Bankless: Six narratives Ethereum could appeal to Wall Street

Author: Jack Inabinet, Bankless; Translator: Baishui, Golden Finance

Ethereum's spot ETF may start trading at any time!

There is also a big question: How do we sell ETH to Wall Street?

This question has plagued the industry many times. While Bitcoin enthusiasts have always adhered to the easy-to-understand narrative of "digital gold", Ethereum fans often have a hard time finding a common, concise narrative to inspire outside interest in the ecosystem.

Today, each of the six parts of this article summarizes the essence of Ethereum. We then explain why each narrative is effective in attracting the next generation of investors to Ethereum and assign a narrative rating to each narrative based on how successful we think they are in attracting adoption from potential ETF buyers.

“It’s a Tokenized Platform”

Tokenization has been touted by financial heavyweights including BlackRock CEO Larry Fink as representing a paradigm shift in financial markets as it promises to drastically reduce friction and costs while increasing accessibility and liquidity. It also aims to enable unprecedented transparency and composability!

The importance of Ethereum as the world’s leading tokenized asset platform is explained in a way that TradFi participants can understand, illustrating why the network is so important.

While tokenization doesn’t dive into the positive correlation between increased on-chain activity and ETH price, it demonstrates the central role Ethereum can play in a modernized financial system; achieving this goal alone would make ETH the most valuable crypto asset in existence.

The narrative captures Ethereum’s role as a global settlement layer for real-world assets, making it easier for TradFi to rationalize Ethereum’s role as a global settlement layer for an interconnected chain network and its pursuit of modular expansion.

Narrative Rating: B

While numerous financial institutions have expressed excitement about tokenization, this narrative is hampered by some regulatory uncertainty, but with luck, investor excitement about tokenization may catalyze the necessary legislative action to provide regulatory clarity around digital assets and their role in financial markets.

“Ethereum is the on-chain app store”

Unlike Bitcoin, Ethereum offers highly expressive smart contracts that unlock financial programmability for developers, making the network an on-chain version of the Apple App Store.

Those who download and fund an Ethereum-compatible crypto wallet have unrestricted access to a range of consumer applications that facilitate a variety of financial, gaming, and cultural interactions. In this digital economy, ETH must be used to pay gas fees, thereby stimulating demand for ETH assets, and transaction fee payments become Ethereum's revenue, which then flows to holders through Burn (a crypto-native version of stock buybacks)! Investing in ETH is similar to directly purchasing ownership of an app store, and many investors are willing to make this purchase because of its rich cash flow generation capabilities and strong network effects - both of which Ethereum possesses.

Narrative Grade: C

While this narrative has gained traction in recent weeks as the best way to present ETH to TradFi and bears similarities to familiar products, it is unclear whether external actors have a good understanding of the types of interactions that can be performed on-chain, which may lead them to perceive little value in such activities.

“This is an Internet bond”

In TradFi, the comparison between crypto-native staking programs and fixed-income instruments is easy.

Stakers stake 32 ETH as validator collateral (principal) and receive rewards (interest). Unlike TradFi, this relationship does not rely on either party’s ability to repay the loan, but is instead backed by immutable code and Ethereum’s future economic activity — in the form of block fee revenue and inflationary block rewards.

Investors of all kinds love earning passive income from their assets, leading many to believe this is a perfect story for Ethereum, especially when compared to the only alternative to TradFi trading: non-productive BTC.

Narrative Grade: C

Unfortunately, a spot ETH ETF will not be launched with staking, and while crypto natives can continue to generate yield this way, the narrative of an “internet bond” is unlikely to be attractive to investors without access to this functionality, at least until an ETF that supports staking is launched.

“ETH is Super Sound Money”

Bitcoin maximalists have long espoused the “sound money” principles of their chosen digital currency, stressing that the network’s programmed block reward issuance schedule is resistant to debasement, giving BTC store of value status.

“Super sound money” was created by the Ethereum ecosystem as an investment distinct from Bitcoin and was first popularized by Ethereum Foundation researcher Justin Drake in September 2020, before the last boom.

While Ethereum currently has no guaranteed issuance schedule, thanks to EIP-1559, ETH’s supply could turn deflationary as block demand increases, reducing the number of tokens in circulation over time, theoretically giving the token superior store of value qualities, creating a “super sound money”.

Narrative Rating: D

Spiking prices throughout 2021 made the idea of ​​a deflationary token extremely attractive, but as inflation has fallen sharply, that narrative has become less attractive; if policymakers resort to devaluation to stimulate a global economic downturn, ultra-sound money could become the primary narrative. It may be too degenerate for Wall Street, though.

“It’s digital oil”

Bitcoin may have earned the nickname “digital gold,” but who cares about a shiny stone when you can own an alternative decentralized commodity that’s driving the global economy?

When conducting transactions on Ethereum L1 and its many L2s, users must pay transaction fees with Ether to execute; Due to the widespread popularity of on-chain transactions in the Ethereum ecosystem, many people view ETH as a digital derivative of oil.

Like oil, which derives its intrinsic value from its use as a key commodity input, Ether also benefits from the use of applications on Ethereum that require gas to access.

Narrative Grade: D

Increasing usage of on-chain applications should be positive for Ethereum by demonstrating a strong correlation between activity and price, but this narrative seems difficult to convince traditional market participants as they have shown resilience when it comes to on-chain interactions and do not fully understand what on-chain economics are.

“It’s the money of the internet”

With Ethereum’s expressive smart contracts, developers can create applications on the blockchain, such as the one described above, with Ethereum representing TradFi, as the next generation app store.

In this ecosystem, ETH is the native “money of the internet,” serving as a medium for many to store their value and use for payments. Furthermore, the existence of these smart contracts makes this currency programmable, enabling applications to automatically use it.

Among early crypto users seeking utility for their assets, the ability to use Ether as money was an attractive use case that drove many to adopt crypto, however, it may be a stretch to assume that this claim can generate any excitement for the remaining TradFi holdouts.

Narrative Grade: F

First, the concept of internet currencies may not be taken seriously by the mature/sophisticated investors that ETFs are attracted to. In addition, people generally do not invest in currencies because they have inherent inflationary properties and their purchasing power decreases over time, and this association may make it difficult for investors to see the value of such assets.

Why no "A" grade?

Eagle-eyed readers may have noticed that none of the above narratives get an “A” grade!

While each narrative has its own appeal, none is a silver bullet that will single-handedly attract the next generation of investors to Ethereum.

All are old or unproven, and while narratives can help investors understand aspects of Ethereum, a comprehensive understanding of the network is necessary to fully grasp the potentially revolutionary impact this technology could have…

For the non-crypto natives that the spot ETFs are designed to attract, the concept of tokenization may well have opened their eyes to the importance of blockspace, an admission that is a prerequisite to grasping the concept of Ethereum as the on-chain equivalent of an app store, and unlocking their ability to view Ethereum as digital oil and a new form of money!

Ethereum’s tokenization and internet bond narratives require regulatory clarity to truly gain traction, but in the meantime, the ecosystem is ready to revert to supersonic money if policymakers resort to debasement to jump-start a shaky global economy.

Ethereum may be too complex to be boiled down to a single narrative, but the effort to do so presents the ecosystem to outside investors in an approachable format that may spark their excitement and lead them deeper down the cryptocurrency rabbit hole!