Ryan Sean Adams, founder at Mythos Capital, made a case for a trillion dollar Ethereum market cap. And it’s all about decentralized finance (DeFi).
DeFi refers to decentralized applications or platforms that allow investors to engage in traditional financial services by using Ethereum as collateral.
Users can receive loans, trade derivatives, make payments, and more in a peer-to-peer manner without centralized entities.
The trillion dollar case for ETH
— Ryan Sean Adams – rsa.eth ? (@RyanSAdams) January 16, 2020
Why DeFi is the key to a potential trillion dollar valuation for Ethereum
The case for a trillion dollar valuation for Ethereum assumes quite extreme cases of mainstream adoption.
For instance, Adams noted that if half of Argentina’s monetary (M1) supply transitions to Ethereum, it can create a circulating supply of 13.58 DAI.
DAI is a stablecoin that represents the USD in the MakerDAO ecosystem. On MakerDAO, users can utilize Ethereum to issue loans or process payments.
“While 13.58B in circulating Dai seems like a moonshot today, it’s actually just a tiny slice of a potential future for a global, permissionless financial system when you consider traditional capital markets aggregate hundreds of trillions in value.”
Ethereum somehow capturing the majority of the monetary supply of a major country is not happening anytime soon.
What Adams is noting, however, is that for Ethereum to gain a trillion dollar market cap, that sort of mainstream adoption is necessary.
Another example is ETH accounting for 0.1 percent of global derivatives. That would result in additional $640 billion in value in the decentralized ecosystem of the blockchain network.
“With that, let’s start off by assuming 0.1% of global derivatives is absorbed by Ethereum’s permissionless finance in the future, or $640B in notional contract value,” explained Adams.
The optimistic long-term outlook on Ethereum is that over time, with smart contracts and DeFi, it would gradually start to account for a small fraction of the M1 supply of a nation, the global derivatives market, and many others.
In the long run, growing usage of DeFi would bring stability into major DeFi-related operations, increasing chances of success.
There is still a key roadblock
It is not possible to reach the level of adoption mentioned in the examples above, right now.
For Ethereum to handle 51 percent of Argentina’s M1 supply alone, the price of ETH would have to rise to $2,500 in the minimum.
“Therefore, in order to provide a sustainable amount of economic bandwidth to become the primary MoE in Argentina, the price of ETH would need to reach anywhere between $2,500 (12.50% of liquid ETH supply locked) to $10,000 (3.13%),” noted Adams.
Whether the price of Ethereum would increase in tandem with the level of usage and adoption remains unclear.
But, when a single DeFi platform or application begins to account for a large portion of the so-called “economic bandwidth” of Ethereum, which simply means the amount of ETH circulating in the market, it can hinder balance in the market.