jakiro
Author: Martin Burgherr, Source: Coindesk, Compiled by: Shaw Bitchain Vision
summary
-
When dealing with large transactions, institutions prefer Ethereum, which despite its high expenses, is highly favored for its security.
-
Ethereum’s infrastructure is favored by major banks because it integrates seamlessly with existing systems and is reassuring in terms of regulation.
-
Ethereum’s high transaction fees are seen as a feature that ensures the reliability and security of transactions among institutional investors.
Ethereum has over 100 Layer-2 blockchains, and you may think it is too expensive and slow.But ask any institution that is preparing to settle $500 million interest rate swaps, where will they choose to build it, and the answer is definitely Ethereum.This reason reveals the possible development direction of institutional-level DeFi.
The key indicators adopted by institutional users are completely different from those used by retail users.Retail users will switch to cheaper chains due to Ethereum’s high transaction fees, but institutions will willingly pay this fee in exchange for security when transferring hundreds of millions of funds.People are willing to pay a premium for a secure infrastructure that is not the problem.Ethereum’s so-called “weakness” is actually its moat to attract institutional users.
The story of two markets
Judging from the data, the difference in perspective between retail investors and institutional investors makes sense.If you buy a Meme for $50, you certainly don’t want to pay a $10 transaction fee.But when it comes to settle a $500 million interest rate swap, spending $10 to secure transactions in exchange for peace of mind is insignificant.
Just look at the traditional financial field and you will find that this view is not new, and the security premium of Ethereum transactions is actually the product.The cost of the institution’s transaction on the New York Stock Exchange (NYSE) is higher than that of the Pink Sheets (OTC market), and despite the high cost of SWIFT, the institution continues to trade through it, for all reasons.It’s all about legitimacy and a reliable record of transactions in a safe and compliant way.The same goes for blockchain.
For institutions, hundreds of millions of funds are trapped in an inoperable network, which is simply a nightmare.Many institutions value the security of proven chains like Ethereum, rather than those that focus on speed.If you learn something from this article, it is that traditional finance always pays for the reliability of infrastructure.
Be prepared for regulation
What investors need most is a strong underlying blockchain that has been tested by the market, which can be widely accepted among financial institutions and serve as a neutral settlement layer.Ethereum has gained extensive institutional participation as the network is properly integrated with existing infrastructure.This is exactly what it was built.
A strong proof is that many large banks are building their businesses on Ethereum, and they feel assured of Ethereum’s decentralization, and also benefit from the developer talent that has gathered and will continue to gather in the Ethereum ecosystem.This may form a self-reinforcement cycle adopted by the institution.
A feature, not a flaw
We need to stop viewing Ethereum’s high fees as a flaw – a feature of a natural market segment.Some chains are intended to be optimized for low-cost, fast, and small transactions.Institutions need it and will also pay fees for large transactions to obtain protection equivalent to digital vaults and ensure sufficient liquidity.
Institutions no longer focus on metrics such as the number of daily active users or the number of translations, but have taken a more fundamental approach.They focus on where regulated entities build their infrastructure and focus on the important area of institutional settlement.
So, next time someone claims Ethereum is dead, ask where they would rather handle $500 million in transactions?The answer will reveal why reports on the demise of Ethereum have been severely exaggerated — and why institutions that bet on “bland” Ethereum infrastructure will gain real value in the institutionalized future of DeFi.
