Bankless: Will Ethereum Still Be the First Choice for Institutions?

What do all these oft-repeated buzzwords have in common? Crypto employees at TradFi use them to sell their bosses on the exciting benefits of blockchain technology. This year, executives appear to be listening.

In 2024, institutions are getting involved in the crypto space more eagerly than ever before through custom blockchain integrations, tokenized funds and ETFs, industry partnerships, and research papers. These initiatives are beginning to bridge the gap between TradFi and DeFi. However, this article does not focus on why companies are building on-chain. Instead, we focus on where these funds choose to build.

What happened to Ethereum?

Ethereum is the world’s largest smart contract blockchain network. It already has over $90 billion in RWAs, including stablecoins. 2024 was also a big year for Ethereum’s adoption of non-stablecoin RWAs, with the network increasing its on-chain U.S. Treasuries, bonds, and cash equivalents from $800 million to over $1.5 billion, with the total value of non-stablecoin RWAs increasing to $2.9 billion.

Some of the major players building on Ethereum this year include Visa, BlackRock, and Franklin Templeton.

Earlier this month, Visa announced that they are building the Visa Tokenized Asset Platform (VTAP) on Ethereum. This is the company’s biggest step yet towards cryptocurrency adoption. VTAP enables Visa to issue and manage fiat-backed tokens on Ethereum. It is designed to be a sandbox for participating financial institution partners to create and experiment with fiat-backed tokens. They expect to begin piloting the platform with Spanish multinational bank BBVA in 2025. While the VTAP initiative is undoubtedly an experiment, it validates TradFi’s thesis that it will migrate its operations to Ethereum in the coming decades.

Earlier this year, BlackRock and Franklin Templeton both launched nine-figure on-chain funds. BlackRock’s fund, called BUIDL (BlackRock USD Institutional Digital Liquidity Fund), is the larger of the two, currently at $522 million.

BlackRock has also taken a lead in the crypto ETF space with the launch of the IBIT Bitcoin and ETHA Ethereum ETFs. While these funds do not give investors the opportunity to custody anything on-chain, they do offer a more traditionally appealing way to gain exposure to the crypto economy. While BlackRock's head of digital assets, Robbie Mitchnick, made it clear at Bankless that there are no immediate plans to create ETFs for any other crypto assets following IBIT and ETHA, the company has shown interest in integrating elsewhere in the Web3 ecosystem.

Who else is vying for institutional attention?

As the landscape expands, Ethereum’s competitors are vying for institutional attention. Both Solana and Stellar are making great strides, especially in the RWA space.

Stellar’s ​​focus on collaboration with large financial institutions such as IBM has put it in second place in terms of RWA value, with tokenized RWA valued at $421 million.

Solana, often praised for its speed and throughput, is also becoming a major player in the institutional adoption race. Franklin Templeton announced at Solana’s Breakpoint conference that they are bringing compatibility to Solana with its $445 million on-chain fund FOBXX. Still, as things stand, Solana’s RWA value is still relatively low at just $120 million.

EVM-compatible networks such as Arbitrum, Polygon, Avalanche, and Mantle also play a key role. With a combined RWA value of over $190 million, these networks offer institutions a familiar smart contract architecture with the added benefit of layer 2 scalability. Nonetheless, Ethereum mainnet’s $2.9 billion in RWA value (excluding stablecoins) dwarfs these smaller networks, solidifying its dominance in the space.

However, the success of Ethereum’s competitors highlights a key point: institutions are no longer limited to a single network. While Ethereum is foundational, blockchains like Solana and Stellar offer alternatives that are increasingly difficult to ignore. However, they also raise new interoperability issues.

Interoperability is core to the future of institutional blockchain adoption. As Visa states in the VTAP press release, the biggest benefits of building on-chain include ease of integration, programmability, and interoperability. Institutions that venture into non-EVM chains like Solana or Stellar may face challenges with asset liquidity and protocol compatibility. This may result in reliance on third-party services to bridge assets between chains, which introduces complexity and security risks. Ethereum’s widespread use means that staying within the EVM ecosystem (whether through Ethereum or a layer 2 solution) remains the simplest and safest option for institutions.

Future Outlook

Institutions like BlackRock are well aware of Ethereum’s value proposition. As BlackRock’s head of digital assets noted at Bankless, institutional investors are “students of the market” and “students of technology.” They rely on proven technology, and Ethereum’s proven track record makes it a logical choice for most blockchain projects. BlackRock’s partnerships with Coinbase and Circle further highlight how deeply entrenched Ethereum is in institutional finance.

However, for Ethereum to stay ahead in the race for institutional adoption, it must continue to balance world-class security and stability with the performance and scalability that competing chains are pushing. The race to capture the attention of institutional finance will be won by networks that not only meet today’s needs, but also anticipate future needs. Ethereum is currently well-positioned, but staying ahead will require continued evolution.