What is behind the renaissance of Ethereum?

Ethereum has risen by nearly 45% over the past two weeks thanks to a combination of regulatory clarity, growing institutional demand, and favorable supply dynamics, according to analysts at Bernstein.

The GENIUS Act, signed by the President of the United States, recognized stablecoins as a legal digital means of payment. This change has once again drawn attention to Ethereum, the main blockchain supporting transactions with stablecoins.

More than 60% of the total USDC supply is placed on Ethereum. The platform also contains about 33% of the $25 billion market for tokenization of real assets, primarily concentrated in tokenized money market funds. The largest of these, the BUIDL fund from BlackRock with a volume of $2.8 billion, is built on Ethereum.

The role of Ethereum as an investment asset is supported by staking yield, which currently stands at around 2.9% in terms of ETH.

All transactions with stablecoins and tokenized assets require gas fees paid in ETH. These transaction fees form the basis of validator rewards and staking yields.

As network activity increases, so do the expectations of returns, driving an increase in staking. The share of ETH in staking has risen to nearly 30% compared to 24% in January 2024.

The ETF on ETH is also seeing an increase in inflows. Since the beginning of the year, the inflow into the ETF on ETH has amounted to $4.8 billion compared to $19 billion for the Bitcoin ETF.

However, the momentum is changing. Just in the past week, ETFs on ETH attracted $2.2 billion, almost matching the $2.4 billion of Bitcoin.

On one trading day, inflows into the ETH ETF surpassed inflows into Bitcoin for the first time, amounting to $602 million compared to $523 million.

BlackRock recently filed an application to modify its ETHA ETF to include staking yields, potentially offering around 3% if approved.

Institutional accumulation has gone beyond ETFs. Companies forming treasury reserves of Ethereum based on the model popularized by MicroStrategy for Bitcoin purchased approximately 430,000 ETH just in July, which accounts for about 0.6% of the total ETH supply.

These companies intend to place their ETH reserves in staking contracts and decentralized finance applications for yield generation.

The supply of Ethereum has remained stable since the implementation of EIP-1559 in 2021, which introduced a mechanism for burning a portion of transaction fees.

The supply of ETH has grown at a compound annual rate of just 0.8% over the last four years, creating deflationary pressure that supports price growth alongside increasing demand.

Institutional interest, the expansion of ETF products, and a stable economic model based on transaction yield continue to strengthen the role of Ethereum in the evolving landscape of digital assets.