Ethereum’s landscape is shifting. For the first time, the cumulative value of ERC20 tokens issued on the network has overtaken the market capitalization of ETH itself. This development raises new questions about whether Ethereum’s mainnet can fully capture the economic value of its ecosystem.
ERC20 Tokens Now Hold Majority Share of Ethereum’s Value
Ethereum currently secures over $500 billion in value, according to ultrasound.money. However, more than half of this—51%—is now allocated to ERC20 tokens. ETH’s market capitalization, by contrast, sits at 46%, with NFTs making up the remaining 2.5%.
The combined market cap of ERC20 tokens on Ethereum has reached approximately $261 billion, while ETH lags slightly behind at $237 billion. The trend highlights the growing dominance of tokenized assets on Ethereum’s blockchain, many of which serve as the backbone of DeFi and other blockchain applications.
The Big Three: USDT, BNB, and USDC Dominate ERC20 Space
A handful of tokens play an outsized role in this shift. Three ERC20 tokens alone—USDT, BNB, and USDC—account for more than half of the total ERC20 valuation:
- USDT (Tether): $143 billion
- BNB (Binance Coin): $83 billion
- USDC (USD Coin): $58 billion
Together, these tokens make up $284 billion, or roughly 55% of the total ERC20 market capitalization. Other significant players include Lido’s staked ETH (stETH) and Chainlink’s LINK.
The sheer dominance of these stablecoins and exchange tokens underlines a growing trend: Ethereum is no longer just about ETH. The network has evolved into a platform for financial instruments that are arguably more relevant to everyday blockchain users than ETH itself.
Ethereum’s Value Capture Problem
This shift raises an important question: Is Ethereum successfully capturing the value created by its applications?
The issue becomes even more relevant when considering the rise of Layer 2 solutions. Ethereum Layer 2 networks, such as Arbitrum and Optimism, have collectively secured over $37 billion in assets. While these assets depend on Ethereum for security, they technically exist outside of the Ethereum mainnet, further complicating Ethereum’s ability to capture value.
Revisiting the Fat Protocol Thesis
The evolving market dynamics bring back the discussion around the “fat protocol thesis.” Proposed in 2016 by Joel Monegro of Placeholder VC, the thesis suggests that in decentralized finance (DeFi), the base-layer blockchain should accrue more value than the applications built on top of it.
However, Ethereum’s underperformance compared to its own ecosystem suggests that this assumption may have been overly optimistic. Investors appear skeptical about ETH’s ability to absorb the economic value of its applications, as evidenced by ETH’s price struggles relative to Bitcoin (BTC) and other assets.
ETH’s Market Struggles and the Rise of Solana
Ethereum’s underperformance is also visible in its price action against Bitcoin. The ETH/BTC ratio, a key metric for gauging Ethereum’s strength against Bitcoin, has dropped to its lowest point since 2020. The ratio peaked at 0.15 in 2017 but has since fallen by 85%, now trading at 0.023.
Meanwhile, ETH exchange-traded funds (ETFs) have seen just $2.6 billion in inflows since their launch in May 2024. This pales in comparison to BTC ETFs, which have attracted $35 billion since January 2024.
At the same time, Solana (SOL) has emerged as a formidable competitor. Solana has gained traction as the go-to blockchain for high-risk, high-reward speculative activity. Over the last 18 months, SOL’s price has surged 590%, dwarfing ETH’s modest 18% gain.
Ethereum Still Dominates DeFi and Real-World Assets
Despite these challenges, Ethereum continues to lead in decentralized finance. The total value locked (TVL) in Ethereum’s DeFi ecosystem stands at $65 billion, compared to just $8.5 billion on Solana—a difference of over 650%.
Moreover, institutional interest in Ethereum remains strong, particularly in the real-world asset (RWA) sector. The total market capitalization of tokenized RWAs is approaching $20 billion, with Ethereum accounting for $4.3 billion, or 24%, of that total, according to RWA.xyz.
While retail investors may be shifting their focus to other chains, Ethereum’s role as the backbone of institutional DeFi remains solid.
