At the forefront of the burgeoning sector of decentralized finance (DeFi), Ethereum (ETH 1.55%) stands as the undisputed leader. With its robust smart contract capabilities and first-mover advantage, developers have harnessed its potential to create innovative decentralized applications, ranging from lending ecosystems to stablecoins and non-fungible tokens (NFTs).
While various blockchain networks offer DeFi and smart contract functionality, Ethereum's pioneering position has firmly established it as the preferred choice not only for developers, but also for more traditional companies exploring new blockchain-based business models. The convergence of DeFi and traditional finance is in its beginning stages, but a handful of recent announcements prove that Ethereum is firmly leading the charge and might be worthy of a spot in investors' portfolios.
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Coinbase joins in
On Aug. 9, Coinbase Global unveiled Base, its Layer-2 blockchain built on top of Ethereum. The technicalities of Layer-2 solutions shouldn't be overlooked, but the key matter investors should focus on is Coinbase's decision to build it in conjunction with Ethereum rather than another blockchain.
By using Base, developers can harness the power of Ethereum's proven security and decentralization while also benefiting from the speed and low costs of Base, the most notable feature of Layer-2 solutions. In just the first week of operations, Base attracted the likes of companies such as Coca-Cola.
The strategic architecture of Base aims to streamline the construction and integration of on-chain solutions into new business models, fostering a seamless transition for individuals and companies seeking to capture blockchain technology's potential.
PayPal hops on board
Another high-profile company also made the decision to launch its own Ethereum-based solution: PayPal. A global powerhouse in online payments, PayPal said on Aug. 7 it would launch its own stablecoin on the Ethereum blockchain, aptly named PayPal USD.
Pegged to the value of the U.S. dollar, this stablecoin is poised to revolutionize the digital payments landscape. From the announcement, PayPal stated that its stablecoin "is designed to reduce friction for in-experience payments in virtual environments, facilitate fast transfers of value to support friends and family, send remittances or conduct international payments, enable direct flows to developers and creators, and foster the continued expansion into digital assets by the largest brands in the world."
PayPal has plans to eventually integrate the stablecoin into its online marketplace eBay and mobile payment solution Venmo.
Banks explore tokenization
Likely the most intriguing development in the Ethereum landscape is the blending of traditional banking and the exploration of tokenization, a process that converts real-world assets, such as bonds or equities, into digital tokens on a blockchain.
Recognition of the benefits that come with tokenization, namely enabling fractional ownership, efficient international trading, and enhanced transparency, is only in its infancy but some of the most prominent institutions in the world are already exploring its potential.
In November 2022, JPMorgan Chase achieved a groundbreaking milestone by successfully tokenizing Japanese bonds and yen, orchestrating a seamless conversion to Singaporean bonds and dollars on Ethereum's network.
More recently, in June 2023 the Bank of China tokenized $28 million worth of securities, the first transaction of its kind by a Chinese financial institution and further validating Ethereum's adaptability to modernize financial systems.
Adding to the trend, the National Bank of Australia (NAB) unveiled its own stablecoin in March, a significant step toward facilitating cross-border payments. Drew Bradford, NAB executive general manager, summed up the desire for blockchain solutions best when stating, "We believe that elements of the future of finance will be blockchain enabled, and we're already witnessing rapid change in the tokenization market."
Ethereum poised to thrive
In the unfolding landscape of businesses embracing blockchain solutions, Ethereum stands poised to thrive. As this trend gains traction, Ethereum's robust ecosystem, abundant liquidity, vibrant developer community, and established role position it for sustained growth.
This bodes well for Ethereum's long-term prospects because the expansion of use cases and network participants is one of the primary ways in which a cryptocurrency derives its value. As companies delve deeper and explore the advantages of blockchain technology, Ethereum will likely emerge as a beneficiary.
With its current price well below its all-time high, investors might find today an advantageous entry point to capture the coming waves of innovation. As more use cases find their home on Ethereum, the original smart contract blockchain could be a leader of portfolios for years to come.
