CoinShares cryptocurrency researcher Matthew Kimmell recently published a report exploring the potential of Ethereum and how its innovative use cases are redefining its value in the market.
Ethereum, currently the second-largest cryptocurrency by market capitalization, has evolved significantly since its inception, from a blockchain platform for simple asset transfers to a robust ecosystem hosting thousands of decentralized applications (DApps) and complex financial services.
In the report, titled An Anatomy of Ethereum UsageKimmell acknowledged that investors have been getting excited about the evolution of Ethereum and its potential to host innovative solutions for the future. However, he stressed that as investors become more interested in Ethereum, the question of how its adoption can translate into investment potential becomes increasingly relevant.
To answer this, Kimmell examined the use cases that could boost Ethereum's supply and demand, making the cryptocurrency a more attractive asset for investors.
Innovative use cases in the Ethereum ecosystem
According to report According to CoinShares, the main driver of ETH's value in the market is neither staking performance, nor monetary adoption, nor financial collateral, but the demand for transactions on the blockchain network. By this, the firm means that the value of the cryptocurrency is related to the utility that the blockchain offers to its users and to the fact that users are willing to spend for the services provided on its platform.
In a previous report, published in October last year, CoinShares noted that Ethereum's ability to offer sustainable utility to users of its base layer could push the price of its ETH cryptocurrency up to around $8.200 per unit.
Among these utilities that could boost the price of cryptocurrency in the future, Kimmell highlighted the following:
1. App Interactions: Mastering the Markets
Since its inception, Ethereum has been a place of experimentation for developers, and one of the most prominent use cases has been digital asset markets.
Decentralized exchanges (DEXs) such as Uniswap have dominated the ecosystem, capturing over 15% of transaction fees in the first half of 2024. The ability for users to seamlessly and accessibly exchange assets through these types of services has created an environment ripe for speculation and trading. According to Kimmell, This focus on markets has not only generated high demand for transactions on Ethereum, but has also established a sustainable business model. which can attract investors interested in growing trading volume.
2. Token transfers: Ether and stablecoins
The second fundamental use case for the Ethereum network is token transfers, which include both Ether (ETH), the blockchain’s native cryptocurrency, and stablecoins. These digital assets continue to be central to activity on the Ethereum network.
Kimmell stressed that as the Ethereum ecosystem has expanded, stablecoins like Tether (USDT) and USD Coin (USDC) have become essential tools for users, facilitating trading and transferring value in a more stable manner. At certain periods, fees paid for stablecoin transfers have rivaled or even surpassed those for ETH.According to Kimmell, this trend highlights the importance and dominance that stablecoins have gained in the digital ecosystem and their potential to attract new users and investors seeking greater stability in the market.
3. Layer2 Infrastructure and Technologies
The evolution of Ethereum's infrastructure is something that has been remarkable over time, especially with the introduction of Layer2 technologies and the development of the Maximal Extractable Value (MEV) concept.
L2 solutions, which allow transactions to be executed off-chain before being settled on it, have significantly reduced transaction costs, making it have encouraged the use and adoption of the blockchain networkAccording to the expert, as the Ethereum community looks to scale and improve efficiency, infrastructure innovations could attract more users and, therefore, increase the demand for ETH. From an investor perspective, this is not only a benefit, but would also help solidify Ethereum as a pillar in the cryptocurrency space.
4. The evolution of NFT tokens
Despite the decline in popularity of non-fungible tokens (NFTs) following the boom these digital assets experienced in 2021, their impact on Ethereum should not be underestimated, Kimmell said.
NFTs have proven to be a use case that can appeal to a diverse user base, from collectors to artists and brands. Although transaction fees associated with NFTs have decreased today, creating a sustainable market for these digital assets is still possible. Ethereum’s ability to facilitate the creation and trading of NFTs could reinvigorate interest and demand, making the platform an attractive place for investment.
The role of utility in the future value of Ethereum
Finally, the CoinShares report stressed that the key to Ethereum’s success as the ecosystem continues to evolve lies in the community’s ability to foster use cases that are not only innovative but also generate sustainable demand for the blockchain.
The growing diversity of applications and adoption of infrastructure solutions are positive signs. However, it is critical that the community focuses on creating long-term utility that resonates with users and investors alike, the firm noted.
“Since the value of ETH depends on the demand for Ethereum services, it is of utmost importance to investors that the platform serves long-lasting use cases, which should ideally become even more valuable over time.”, Kimmell said in the report.
To date, Ethereum has come a long way, becoming a growing ecosystem that spans from decentralized markets to infrastructure innovations. Now, according to the report, its community must continue to push for the creation of use cases that encourage adoption and maintain ETH's relevance in the cryptocurrency market, in order to increase its attractiveness as an investment asset and attract a greater number of investors to its decentralized ecosystem.
