperable with Ethereum. Ethereum is winning when you've got Coinbase running its own Layer 2 with Base, Robinhood doing the same, and more institutions choosing Ethereum Layer 2s and likely building on them right now without making it public until they launch. EVM has huge, enormous developer, wallet, liquidity, and DeFi network effects, with tens of billions of dollars on Ethereum and Ethereum EVMs.
This is where almost everybody assumes that all this activity around the Ethereum brand and the Ethereum Layer 2s should automatically mean Ethereum holders win. I don't think that's guaranteed, although I'm holding thousands of dollars in what unfortunately is wrapped ETH at the moment because I'm swapping on Robinhood with all these other coins on MaxFi, which you can get in on through my MaxFi referral link. I'm printing thousands of percent APRs, although some days my portfolio drops hundreds of dollars as the risky meme coins I'm in plummet, and other days it soars and does the opposite. So this is not financial advice either. This is my crypto research to help you on your journey in crypto, based on being in crypto for 12 years.
Value capture: adoption is not flowing back to ETH
The first thing we need to look at is value capture. You're going to be surprised where this ends up going, because we're going to start with value capture and then slowly get into an even bigger long-term issue that almost nobody in the Ethereum community even knows about or is talking about. But the first obvious thing everybody can see is value capture. Yes, Ethereum does get a small percentage of the fees being generated on all these Layer 2s. Right now there's enormous Ethereum adoption, but very little of that is coming back to the actual Ethereum blockchain and the actual Ethereum holder. You can go to websites like ultrasound.money and see that Ethereum was deflationary for a while, but it's inflationary again. The revenue on the actual Ethereum Layer 1 has collapsed while most of the revenue is going to these Ethereum Layer 2s now. So you've got companies like Coinbase and Robinhood making more actual profits for themselves with Ethereum than the blockchain itself is making.
That means you can continue to see all this Ethereum adoption and usage, but how much of that is actually going to mean the Ethereum price goes up? Yes, the Ethereum price is likely to continue, on average, to go up over time for the foreseeable future. But there are more profits to be made elsewhere, and to me that's the bottom line. If I'm in crypto, I'm here for profits. I'm not here to hold Ethereum and hope it goes up 10 or 20 or even 50 percent. I want max profits: 1,000 percent APRs printing money in crypto. If there are opportunities like that, I'll use the Ethereum token to swap into other coins, but I'm not going to put significant parts of my money into Ethereum when there are better opportunities. So Ethereum can appreciate, but for appreciation I want the best risk-reward and the best opportunities, and I don't see that Ethereum is the best opportunity to actually earn money. And there are a bunch of issues on top of that, even though it is doing well and is likely to appreciate. It might even appreciate more than Bitcoin, although that hasn't happened for years.
Layer 2s are designed to make Ethereum cheap
The next layer we go into is this: Layer 2s are designed to make Ethereum cheap. Even though Robinhood's Ethereum fees have been ridiculous and there's a lot of activity, here's the bottom line: all these transactions generate little actual value for the Ethereum base layer. Essentially, it's a company that's going to be able to make a lot of money. Companies like Coinbase and Robinhood and chains like Arbitrum are capitalizing on Ethereum's branding and onboarding people easily, but they're taking more of the value than the Ethereum blockchain gets. You're still going to get some value from that, but the question is how much is coming back.
I'll take you to Robinhood Chain, which I'm on every day doing a whole bunch of trades on MaxFi, as I talked about before. Let's look at how the money works with this. Right now Robinhood Chain is printing money, the decentralized exchange is printing money, liquidity providers like me are printing money, and so are the market makers, the other infrastructure, and Ethereum. So Ethereum does get part of the economics, but Robinhood, the liquidity providers, the DEXs, the market makers, and everybody else are getting most of it. When you had more activity directly on Ethereum Layer 1, this was less of an issue. But these Layer 2s mean you can settle these giant transactions for relatively small gas fees. Ethereum is getting part of it, but it's not getting the majority of it. In fact, this is trending in the direction where more and more activity is not even happening on the Ethereum base layer. It's happening on these Layer 2s, and Ethereum is getting tiny, tiny fractions of that. That means you can transact huge amounts of money, capital, and real-world assets while the Ethereum coin itself doesn't get much of that value back, which is a problem because it looks so successful, and it's not capturing that success. And the same logic applies to the banks and institutions coming next.
Instead of an ETF in a lot of cases, but especially just in addition to an ETF or all the ETFs they already have, they can launch their own Layer 2 and get access to all these global customers in DeFi. These banks and institutions already have the customers, the money, the compliance, and the apps, and they want to just print more money for themselves. They're not going to let Ethereum charge them huge fees, but they do want to take advantage of the Ethereum community, branding, and ease of use. So there are likely to be more Ethereum Layer 2s that launch, but cheap infrastructure does not automatically equal a valuable infrastructure token. And that's what Ethereum is becoming: an infrastructure token. That's a problem, because when the token is being used mostly in all these other places where you don't have to pay that many gas fees, how does that equal the price going up when all these other people are making the money and the Ethereum blockchain and holders are getting relatively small amounts in comparison?
Ethereum winning versus EVM winning
I'm going to deepen that by talking about the difference between Ethereum winning and EVM winning. Right now EVM is very popular across all different kinds of blockchains, from Binance on down. There are all kinds of developers using EVM, Ethereum-compatible technology. That definitely helps Ethereum, but you can have "ETH wins" in all these scenarios: you have Layer 2s that settle activity directly through Ethereum, and then you have EVM chains that are compatible with Ethereum, using the same technology so it's easier for developers to build. All these things are definitely related, but they are not the same as the price going up for Ethereum. And especially when you have ETFs and big institutions, they have incentives to artificially push the price up and then artificially dump the price, too. All this economic activity doesn't necessarily mean the Ethereum price is going to be fantastic.
Stablecoins are winning the money layer
Here's where, to me, this is going in the long term. Right now I'm on Robinhood Chain, and it's kind of annoying. I get on with USDG, then I have to buy Ethereum, which I swap on Base and then send over to Robinhood Chain. Then I need wrapped Ethereum to swap with all these meme coins that are printing all this money. Now I have three different coins I need to use just to get started. But the more these get built out, the more you'll be able to simply open your Robinhood Chain wallet and go as we move forward in time.
This is what happened with Bitcoin. One of the things people are missing about Bitcoin and the cycles is that Bitcoin used to be a lot more valuable because you used Bitcoin to swap against altcoins. You didn't have USDC, or USD directly, or all these other coins around the world. Those didn't used to exist. When you went on some exchange like Poloniex or Bittrex back in the day, you swapped Bitcoin versus Ethereum. You swapped Bitcoin versus Steem, versus Dash. Bitcoin was your main coin, and you swapped against everything else. Ethereum is still a main coin that swaps against a lot of things, and that's one reason Ethereum blew up so much: when DeFi launched on Ethereum and everybody started putting Ethereum against these other coins, that created a huge additional demand for Ethereum.
But the more these Layer 2s have their own stablecoins and their own infrastructure, the more attractive it becomes to swap with USDC and USDG, and we're seeing so many of the exchanges swapping those instead of Ethereum. So the more these Layer 2s get built out and take control of their own infrastructure, you might have the average user never even actually buy any Ethereum. They're just doing swaps with stablecoins, and you're seeing more and more of that. I remember DeFi back in the day, when you hardly had stablecoins to swap against. Now DeFi is often becoming a default of two stablecoins to swap between, because it's just a lot more stable. So imagine hundreds of millions of people using Ethereum without ever needing ETH. How much demand does that actually create? If you have huge amounts of transactions settling for small gas fees, the narratives people are using about Ethereum might not match up to the actual economics.
To me, it looks like stablecoins are going to win the money layer. Even though Ethereum is the default and the dominant blockchain right now, stablecoins are continuing to grow in popularity. Jumping on Robinhood, I feel like it's so ghetto using wrapped Ethereum to swap against these meme coins instead of Ethereum or instead of stablecoins. But the stocks that are getting added on Robinhood, a lot of those are swapping against USDG, and then you're cutting out the need to hold Ethereum or wrapped Ethereum at all. That's where the future is going, to me. It's not the basic idea people are putting out, that Ethereum's growing, these Layer 2s are popping off, and everyone's going to use Ethereum. The thesis that everyone will need lots of ETH is incorrect. Relatively small amounts of ETH could fund this entire ecosystem, and then almost all the action is in stablecoins against stocks and other coins.
And then almost all the money is made by the exchanges hosting these products, and relatively little can come back to the Ethereum holder from that. By comparison, though, Ethereum carries the reputation risk and all kinds of underlying dependencies that create huge potential downsides if these things break. So it's not just straight upside for Ethereum. You've got so much being built on Ethereum, and it's so new, and you've got AI coming out and hacking things. The infrastructure presents a ton of possible attack vectors. What happens if something goes down with wrapped ETH? I'll lose thousands of dollars. What happens if something goes down with a stablecoin, or one of these ETH Layer 2s gets hacked or exploited, as we've seen in the past? And we haven't seen anything compared to what's possible. There are so many of these. To me, this is a house of cards where it's almost guaranteed that at some point some big thing in the Ethereum ecosystem is going to happen, and we've been close. We've seen some of these Ethereum liquid staking or DeFi protocol coins have an issue, and then someone has to fill in hundreds of millions of dollars almost immediately to stop the whole thing from collapsing.
The risk surface grows faster than the price
Ethereum overall has been pretty stable over the last decade since I started getting into it at under $10 and playing around with MyEtherWallet. But the bigger this gets and the more people build things, the more you get silly things like what's happening on Robinhood right now, where some of the stock tokens are de-pegging from the stock price and going up to crazy multiples before they come crashing back down Monday morning when everybody sells. You've already got Ethereum Layer 2s and restaking, where people get Ethereum liquid staking, then get a liquid staking token, then take that and stake it again, and there's so much of this. This sets up a situation where the more stuff gets built on Ethereum without the Ethereum token capturing a whole bunch of value, the more the liabilities start to go up faster than the assets. The things that could go wrong start to go up faster than the price.
That means if a huge Ethereum Layer 2 gets hacked, a bridge fails, or a sequencer goes down, something could happen even with Ethereum itself working perfectly. Some problem in the huge ecosystem could take huge amounts of value out of the Ethereum token and bring down the trust for the whole ecosystem everywhere, and meanwhile it could be difficult to even get back to where things were before. So the possible downsides get bigger the bigger this gets, but the way everything's being built is making it difficult for the upside to be that good. Yes, Ethereum has the market right now, and it could still continue to grow quite a bit, but when something goes wrong, the downside could create a big down event.
Fragmentation: hundreds more chains
There's tons of fragmentation as well. We could get hundreds more blockchains with what we're seeing right now. You already have Coinbase and Robinhood, but you could have Chase, Visa, Fidelity, and Meta. The more fragmented this gets, in some ways that could be good for the Ethereum ecosystem, especially if you can do wallet abstraction and better interoperability. But the more your risk surface is expanding, the value capture is still being limited. So even in the scenarios the Ethereum bulls are hoping for the most, imagine it: you've already got Coinbase, now Robinhood, and Robinhood's blowing up. Imagine Chase, Visa, Fidelity, Meta, and a bunch more all coming along. That might not push the price up that much, but it fragments all kinds of things and creates all kinds of different attack vectors. So the scenario where Ethereum does well has more and more risk, and the upside is kind of capped.
The real competition is not "Ethereum but faster"
Then there's the thing most everybody in Ethereum is not even looking at at this point: the competition. Ethereum does have an enormous advantage right now, but these other blockchains still have users and network effects. Most of them, though, are not much better than Ethereum itself. Chains like Solana have certainly taken some significant market share, but going forward, Ethereum actually has an advantage over most of these other networks because it has such a big brand. The real threat isn't "Ethereum but faster." The bigger Ethereum gets, the bigger the incentive becomes for someone else to build something that's truly, vastly superior. I'm not talking about Solana sending a transaction a little faster for a little cheaper. I'm talking about building something that genuinely changes the entire game technologically, the way Ethereum changed the entire game compared to Bitcoin. This is another huge additional risk vector for Ethereum, even with so much happening in the Ethereum ecosystem. But when you consider all the things that could go wrong and the limited token value, that is where we get into ICP, because the Ethereum Layer 2s are already solving "Ethereum but faster" and all that. But right now, with AI and the internet infrastructure, we're seeing that we need something to build more secure, fully on-chain applications.
ICP and the new wave of AI hacking
This is why my number one position is Internet Computer Protocol (ICP), because it's not just a faster Ethereum. It's a blockchain where you can put the computation, the data, and the back ends of websites and applications all fully on chain. This is something that will be very important to institutions, because the AI programs and large language models coming out are getting better and better at hacking. That means some of the things that were thought to be easily secured and very difficult for human beings to attack are now exposed. AI is able to find vulnerabilities in almost everything, which is a critical issue in crypto more than anywhere else. There's lots of critical infrastructure you could hack that's vulnerable, but in crypto, your hack can steal you a huge amount of money at the same time, and then you can swap it, liquidate it, and funnel it through. It provides an immediate financial reward. Often, with hacking other things, and even some things in crypto, you could very easily get caught and prosecuted with international authorities coming after you. But in crypto there are all kinds of opportunities to steal from bridges and wash the money, with very little likelihood you ever get caught or prosecuted. Unfortunately, in lots of cases it seems like these crypto hackers are getting away with stealing all this stuff because the teams on a project were anonymous in the first place, so it's hard for them to even pursue any good enforcement. The hackers just wash all the funds through, cash out, and live large.
So all this stuff being built on Ethereum is very vulnerable to the new wave of AI hacking, because on all these front ends, almost nothing is actually built on the blockchain. It's all built on centralized tech, and that produces clear avenues of attack. While the token transactions are on the blockchain and are going to be difficult to attack, everything else, like transacting on the website, everything you're clicking, everything you're seeing, and the back end storing all that data, is very vulnerable to being attacked. When you look at where things are going, and you have an architecture like ICP out here where you can actually rebuild everything, the entire interface, the website, all the data, and all the applications, fully on the blockchain with an Internet Identity that signs into all of it, that's vastly superior to using Ethereum plus a Layer 2 plus bridges plus cloud servers plus centralized front ends. I share more of this kind of research on my Crypto Reviews playlist.
Now, I've gotten a little more bearish on ICP in the foreseeable future, because ICP's tech is like next-generation alien tech. It's incredible, and to me that's where the future's going. But for now, it could take a while to get there. So I'm going to wrap this up, and I hope to see you in the future.