Trend Research: "Blockchain Revolution" in Progress, Continuing to Be Bullish on Ethereum

Since the market crash in October 2021, the entire cryptocurrency market has been lackluster, with market makers and investors suffering heavy losses. Recovery of capital and sentiment will take time. However, what the crypto market lacks the least is new volatility and opportunities, and we remain optimistic about the future. The trend of mainstream crypto assets integrating with traditional finance into a new business model has not changed; rather, it has quickly built a moat during the market downturn.

1. Strengthening Wall Street Consensus

On December 3, U.S. SEC Chairman Paul Atkins stated in an exclusive interview with FOX at the New York Stock Exchange: "In the coming years, the entire U.S. financial market may migrate on-chain."

Atkins stated:

(1) The core advantage of tokenization is that if assets exist on the blockchain, the ownership structure and asset attributes will be highly transparent. Currently, listed companies often do not know who their shareholders are, where they are located, or where their shares are.

(2) Tokenization is also expected to achieve "T+0" settlement, replacing the current "T+1" trading settlement cycle. In principle, the on-chain delivery versus payment (DVP) / receipt versus payment (RVP) mechanism can reduce market risk and enhance transparency, while the time lag between clearing, settlement, and fund delivery is one of the sources of systemic risk.

(3) He believes that tokenization is an inevitable trend in financial services, and mainstream banks and brokerages are already moving towards tokenization. The world may not even take 10 years… perhaps it will become a reality in just a few years. We are actively embracing new technologies to ensure that the U.S. maintains its leading position in areas such as cryptocurrency.

In fact, Wall Street and Washington have already built a deep capital network into crypto, forming a new narrative chain: U.S. political and economic elites → U.S. Treasuries → Stablecoins / Crypto Treasury Companies → Ethereum + RWA + L2

From this diagram, we can see the complex connections between the Trump family, traditional bond market makers, the Treasury, tech companies, and crypto companies, with the green oval connections forming the backbone:

(1) Stable Coin (USDT, USDC, WLD-backed dollar assets, etc.)

The main reserve assets are short-term U.S. Treasuries + bank deposits, held through brokerages like Cantor.

(2) U.S. Treasuries

Issued and managed by Treasury / Bessent

Used by Palantir, Druckenmiller, Tiger Cubs, etc., as low-risk interest rate bases

Also the yield assets pursued by stablecoins / treasury companies.

(3) RWA

From U.S. Treasuries, mortgages, accounts receivable to housing finance

Tokenized through Ethereum L1 / L2 protocols.

(4) ETH & ETH L2 Equity

Ethereum is the main chain that supports RWA, stablecoins, DeFi, and AI-DeFi

L2 equity / tokens represent claims on future trading volume and fee cash flows.

This chain expresses:

Dollar Credit → U.S. Treasuries → Stablecoin Reserves → Various Crypto Treasuries / RWA Protocols → Ultimately settled in ETH / L2.

From the TVL of RWA, compared to other public chains during the October 2021 decline, ETH is the only public chain that quickly recovered from the decline and rose, currently with a TVL of 12.4 billion, accounting for 64.5% of the total crypto market.

2. Ethereum's Exploration of Value Capture

Recently, the Ethereum Fusaka upgrade did not create much of a stir in the market, but from the perspective of network structure and economic model evolution, it is a "milestone event." Fusaka is not just about scaling through EIPs like PeerDAS, but rather attempting to solve the problem of insufficient value capture of the L1 mainnet caused by the development of L2.

Through EIP-7918, ETH introduces a "dynamic floor price" for blob base fees, binding its lower limit to the L1 execution layer base fee, requiring blobs to pay DA fees at a unit price of at least approximately 1/16 of the L1 base fee; this means that Rollups can no longer occupy blob bandwidth at nearly zero cost for an extended period, and the corresponding fees will flow back to ETH holders in the form of burns.

There have been three upgrades related to "burning" in Ethereum:

(1) London (one-dimensional): only burns the execution layer, ETH begins to experience structural burning due to L1 usage.

(2) Dencun (two-dimensional + independent blob market): burns the execution layer + blob, L2 data written to blobs will also burn ETH, but during low demand, the blob portion is nearly zero.

(3) Fusaka (two-dimensional + binding blob to L1): to use L2 (blob), one must pay at least a fixed proportion of the L1 base fee, which will be burned, making L2 activity more stably mapped as ETH burning.

Currently, blob fees reached 569.63 billion times the fees before the Fusaka upgrade at 23:00 on December 11, burning 1,527 ETH in one day, with blob fees contributing the highest proportion of burns, reaching 98%. As ETH L2 becomes more active, this upgrade is expected to bring ETH back to deflation.

3. Strengthening Technical Aspects of Ethereum

During the October 2021 decline, ETH's futures leverage was fully cleared, ultimately leading to a liquidation of leveraged positions in the spot market, while many who lacked faith in ETH caused many ancient OGs to reduce their positions and flee. According to Coinbase data, speculative leverage in the crypto space has dropped to a historically low area of 4%.

In the past, a significant portion of ETH's shorts came from traditional Long BTC/Short ETH pair trading, especially as this pair generally performed very well during past bear markets, but this time there was an unexpected outcome. The ETH/BTC ratio has maintained a sideways resistance since November.

ETH now has an exchange inventory of 13 million, about 10% of the total supply, at a historical low. As the Long BTC / Short ETH pair has become ineffective since November, in a state of extreme panic, there may gradually be "short squeeze" opportunities.

As we approach 2025-2026, both the U.S. and China have released friendly signals regarding future monetary and fiscal policies:

The U.S. will actively reduce taxes, lower interest rates, and relax crypto regulations, while China will implement moderate easing and maintain financial stability (suppressing volatility).

In the context of relatively loose expectations from both the U.S. and China, suppressing asset downward volatility, and in a state of extreme panic where capital and sentiment have not fully recovered, ETH remains in a favorable buying "strike zone."