In the ever-evolving landscape of blockchain technology, newer and faster networks continue to emerge, promising higher throughput and lower costs. Despite these advancements, Ethereum remains the go-to platform for institutional capital, hosting the largest concentration of stablecoins and decentralized finance (DeFi) applications. But why do institutions continue to favor Ethereum over its more performant rivals?
Liquidity and Institutional Trust
Kevin Lepsoe, founder of ETHGas and a former derivatives executive at Morgan Stanley, believes that Ethereum’s dominance is rooted in its deep liquidity and institutional trust. ‘Transactions per second (TPS) is the metric that gets engineers excited, but it’s not what drives capital to the blockchain,’ Lepsoe told Cointelegraph. ‘The capital is on Ethereum; the stablecoins are there. Traditional finance (TradFi) is looking at where the liquidity is.’
The Importance of Liquidity
Institutional capital brings scale and stability to a blockchain’s ecosystem. Large asset managers and tokenized fund issuers move capital in volumes that deepen liquidity and anchor stablecoin supply. This presence is crucial for maintaining a network’s position beyond the volatile retail activity that surges in bull markets and fades in downturns. Ethereum’s DeFi liquidity is the deepest, according to DefiLlama, which keeps it ahead of faster rivals.
Comparing Ethereum to Competitors
While performance has been a key selling point for newer blockchains like Solana, which has marketed itself as an ‘Ethereum killer,’ the hype around these platforms has not translated into sustained institutional adoption. Solana attracted retail traders through the non-fungible token (NFT) boom and memecoin frenzy, but these activities have not been sustained in the long term. Ethereum’s liquidity, on the other hand, offers tighter spreads, lower slippage for large trades, and the capacity to handle institutional-sized transactions without distorting prices.
Ethereum’s Evolving Ecosystem
Ethereum is not standing still. The network has been making significant strides in improving its efficiency and reducing transaction fees. Layer-2 (L2) solutions have helped to ease pressure on the main chain, though they have introduced some fragmentation in liquidity. However, this fragmentation has inadvertently saved Ethereum’s liquidity from migrating to competing layer-1 (L1) blockchains, according to Lepsoe. ‘I think it actually saved the liquidity from going to other L1s, where they eventually probably couldn’t have brought it back,’ he said.
Looking Forward
Ethereum is poised to continue its dominance as it focuses on scaling the main chain. The upcoming Glamsterdam fork, scheduled for 2026, will increase the block gas limit to 200 million from 60 million, paving the way for layer 1 to achieve 10,000 TPS over time. This upgrade, along with ongoing protocol improvements and infrastructure enhancements, will further solidify Ethereum’s position as the network of choice for institutional capital.
For institutional players, performance improvements are welcome, but liquidity remains the defining advantage. In blockchain markets, speed can attract users during booms, but capital tends to stay where the deepest markets already exist. As institutions evaluate blockchain infrastructure for the next generation of financial services, Ethereum’s robust ecosystem and deep liquidity make it an enduring choice.
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