Ethereum ERC20 Tokens Are Now More Valuable than ETH

The cumulative value of ERC20 tokens on Ethereum has flipped the ETH market capitalization.

The Ethereum network secures just over $500 billion of value, with 51% allocated to ERC20 tokens, 46% to ETH, 2.5% to NFTs, according to ultrasound.money. ERC20 tokens issued on Ethereum are worth a cumulative market cap of almost $261 billion, compared with ETH’s market cap of $237 billion.

The top three ERC20’s command a lion’s share of the valuation. USDT accounts for $143 billion, BNB accounts for $83 billion, and USDC for $58 billion. Together these three tokens make up $284 billion, or 55% of the total ERC20 valuation on Ethereum. Others include Lido’s staked ETH (stETH) and LINK.

The gap between the total ERC20 market capitalization and ETH’s brings into question whether Ethereum mainnet is able to capture the value of its applications.

The concept becomes more pressing when considering the ever-growing list of Ethereum Layer 2s, which have secured over $37 billion of capital that doesn’t technically exist on Ethereum, but is reliant on its security.

Fat Protocol Thesis

The dilemma marks a return to the fat protocol thesis, which was proposed by Joel Monegro, a partner at Placeholder VC in 2016. It suggests that in DeFi, the protocol layer accrues value of the applications built on top of it, whereas in traditional tech the applications accrue value despite the heavy lifting done by the protocols that support the apps.

ETH underperformance shows investors are speculating the extent to which ETH can capture the economic value of its applications may have been overstated.

ETH price compared to BTC, or the ETH/BTC ratio, is now trading at its lowest point since 2020. The ratio peaked at 0.15 in 2017, and is currently down 85% from that high, trading at 0.023.

Rise of Solana

The ETH ETFs have commanded just $2.6 billion of inflows since their launch in May 2024, compared to the BTC ETFs $35 billion since Jan. 2024.

The sentiment could be partially attributed to Solana’s rise as the degen’s chain, which has not only led to activity growth on Solana, but has also bolstered the price of SOL. SOL is up 590% over the last 18 months, compared to ETH’s 18%.

Despite the stark difference in native token price and sentiment, Ethereum’s $65 billion DeFi ecosystem surpasses Solana’s $8.5 billion total value locked in DeFi by more than 650%.

While there is far less retail interest and degen games being played on Ethereum compared to past cycles, institutional capital is still piling onto the chain to gain access to the real-world asset (RWA) scene.

The RWA total market capitalization is nearing $20 billion, with $4.3 billion, or 24% of the entire RWA market being held on Ethereum according to RWA.xyz.