Why holding ETH is the best way to participate in the stablecoin wave?

By Maria Shen & Sanjay Shah, Electric Capital

Compiled by: TechFlow

*Note: Throughout this article, “Ethereum” refers to the network and “ETH” refers to the asset that powers it.

Far from falling, global demand for the U.S. dollar is exploding. While headlines focus on “de-dollarization,” a more important trend is emerging: more than 4 billion people and millions of businesses are actively seeking access to dollars through stablecoins, representing the largest expansion of the dollar’s network effect in decades.

This creates an unprecedented opportunity for Ethereum. Stablecoins provide individuals around the world with access to USD - which has grown 60x to over $200 billion since 2020 - and millions of new USD holders need more than just digital cash. They need yield, investment opportunities, and financial services. Traditional finance cannot serve this massive new market due to regulatory and infrastructure limitations.

Ethereum is uniquely positioned to provide the global financial infrastructure for this new digital dollar economy, and ETH will directly benefit from this growth.

Millions of new USD holders entering via stablecoins

There is huge potential demand for the U.S. dollar among individuals and businesses around the world.

People around the world want the security of US dollars:

• More than 4 billion people face significant currency risk due to political instability, poor monetary policy, and structural inflation. (1)
• An estimated 21% of the world’s population lives in countries where annual inflation rates exceed 6%(2), rapidly eroding savings and purchasing power.
• For these people, holding dollars means financial security. The dollar is seen as a store of value, a means of transacting across borders, and a hedge against fluctuations in the local currency.

Businesses need US dollars to conduct transactions:

• The U.S. dollar remains the dominant currency in global trade, with 88% of global foreign exchange transactions involving at least one party involving the U.S. dollar. (3)
• Businesses in emerging markets rely on U.S. dollar liquidity for international payments, imports and supply chains, where local banking and foreign exchange markets are often limited or unstable.
• Small and medium-sized enterprises and freelancers increasingly need digital dollars to get paid and avoid currency mismatch risks.

For the first time in history, anyone in the world can hold USD via a stablecoin:

• Anyone with an internet connection can hold and trade dollars — no banks required, no government permission required, and available around the world 24/7.
• As a result, the market capitalization of stablecoins has increased 60-fold since 2020. (4)
• The peak of adoption is concentrated in emerging markets that were previously excluded from dollar-denominated finance. Nigeria has become the world’s second-largest cryptocurrency market, while underground cryptocurrency use continues in China, which is under a ban. (5)

Stablecoins are creating a new group of dollar holders among the world’s largest demographics — businesses pricing in USDT, households saving in USDC. They are driving a fundamental expansion of the market for dollar-based financial services.

These new dollar holders seek yield, creating opportunities for a new global financial infrastructure

Stablecoin holders want to put their money to work.

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

Traditional finance cannot serve this new market:

• The U.S. banking system requires compliance with regulations that exclude most global players.
• Cross-border financial services remain expensive, slow and geographically restricted.
• Traditional finance was built for institutions and high net worth individuals, not global retail.
• Geographic and regulatory barriers have prevented billions of dollars from participating in dollar-denominated financing.

This creates a need for new financial infrastructure that can serve the billions of stablecoin holders around the world, allowing them to put their new dollars to work.

Only if Ethereum meets all three requirements can it provide services to global stablecoin holders

New financial infrastructure to serve stablecoin holders must simultaneously meet three key requirements:

• Globally available – must be available anywhere there is internet access, from New York to Nigeria to rural Nepal. Most of the world cannot access dollar-based financing due to geography or regulation.
• Safe for Institutions – Must provide the security, reliability, regulatory clarity, and customizability that institutions need to build multi-billion dollar financial products.
• Resistant to government intervention – Must be free from the control of any single government, as many governments would prefer to restrict the circulation of dollars to protect local currencies and control capital flows.

Ethereum meets all three requirements:

• Globally accessible: Ethereum is available 24/7 to anyone around the world with an internet connection.
• For institutional safety:

• Security - The most economically secure and decentralized of all programmable blockchains. Most mature security infrastructure - Has the most open source developers, verified contracts, security auditors, and tools.
• Reliable – 100% uptime for 10 years, regardless of market crashes or geopolitical events.
• Regulatory compliance - US regulators classify ETH as a commodity, providing a clear institutional framework.
• Customizable — Ethereum’s L1+L2 framework enables customizability, allowing institutions to optimize for specific use cases and meet regulatory requirements (for example, Coinbase and Robinhood have both built L2 chains on Ethereum).
• Exceptional track record - owning the world’s largest digital financial economy: stablecoins with a market cap of over $140 billion(6), over $60 billion invested in decentralized finance (DeFi) protocols(7), and over $7 billion worth of tokenized real-world assets.(8)

• Resistance to government interference: The government cannot seize a single control point to control or restrict the network.

Ethereum uniquely meets these requirements with its strong decentralized nature — and its origin story is almost impossible to replicate today.

• Strong decentralization makes Ethereum globally accessible, secure, reliable, and resistant to government intervention.
• This level of decentralization is rooted in Ethereum’s origins and culture.

• Ethereum started out as a community-funded, proof-of-work blockchain, which made asset ownership very broad, but today’s environment makes it unsuitable to launch in this way.
• Its culture, which has always prioritized decentralization—maintaining expensive customer diversity and resisting centralized shortcuts—is nearly impossible to transform.

• As a result, Ethereum has the advantage of decentralization that other chains cannot easily replicate, which also provides Ethereum with a lasting moat.

• More than 1 million validators(9) in more than 100 countries(10)
• Multiple independent development teams ensure resiliency and the largest open source developer ecosystem (11)
• Asset ownership is widespread due to community-funded launch and proof-of-work origins

No other alternative meets all three requirements simultaneously:

*Bitcoin may become more programmable in the future, but only if the Bitcoin community agrees to change the opcodes to enable this functionality.

As ETH becomes a reserve asset in the new digital dollar economy, demand may increase

What are reserve assets?

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

In the traditional system, the U.S. dollar, U.S. Treasuries, and gold are examples of reserve assets because they are trusted, liquid, and widely accepted.

Why ETH naturally plays this role

With billions of dollars flowing through stablecoins on Ethereum, participants need a secure, permissionless, and efficient asset to support lending, staking, and yield generation. ETH has a unique advantage in this regard because:

• Scarce and Trustworthy: ETH has a predictable supply, low inflation, and no central control.
• Productivity: Unlike gold or static dollars, ETH generates yield through staking — similar to how income is generated when holding real estate or treasury bonds.
• Collateral Utility: ETH is already the largest on-chain collateral asset in the Ethereum ecosystem, backing $19 billion worth of lending protocols(12). Institutions hold it because they need it to enter the DeFi market.
• Seizure and censorship resistance: ETH cannot be frozen or seized by governments, making it more resilient than centrally issued assets.
• Programmable and liquid: ETH is deeply integrated into the entire on-chain financial system and has unparalleled liquidity for large transactions.

Why this makes ETH valuable

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

Simply put: more stablecoin adoption → more on-chain activity → more demand for ETH as collateral → institutions and users holding more ETH.

L2s increase demand for ETH

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

As demand for ETH increases, it is also expected to become a global store of value

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

• Like Bitcoin, Ethereum has superior store of value (SoV) properties than traditional assets such as gold.
• Rather than competing with each other, ETH and BTC will likely take a piece of the $500 trillion worth of traditional SoV assets (gold, treasuries, stocks, real estate) over the next few years.
• In addition to having the SoV properties of Bitcoin, ETH also provides returns to holders.
• Income generation is a big plus, as investors generally favor income-generating assets. U.S. households hold about $32 trillion in dividend-paying stocks. (13) They hold less than $1 trillion worth of gold.

ETH has superior properties to traditional SoV assets and can provide returns:

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 increases. Higher ETH value and a more secure network attract more institutions and services, further promoting the popularity of stablecoins.

Alternative approaches face significant challenges in replicating this flywheel:

• Traditional finance fails to serve the billions of people who are excluded due to geographic and regulatory barriers.
• Government-controlled systems remain subject to political influence and jurisdictional limitations.
• Bitcoin lacks the programmability required for complex financial services.
• Other blockchains lack the security, reliability, and customizability that institutions require, as well as the decentralization that resists government intervention.

The bottom line is: holding ETH may be the easiest and most efficient way to gain exposure to the growing stablecoin economy.

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

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Risks to watch out for

Like any emerging global system, Ethereum faces significant risks. While there are many risks, three of them are the most threatening to the thesis that Ethereum will build a permissionless, dollar-based financial system with ETH as the reserve asset.

• The US dollar becomes the reserve asset, not ETH

If stablecoins like USDC or USDT become dominant and are used for lending, collateralization, and settlement, the US dollar may replace ETH as the system's reserve asset. In this case, ETH may be seen as primarily "gas money" rather than a core store of value. However, given that ETH accounts for 44% of on-chain lending collateral on Ethereum mainnet and Layer2, and generates a 3-5% staking yield, replacing ETH seems challenging. More importantly, ETH is the only truly decentralized asset on Ethereum - stablecoins like USDC and USDT are centralized and can be frozen or seized, making them fundamentally unable to fulfill ETH's duties as censorship-resistant collateral. More likely, ETH and the US dollar will play complementary roles - the US dollar is committed to stability and transaction optimization, while ETH provides decentralized, resistant to seizure value storage and network ownership.

• CBDCs compete to replace USD stablecoin adoption

Central bank digital currencies (CBDCs) could provide similar 24/7 access to a digital dollar with full sovereign backing, which could crowd out private stablecoins and limit the permissionless dollar system currently supported by Ethereum. CBDCs are national in nature, often lack true cross-border interoperability, and may limit open developer access due to compliance and identity requirements. In contrast, stablecoins already settle trillions of dollars per year, operate globally by default, and retain greater flexibility to innovate, making it difficult for CBDCs to replace them.

• Competitive chains surpass Ethereum

A faster, cheaper, and less decentralized blockchain may be able to attract users and developers who value low fees and a simple user experience, and create strong liquidity and network effects early on. Over time, this chain may be able to mature its validator set enough to reach the point of "sufficient decentralization" to break Ethereum's dominance. However, given Ethereum's decentralization and more than a decade of proven security, it is not easy to replace it.

Additional data

 Annual stablecoin settlement volume exceeds $6 trillion (10x growth from 2020):(14) 

 Ethereum has more than 55% of stablecoins: (15) 

 ETH could become the reserve asset of the new financial system. 44% of lending collateral in the Ethereum ecosystem is ETH, making it the largest collateral asset ($19 billion): (16)