The recent news of progress in the application process for spot Ether exchange-traded funds (ETFs) has taken everyone by surprise, as most investors had anticipated the Securities and Exchange Commission (SEC) to reject the applications. However, Bloomberg’s ETF analysts have now increased the odds of approval from 25% to 75%, leading to a significant price surge of Ethereum (ETH). This rally is not only unexpected but also highlights the importance of the spot ETH ETF approval for decentralized finance (DeFi).
The approval of an ETH ETF would have a greater impact on DeFi than the approval of spot Bitcoin ETFs. While Bitcoin ETFs established Bitcoin as an institutional asset, an ETH ETF would legitimize altcoins and drive them further in the bull market rally. The implications of this approval are significant, and here’s what I believe will happen now that the SEC has given the green light to the ETH ETF applications.
Firstly, Ethereum layer-2 solutions like Optimism and Arbitrum will undoubtedly benefit alongside Ethereum itself. These tokens have already experienced price increases similar to ETH during the recent market bounce. Rollups have become an essential part of the Ethereum ecosystem, and their success is closely tied to the success of Ethereum.
Decentralized finance projects like Uniswap and Aave, which are directly connected to Ethereum Virtual Machine (EVM) technology, will also thrive due to their association with Ethereum. These projects have already performed well in the market surge and will continue to benefit from an ETF approval, as it legitimizes their operations on the blockchain.
Additionally, EVM-compatible projects and blockchains will outperform closed ecosystems. This gives an advantage to platforms like Avalanche and Polygon over Algorand, which is not yet EVM-compatible. With the approval of a spot ETH ETF, EVM compatibility becomes even more crucial, as it provides Ethereum with regulatory clarity and generates hype around the second-largest blockchain in the world.
Moreover, decentralized exchanges and lending protocols will see significant growth in mainstream adoption with the approval of an ETH ETF. Investing in DeFi will become simpler and more secure, attracting everyday users in search of high returns. Projects that offer functional utility, such as SushiSwap, Balancer, Aave, and Compound, will benefit the most from this influx of users.
On the other hand, Ethereum competitors like Solana may struggle to outperform in a post-ETH ETF environment. While these competitors may still reach all-time highs, Ethereum will become the leading blockchain in DeFi, leaving the so-called “Ethereum killers” behind.
Furthermore, the approval of an ETF opens up opportunities for new technological developments on Ethereum, such as zero-knowledge proofs and real-world asset (RWA) tokenization experiments. More projects are likely to build on Ethereum, and some may even transition from layer-1 blockchains to Ethereum rollups. This expansion could lead to the launch of numerous altcoins, resulting in growth in DeFi total value locked (TVL). However, this increased opportunity also comes with higher risks, including fraud and rug pulls. Investors must prioritize security and conduct thorough research before investing in any project.
Lastly, it’s important to note that short-term volatility is expected in the market following the ETF approval. The “buy the rumor, sell the news” strategy applies to the crypto market as well. Although there was a surge in ETH price due to the rumors of approval, a sell-off is likely to occur in the coming days or weeks. Prudent investors should avoid making impulsive decisions based on FOMO (fear of missing out) and wait for a pullback before making their next moves.
In conclusion, the approval of spot Ether ETFs has significant implications for Ethereum and the broader DeFi ecosystem. It will benefit layer-2 solutions, EVM-compatible projects, decentralized exchanges, and lending protocols. Ethereum competitors may struggle to keep up, and new technological developments and token launches are expected on the Ethereum blockchain. However, investors must exercise caution and conduct thorough research to navigate the risks associated with the growing DeFi space.