With over 100 Layer 2 (L2) blockchains, it is permissible to think that Ethereum is too expensive and too late. But ask an institution that is preparing to settle where to build a $500 million interest rate swap. The answer is Ethereum. The reason reveals everything about how institutional obligations could develop.
The key indicators for institutional adoption are completely different from retail. Retail users are fleeing the transaction fees of cheaper chain Ethereum, but institutions are willing to pay their security premiums as they travel hundreds of millions of millions. It doesn’t matter if people are willing to pay for a secure infrastructure. The “weakness” of Ethereum is its institutional moat.
The story of two markets
Looking at the numbers, the difference between retailers and institutional investors’ perspectives makes sense. If you’re buying MemeCoin for $50, you don’t want to pay $10 for the transaction fee. But when it comes to solving a $500 million interest rate swap, firing $10 to ensure a safe transaction is a small price for that peace of mind.
You don’t need to look more than Tradfi to make sure this perspective is not new. Also, the security premium for trading on Ethereum is actually a product. There are reasons why institutions pay more to trade on the NYSE than Pink Sheet (securities on the OTC Exchange) and why they continue trading through Swift despite their costs. It’s all a track record of conducting transactions in a secure and compliant way. The same applies to blockchain.
The idea of pasting hundreds of millions of dollars into inoperable networks is the definition of an institution’s nightmare. Many agencies are not focusing on speed, but rather assessing the combat-tested security of chains like Ethereum. If you remove one thing from this operation, understand that traditional finance always pays for infrastructure reliability.
Preparation for regulations
What investors need most is the robust market testing base layer blockchain, widely accepted among financial institutions as a neutral settlement layer. Ethereum gains serious institutional involvement as the network is properly integrated with existing infrastructure. That’s what it was built on.
One evidence is the number of major banks being built in Ethereum from a pool of developer talent that has gained regulatory comfort in decentralising and has concentrated on the Ethereum ecosystem. This may be the self-reinforcement cycle of institutional adoption.
It’s not a failure
You need to stop viewing Ethereum’s high fees as a failure. They are the functions that naturally divide the market. Some chains are intentionally optimized for low cost, high speed, and microtransactions. Institutions will need and pay for a digital equivalent, which is the large-scale liquidity equivalent of Fort Knox.
Instead of looking at metrics such as daily active users and number of translations, institutions take a more basic approach. They see where regulated entities are building their infrastructure and focus on the big game of institutional settlements.
The next time someone declares Ethereum is dead, will they ask where they want to settle the $500 million deal? The answer reveals why Ethereum’s end-of-mise reporting is so exaggerated, and why agencies betting on “boring” Ethereum infrastructure capture the true value in Defi’s institutional future.
Read more: Paul Brody – Ethereum Already Wins
