As Ethereum rockets into the TradFi limelight, with rising inflows into ETFs and DATs, experts consider the question: is that a good thing for DeFi’s largest chain?
Ethereum’s biggest threat might actually be what most see as its next milestone — institutional adoption. At least that’s what pcaversaccio, a pseudonymous analyst at blockchain security firm Seal 911, suggested recently on X, warning that traditional finance could tame the network’s open, cypherpunk spirit.
In a late September post, pcaversaccio argued that as bigger finance players enter the ecosystem, the more “influence they wanna have on future hard fork decisions,” treating compliance as a feature rather than a constraint.
“Look, you can go all mainstream, but we should actually celebrate it when Ethereum isn’t chosen by tradfi clowns. That means we’re doing something right. I won’t let Ethereum be tamed, neutered, or turned into just another corporate playground. Never,” pcaversaccio wrote.
Institutional Capital: The Rise of DATs, ETPs
The post landed just months after Ethereum began its strong recovery from being the network some people wrote off to the center of a fresh wave of hype. The ecosystem’s comeback was in part sparked by the Pectra upgrade’s new features like account abstraction and sponsored transactions, as well as new Ethereum Foundation leadership and roadmaps, and a corresponding surge in ETH prices that brought capital and attention back into staking and Layer 2s.
U.S. spot Ethereum exchange-traded products (ETPs) also notably picked up momentum this summer, a year after their debut. Total net assets across ETH ETFs doubled since January to reach $26.5 billion, showing growing interest among institutional investors, per data from SoSoValue.
In July, ETH ETFs saw their biggest month since launch, with over $5.4 billion in net inflows. In August, the products set a daily record, with over $1 billion in net inflows on Aug. 11.
Surging demand from crypto treasury companies, also known as digital asset treasuries (DATs), further added to the hype.
Tom Lee-backed BitMine Immersion now holds over 3 million ETH in its treasury, while ETH DAT chaired by Joseph Lubin, SharpLink, has the second-largest stockpile, with more than 840,000 ETH. Total ETH held on corporate balance sheets is more than 5.9 million, per Strategic ETH Reserve data.
ETH Staking
Meanwhile, staking on the Ethereum network also keeps breaking new record highs, with over 35.7 million ETH, worth more than $138 billion at current prices, locked in staking contracts. In addition, the emergence of liquid staking, institutional-grade custody offerings, and structured yield products make it easy for companies to earn rewards on idle ETH.
As the hype builds, not everyone sees institutional adoption as a threat. Cyprien Grau, lead at zkEVM rollup Status Network, told The Defiant that institutional adoption of Ethereum is “a net positive,” because it carries Ethereum’s values “out of the crypto-native bubble and into the real economy.”
As Grau explained, what institutions actually want “lines up with Ethereum’s endgame: faster settlement, lower fees, scale, decentralization, credible neutrality, and eventually privacy.” Grau added:
“They do not want to settle on each other’s private ledgers. They want a credibly neutral ground where everyone can transact under the same rules. Trying to steer core protocol governance would put those properties at risk, so the dominant strategy is cooperation, not capture.”
Layer 2s as Middle Ground
According to Grau, if institutions want more control and customization, they will build on L2s, which is why TradFi pilots are appearing there. As the Status Network lead pointed out, L2s inherit Ethereum’s security and liquidity, retain Ethereum Virtual Machine (EVM) composability and tooling, and allow firms to design their own execution and policy rules.
For example, in late 2024, Deutsche Bank began testing a Layer 2 blockchain called “Project Dama 2” based on ZKsync to help tokenize real-world assets while addressing regulatory and compliance concerns, The Defiant reported at the time.
‘No Real Threat’
Jerome de Tychey, president of Ethereum France and CEO of Ethereum infrastructure project Cometh, told The Defiant that Ethereum is “clearly the biggest economic playground of our lives but we shouldn’t be worried that institutions are joining the fun.”
Even when TradFi isn’t choosing Ethereum directly, “they are for the vast majority picking an EVM and delaying the inevitable: their Alt-L1s will become L2s. They will do so while valuing the radical neutrality and censorship resistance of the network,” he said. The Ethereum France President added:
“In my opinion, the arguments on potential legal exposure for validators forced to include sanctioned transactions are exaggerated. There are many other venues to enforce OFAC or general AML compliance. Ethereum has been consistent on the ‘neutral transport’ narrative. Validators act as they would act with TCP/IP: they forward whatever valid payload the protocol admits.”
Alon Muroch, CEO and co-founder of SSV Labs and core contributor to decentralized staking protocol SSV Network, says fears that institutions could threaten Ethereum “are mostly unfounded.” Muroch explained in commentary to The Defiant that “even the largest consortium would be unable to do something about Ethereum’s future,” adding that institutions “are no real threat to Ethereum or its mission of decentralisation.”
“Big-name L2s, like Robinhood’s, will still be built and settled on Ethereum, and the amount of activity these names will bring to the ecosystem is ultimately a good thing,” Muroch said. The SSV Labs co-founder added that though there are still “valid concerns” that institutions staking their large ETH holdings could lead to increased validator centralization, “there are ample industry-ready solutions for this, like Distributed Validator Technology.”
Earlier this year, Robinhood unveiled tokenized stocks on Arbitrum, a Layer 2 network built on Ethereum, for its customers in the European Union. Eventually, the fintech brokerage giant plans to move the tokenized stocks to Robinhood Chain, its own Arbitrum-based L2, which the firm is planning to launch in 2026.
Source: https://thedefiant.io/news/research-and-opinion/is-tradfi-institutional-adoption-bad-for-ethereum