The "CLARITY Act" is out: Why can Ethereum become the biggest winner?

Author: Adriano Feria

Compiled by: Jiahua, ChainCatcher

On May 12, the Senate Banking Committee released the full text of the 309-page revised "Digital Asset Market Clarity Act."

Most reports will focus on which tokens failed the new decentralization test, which issuers will face new disclosure burdens, and which projects need to be restructured during the four-year transitional certification window. These reports are not wrong, but they are not comprehensive.

The more important story is the impact of this bill on the only asset that has passed every single test and happens to be the only asset with a programmable smart contract platform.

Once this framework becomes law, Ethereum will occupy a regulatory category in the U.S. legal system that has only one member: itself. The two dominant bearish logics regarding ETH that have prevailed in the market for the past five years will simultaneously collapse, and the market has yet to price this in.

Two Bills, One Framework

Before discussing the substantive content, it is necessary to briefly review the broader regulatory framework, as public discussions often conflate two different pieces of legislation.

The "GENIUS Act" (Guidance and Establishment of a National Innovation Act for Stablecoins) was signed into law by the President on July 18, 2025.

It establishes the first federal regulatory framework for payment stablecoins: requiring a 1:1 reserve in liquid assets, monthly disclosure of reserve status, issuers must obtain federal or state licenses, algorithmic stablecoins are prohibited, and a key restriction is that stablecoin issuers cannot directly pay interest or returns to holders.

The GENIUS Act covers USDC, USDT, and bank-issued stablecoins. It does not include anything else.

The "CLARITY Act," on the other hand, covers everything else. It addresses the jurisdictional division between the SEC and CFTC, the decentralization test for non-stablecoin tokens, exchange registration, DeFi rules, custody rules, and the ancillary asset framework.

These two bills are complementary parts of a broader regulatory framework.

Most financial media coverage of the CLARITY Act has focused on the yield issues for stablecoins, as Chapter 4 regarding "retaining rewards for stablecoin holders" was a political focal point that nearly strangled the bill.

Banks pushed for a ban on obtaining indirect yields through exchanges and DeFi protocols, as yield-generating stablecoins would compete with bank deposits. Crypto exchanges strongly advocated for retaining this provision. The bipartisan compromise reached on May 1, 2026, cleared the bill's obstacles, but after several delays in review, the bill remains in a precarious state.

This debate is certainly important, but it is just one part of this nine-chapter bill. For anyone who actually holds and trades non-stablecoin tokens, the more far-reaching terms are hidden in Section 104, and almost no one discusses its second-order effects on asset valuation.

Five Tests

Section 104(b)(2) of the bill instructs the SEC to weigh five criteria when determining whether a network and its tokens are under coordinated control:

Open Digital System. Is the protocol publicly available open-source code?

Permissionless and Maintains Credible Neutrality. Is there any coordinating group that can review users or grant itself hard-coded preferential access?

Distributed Digital Network. Does any coordinating group beneficially own 49% or more of the circulating tokens or voting rights?

Autonomous Distributed Ledger System. Has the network reached a state of autonomy, or does someone retain unilateral upgrade authority?

Economic Independence. Is the primary value capture mechanism functioning effectively?

Networks that fail this test will produce a "network token," which will be presumed to be an "ancillary asset," meaning the value of that token depends on the entrepreneurial or managerial efforts of a specific initiator.

This classification will trigger semi-annual disclosure obligations, insider resale restrictions mimicking Rule 144, and initial issuance registration requirements. Secondary market trading on exchanges can continue without interference.

The 49% threshold is core data; it is much more lenient than the 20% red line in the House version of the CLARITY Act. Networks that fail the test under the 49% threshold do so for genuine structural reasons, not technical details.

Bitcoin and Ethereum have indisputably passed all standards. Solana hovers on the edge, with the foundation's influence on upgrades, heavy early insider allocations, and a historical record of coordinating network pauses all contradicting its standards of autonomy and credible neutrality.

All other mainstream smart contract platforms have failed to pass due to structural reasons that are not easily correctable. This list includes XRP, BNB Chain, Sui, Hedera, and Tron, extending to most L1 competitors.

Among the assets that passed the tests, there is only one that has a normally functioning native smart contract economic system.

Shift in Valuation Framework

Token trading is based on two fundamentally different valuation frameworks.

The first is the commodity/currency premium system, whose value derives from scarcity, network effects, value storage properties, and reflexive demand, without a fundamental valuation ceiling.

The second is the cash flow/equity system, whose value comes from income capitalized through standard multiples and is subject to strict upper limits imposed by actual income forecasts.

Most non-Bitcoin tokens have remained in a strategic gray area between these two systems, marketing themselves using whichever framework can produce higher valuations. The CLARITY Act ends this ambiguity through three mechanisms.

First, disclosure requirements impose a cognitive framework. Section 4B(d) requires semi-annual disclosures, including audited financial statements (over $25 million), a chief financial officer's (CFO) going concern statement, a summary of related party transactions, and forward-looking development costs.

Once a token has SEC filings similar to a 10-Q form, institutional analysts will evaluate it like any entity submitting a 10-Q form. The document format determines the valuation framework.

Second, the statutory definition itself is a form of qualitative assessment. Ancillary assets are defined as tokens "whose value depends on the entrepreneurial or managerial efforts of the ancillary asset initiator." This definition is conceptually incompatible with the commodity premium, which requires its value to be independent of any issuer's efforts.

Tokens cannot credibly claim to have pricing power based on commodity premiums while simultaneously meeting the legal definition of ancillary assets.

Third, visible scarcity is fragile scarcity. Commodity premiums are reflexive, and reflexivity requires a market to collectively believe in a reliable scarcity narrative.

When a token discloses treasury information, named insider unlocking schedules, and quarterly reports on related party transactions to the SEC, its scarcity narrative becomes visible; once it becomes visible, reflexivity disappears. Investors can accurately see how much supply insiders hold and when those tokens will be sold. This visibility stifles buying pressure.

The result is a two-tier market. Tier 1 assets trade based on commodity premiums, without a fundamental valuation ceiling. Tier 2 assets trade based on income multiples, with reasonable valuation ceilings.

Tokens currently priced under Tier 1 logic but classified as Tier 2 will face structural re-rating. For tokens with weak fundamentals but primarily narrative-driven valuations, such as LINK and SUI, this re-rating could be quite severe.

The End of Two Bearish Logics on ETH

For five years, the reasons for being bearish on ETH have primarily been built on two pillars.

The first logic argues that ETH will ultimately not be classified as a commodity but will be viewed as a security. Pre-mining, the foundation's ongoing influence, Vitalik's public role, and the post-merge validator economics have all given the SEC ample reason to strike when necessary.

Every bullish argument for ETH must discount the tail risk that institutional funding channels may be restricted.

The second logic posits that ETH will be replaced by faster, cheaper smart contract platforms. Each cycle births new "Ethereum killers," such as Solana, Sui, Aptos, Avalanche, Sei, and BNB Chain, each touting better user experiences and lower fees.

This argument suggests that ETH's technical limitations will force economic activity to migrate, thereby diluting its value capture ability.

The CLARITY Act not only weakens these bearish logics but structurally overturns them.

The first logic collapses because ETH has cleanly passed all five criteria of Section 104. There is no coordinated control, ownership concentration is far below 49%, there is no unilateral upgrade authority post-merge, it is fully open-source, and the value capture mechanism is functioning normally.

The regulatory tail risks that have long justified a discount on ETH have dissipated.

The collapse of the second logic is even more interesting. "Ethereum killers" can only compete with ETH if they adopt the same valuation framework.

If SOL is certified as a decentralized asset, then competition will continue. If it fails the test (currently, it seems that all other major smart contract competitors will also fail), they will be forced into a Tier 2 valuation framework, while ETH will remain in Tier 1.

The competitive landscape thus changes. Tier 2 assets cannot compete with Tier 1 assets on commodity premiums because the core meaning of Tier 1 is that it is not constrained by fundamental valuation ceilings.

Those faster, cheaper public chains can still win in specific verticals, in terms of transaction throughput and developer attention. But they cannot win in the valuation framework that determines the most critical asset valuations for L1 market capitalization.

The Only Ticket

Among the assets that passed the Section 104 test, Ethereum is the only one with a normally functioning native smart contract economic system. Bitcoin passed the test, but its underlying does not support programmable finance.

Every smart contract platform with significant TVL has one or more substantive failures in the test. This includes Solana, BNB Chain, Sui, Tron, Avalanche, Near, Aptos, and Cardano.

Thus, the bill creates a new regulatory category: decentralized digital commodities with native smart contract economies, and currently, it has only one member: Ethereum.

Every traditional financial institution exploring tokenization, settlement, custody, or on-chain finance needs two things: programmability and regulatory clarity.

Before CLARITY, these attributes were strictly separated. Bitcoin has clear property rights but is not programmable. Smart contract platforms are programmable but legally ambiguous. After CLARITY, Ethereum becomes the only asset that provides both attributes within a single legal category.

Once this framework takes effect, anyone building tokenized government bonds, tokenized funds, on-chain settlement infrastructure, or institutional-grade DeFi gateways will have a clear preferred underlying vehicle.

This preference is not aesthetic or technical. It is driven by compliance. Asset management firms, custodians, and bank-affiliated funds operate within a legal framework that prefers commodity-like assets and excludes securities-like assets.

The flow of institutional funds will follow asset classifications, and the current classification has narrowed to the only programmable asset.

The Question of Sound Money

Once BTC and ETH share the Tier 1 classification, it is necessary to closely examine their comparison in monetary attributes, as traditional views have actually reversed the causal relationship.

The preference for Bitcoin has always been based on its fixed supply plan of 21 million coins and the predictable halving every four years. As a scarcity narrative, this is indeed very valuable, and the simplicity of this story is one reason BTC was able to achieve a monetary premium first.

However, BTC's supply model also carries three structural burdens that are rarely mentioned in discussions of scarcity.

First, mining creates ongoing structural selling pressure. Network security relies on miners bearing real-world operational costs: electricity, hardware, hosting, and financing.

These costs are denominated in fiat currency, meaning that regardless of price, miners must continuously sell a significant portion of newly issued BTC into the market.

This selling is permanent, price-insensitive, and rooted in the consensus mechanism itself. This is the cost of maintaining the proof-of-work security model.

Second, BTC does not provide native yield. Holders wanting to earn yield must either lend BTC to counterparties (introducing credit risk) or move it to non-BTC platforms (introducing custody and cross-chain bridge risks).

Relative to assets that can generate native yield, the opportunity cost of holding non-yielding BTC compounds over time. For institutional holders measuring performance against yield-inclusive benchmarks, this is a real and persistent drag.

Third, the cliff-like decline of mining subsidies poses a long-tail risk to decentralization, and it is precisely decentralization that qualifies BTC for Tier 1 classification.

Block rewards are halved every four years and approach zero by 2140, but the actual pressure will come much sooner. By the 2030s, subsidy income will be only a fraction of what it is today, and the network must rely on fee income to make up the difference to maintain security.

If the fee market fails to develop adequately, the lowest-cost mining operations will consolidate, miner concentration will rise, and the decentralization valued in Section 104 will begin to erode. This is not an imminent risk but a structural risk that BTC's model has yet to address.

Ethereum reverses each of these attributes.

ETH has a variable issuance with no fixed cap, which is the core argument used by sound money purists against it. This argument is superficial.

What truly matters to holders is the rate of change of their share of the total supply, not whether the supply plan has a fixed terminal value.

Under Ethereum's post-merge design, all issued tokens are distributed to validators as staking rewards. The yield that validators earn has historically been above the inflation rate, meaning anyone participating in staking can maintain or increase their share of the total supply over time.

For anyone participating in validator nodes or holding liquid staking tokens, the argument of "infinite supply" is rhetorically compelling but mathematically unsound.

The structural selling pressure that burdens BTC does not exist on the same scale for ETH. The operational costs for validators are negligible relative to their yields. Independent staking requires a one-time purchase of hardware and minimal ongoing electricity. Liquid staking and pooled staking even abstract these costs away.

The newly issued tokens accumulate to the validator community and are largely retained rather than sold into the market to cover costs. It is this same security model that distributes rewards to holders, avoiding the price-insensitive selling required by proof-of-work.

The cliff issue of subsidies also does not exist. Ethereum's security budget expands with the value of staked ETH and is funded through ongoing issuance and fee income. There is no predetermined date when security funds will suddenly run out.

This model has self-sustaining capabilities, while BTC's model increasingly relies on the development of the fee market, the success of which remains uncertain.

None of this is to argue that ETH will replace BTC. They play different roles in institutional portfolios.

BTC is a simpler, clearer, and politically more defensible scarce asset. ETH, on the other hand, is productive monetary collateral that realizes value by paying rewards to holders who participate in its security.

The key point is that the traditional notion that BTC has "harder money" attributes simply because it has a fixed supply cap is fundamentally undermined upon closer examination.

ETH's variable issuance combined with native yield provides holders with better real economic attributes than BTC's fixed supply combined with zero yield, and it does so without structural selling pressure or long-term security fund risks.

This is crucial for institutional allocators looking to establish Tier 1 cryptocurrency exposure. The rationale for placing ETH alongside BTC is not just "the programmable asset," but also "the asset that pays you to hold it without forcing you into structural selling to maintain its security."

Treasury Companies Tell the Same Story

The structural differences between BTC and ETH are not abstract. They are concretely reflected in the balance sheets of the two largest corporate treasury vehicles built around these assets.

Strategy (formerly MicroStrategy) holds the world's largest corporate Bitcoin position. BitMine Immersion Technologies (BMNR) holds the world's largest corporate Ethereum position.

Observing how they operate and their behavioral patterns reveals the underlying supply-side dynamics playing out in real corporate finance.

As of May 2026, depending on the reporting period, Strategy holds approximately 780,000 to 818,000 BTC.

It funds these purchases through a combination of $8.2 billion in convertible notes (due between 2027 and 2032) and approximately $10.3 billion in preferred stock (covering STRF, STRK, STRD, and STRC series).

Convertible notes must convert to equity at maturity (which dilutes existing shareholders' equity) or be refinanced (which requires entering the market to raise funds under acceptable terms).

Preferred stock carries ongoing dividend obligations, with STRC alone requiring approximately $80 million to $90 million per quarter.

Strategy's core software business appears insignificant compared to its treasury position, and the cash flow it generates is minimal relative to its debt obligations. Due to the decline in Bitcoin prices, the company has reported losses for three consecutive quarters, including a net loss of $12.5 billion in Q1 2026.

On May 5, 2026, Executive Chairman Michael Saylor explicitly broke his five-year vow of "never selling Bitcoin" during the Q1 earnings call, telling analysts that Strategy might sell some Bitcoin to pay dividends.

Within days, he modified his wording to "never become a net seller" and "for every Bitcoin sold, buy 10 to 20," but this directional shift is real.

The probability on Polymarket regarding whether Strategy will sell any Bitcoin by the end of the year jumped from 13% before the call to 87% afterward.

The structural reality is simple. Strategy's ability to continue hoarding Bitcoin depends on its ability to issue new debt or preferred stock on terms it can service.

During the Q1 2026 earnings call, Saylor clearly articulated the breakeven point of this model: Bitcoin needs to appreciate approximately 2.3% annually for Strategy's existing holdings to indefinitely cover STRC's dividend obligations without selling common stock.

This figure has been widely reported and reflects Saylor's own calculations, but it is one of three conditions that must be met simultaneously.

The mNAV (market value to net asset value ratio) premium must remain above approximately 1.22 to justify ongoing issuance, demand for STRC preferred stock must remain strong, and Bitcoin must cross the 2.3% threshold.

Individually, these are not catastrophic risks, and the 2.3% rate is well below Bitcoin's historical average. But this rate is also a moving target. The actual dividend yield of STRC has risen from 9% at issuance to 11.5% after seven monthly adjustments, which has pushed the breakeven point higher over time.

The underlying asset does not provide an organic income stream to fund operations. Strategy must successfully refinance, reissue, or convert to maintain its position.

BMNR's operational posture is fundamentally different. According to the latest disclosures, BMNR holds approximately 3.6 million to 5.2 million ETH (depending on the reporting period) and has virtually zero debt. The company holds $400 million to $1 billion in unsecured cash.

About 69% of its ETH is actively staked, generating an estimated staking income of about $400 million annually through its dedicated MAVAN (Made in America Validator Network) infrastructure.

The structural difference here is that BMNR generates native yield from its underlying assets. Regardless of ETH's spot price, staking rewards compound.

The company does not need to roll over debt, refinance preferred stock, or maintain an mNAV premium to fund operations. It can be a passive holder generating cash flow indefinitely or actively deploy capital.

The $200 million investment in MrBeast's Beast Industries in January 2026 and the planned "MrBeast Financial" DeFi platform built on Ethereum represent the latter. BMNR is leveraging its treasury position to participate in and accelerate Ethereum's economic ecosystem, rather than merely holding the asset.

This distinction has significant implications for long-term trajectories. Chairman Tom Lee's recent comments at the 2026 Miami Consensus Conference suggest that BMNR may slow its pace of ETH accumulation, as "there are other things to do in the crypto space now," indicating that the company sees expansion paths beyond simple accumulation.

Bitcoin treasury companies lack such paths. Without native yield to compound, no protocol-level ecosystem to participate in, and no equivalent of the validator infrastructure or DeFi integration that ETH has achieved.

Both companies have not been immune to the downturn in this cycle. BMNR has fallen about 80% from its peak in July 2025. MSTR has reported losses for three consecutive quarters. As digital asset treasuries face pressure, both have seen their net asset value premiums compressed.

This analysis does not suggest that one company is winning while the other is failing. Rather, it highlights how structural mechanisms produce differences in ways that directly map to the underlying asset attributes they hold.

Strategy's flexibility comes from its ability to continuously access capital markets. BMNR's flexibility comes from ongoing staking yields.

Strategy must roll over debt to maintain its position. BMNR must keep its validators online. Strategy's operational demands embed structural selling pressure. BMNR has structural buying pressure from reinvesting staking rewards into its holdings.

These are not narrative preferences. They are mechanical consequences of the supply-side attributes of the underlying assets.

Where the industry narrative goes from here will likely depend on the evolution over the next 12 to 24 months.

If Bitcoin appreciates significantly, Strategy's model will continue to perform very well, and the leveraged BTC logic will remain the mainstream narrative for institutional cryptocurrencies.

If Bitcoin stagnates or declines, Strategy's rollover debt requirements will become increasingly burdensome, while the lack of native yield will become an increasingly apparent structural disadvantage.

The Ethereum treasury model has a broader range of conditions for maintaining viability, as staking yields provide a lower bound that a pure BTC hoarding model lacks.

For an industry that is about to receive its first comprehensive regulatory framework under the CLARITY Act, and for an institutional audience that will soon begin making capital allocation decisions based on that framework for the next decade, the comparison of treasury companies provides a useful foresight into how abstract supply-side arguments translate into real corporate behavior.

Treasury companies are leading indicators of the direction of underlying assets.

The Boundaries of Network Philosophy and Legal Classification

It is necessary to directly address a subtle but important point. Even if Solana ultimately receives decentralization certification under Section 104, merely this legal classification will not place SOL on par with ETH in terms of valuation basis.

Legal classification is a necessary but insufficient condition for Tier 1 monetary premium treatment. The deeper question is what each network is truly optimizing for and what its own founders and ecosystem participants believe it should be valued at.

On these questions, ETH and SOL have made conscious divergent choices.

From the beginning, Ethereum has prioritized credible neutrality, reliability, and durability over raw performance. The network has achieved ten years of 100% uptime without major interruptions since its launch.

After the Pectra upgrade in May 2025, the number of active validators exceeded one million, distributed globally, with the largest concentrations in the U.S. and Europe, but with significant scale across multiple continents. The average uptime for validators is about 99.2%.

The consensus mechanism prioritizes finality and security over speed, ensuring through carefully designed constraints that no single entity (including the Ethereum Foundation) can unilaterally change the protocol.

Solana prioritizes throughput and transaction speed. Its architecture is optimized to process as many transactions per second at the lowest possible cost. These are real engineering achievements that enable use cases that Ethereum's base layer cannot meet. But they come at a cost, which the Solana ecosystem itself increasingly acknowledges.

Since 2021, the network has experienced at least seven major outages, including those in January, May, and June 2022, and outages lasting hours in September 2022 (18 hours), February 2023 (over 18 hours), and February 2024 (5 hours). Each time required coordinating validators to restart.

The Solana Foundation reports that as of mid-2025, there have been 16 months without downtime, which is real progress, but compared to Ethereum's record of never going down, it reflects a fundamental difference in design priorities rather than a temporary gap in engineering capability.

Validator metrics tell a similar story. The number of active validators on Solana has dropped from about 2,560 in early 2023 to about 795 in early 2026, a decline of 68%.

The minimum number of entities required to control a critical share of the network, known as the Nakamoto coefficient, has decreased from 31 to 20. The Solana Foundation characterizes this as a healthy pruning of subsidized "witch nodes" that have never made meaningful contributions to decentralization, which is a defensible explanation.

Another explanation is that the economic model for running Solana validators has become uneconomical for small operators whose voting fees exceed $49,000 annually, which is also supported by the data.

Both explanations have some validity, but neither has produced the kind of geographically diverse and operator-diverse network that Ethereum maintains.

Client diversity is the clearest point of comparison and the most worthy of study, as it directly relates to the structural resilience required for monetary collateral.

On Ethereum, the consensus layer has healthy diversity. Lighthouse accounts for about 43% of validators, Prysm 31%, Teku 14%, and Nimbus, Grandine, and Lodestar share the remainder. No single client holds an absolute majority.

The execution layer, while more centralized, is improving: Geth accounts for about 50% (down from a historical 85%), Nethermind 25%, Besu 10%, Reth 8%, and Erigon 7%.

This diversity is not merely theoretical. In September 2025, a critical vulnerability in the Reth client caused 5.4% of Ethereum nodes to stall, but the network did not stop running because other clients independently implemented the protocol.

Ethereum's design philosophy explicitly anticipates the possibility that any single implementation may fail, and the network's continued operation does not rely on any one team's code being flawless.

On Solana, there has historically been almost no client diversity. For most of its mainnet's existence, each validator has run some variant of the original Agave codebase.

The February 2024 outage caused the entire network to collapse because there was no independent implementation to keep the network running during the bug fix.

Today, the Agave branch optimized for MEV, Jito-Solana, controls about 72% to 88% of the stake. The original Agave accounts for another 9%. Both share the same code ancestor, meaning that vulnerabilities in the core Agave logic could simultaneously affect about 80% of the network.

Firedancer, developed by Jump Crypto, is Solana's first truly independent client implementation, launched on the mainnet in December 2025, holding about 7% to 8% of the stake.

Frankendancer is a hybrid that combines the network functionality of Firedancer with the execution functionality of Agave, occupying another 20% to 26% of the share.

The Solana ecosystem aims to achieve a 50% share of Firedancer by the second to third quarter of 2026, which will be an important step toward true client diversity, but until that threshold is crossed, the network remains structurally vulnerable to the failure of a single implementation.

These differences are not coincidental engineering capabilities. They reflect deeply considered philosophical choices.

Ethereum has consistently chosen the slower, more conservative path, prioritizing the ability of the network to operate normally regardless of the intentions of any single team's code or any single participant.

Solana has consistently chosen the faster, performance-oriented path, accepting higher coupling and operational dependencies in exchange for speed.

Both are valid engineering approaches. They produce assets with different attributes.

The impact on the assets follows suit. The Solana ecosystem itself, including the major analyst frameworks from VanEck and 21Shares, increasingly leans toward valuing SOL as a capital asset based on cash flows.

SOL holders receive returns from network revenues, token burn, and staking yields, with the asset's pricing based on its ability to generate these cash flows.

This is internally consistent with Solana's positioning as financial infrastructure for high-throughput applications. It is also a Tier 2 valuation framework.

Co-founder Anatoly Yakovenko has publicly defined Solana as "the atomic state machine for global finance," emphasizing the value capture of the execution layer rather than the monetary premium. The Solana community largely accepts this framework.

In contrast, Ethereum has always positioned ETH as productive monetary collateral. Staking yields, ultra-sound money discourse, deflationary mechanisms, and validator distribution all serve the Tier 1 framework positioning, under which ETH is held as a monetary asset and pays rewards to holders participating in network security.

While this framework is more controversial within the ETH community than within the SOL community, the underlying network design supports it.

In practice, this means that even if Solana receives certification as a decentralized digital commodity under the CLARITY Act, its own ecosystem will position it as a Tier 2 asset.

This certification will unlock institutional access and eliminate regulatory tail risks, both of which are favorable for pricing, but it will not place SOL within the reference framework that drives monetary premium pricing. The market will not assign a monetary premium to an asset that even its own creators and ecosystem view as a capital asset generating cash flows.

This is why ETH's unique status as the only one of its kind is a deeper reason than merely what is implied by the legal framework.

Legal classification, network design philosophy, ecosystem positioning, and emerging market preferences all point in the same direction. If a competitor wants to convincingly challenge ETH's Tier 1 status, it needs to pass legal tests, maintain comparable levels of reliability and decentralization, and position its own ecosystem to view the asset as a monetary premium rather than a cash flow asset.

Among existing networks, there are no candidates that meet all three conditions, and the philosophical commitments required to meet them cannot be remedied in the short term.

The True Meaning of DeFi Dominance

ETH's enduring DeFi dominance has often been viewed as a legacy effect. The traditional view holds that Ethereum won early in DeFi due to its first-mover advantage, but this dominance will be eroded as faster public chains compete for developer attention and user activity.

Every migration of TVL to Solana, every DeFi summer that emerges on competing chains, and every article stating "the market is rotating out of ETH" reinforces this narrative.

The actual results do not align with this narrative.

Despite having well-funded competitors and a technically superior execution layer for years, and despite facing L2 fragmentation issues and the high-fee era of L1, Ethereum and its Rollup ecosystem still dominate stablecoin settlements, DeFi TVL, RWA tokenization, and on-chain activities for institutions.

BlackRock's BUIDL fund issues on Ethereum. Franklin Templeton's tokenized money market fund launches on Ethereum. The supply of stablecoins on the Ethereum mainnet plus major L2s dwarfs that of all competing chains combined. The vast majority of real-world asset tokenization occurs on Ethereum.

This persistence of maintaining an advantage in the face of technically superior alternatives is not merely a legacy effect. The market has been pricing in something that has not yet been clearly defined on a legal level: builders and institutions value credible neutrality and regulatory defensibility far more than performance.

The outcome of their bets is precisely what the CLARITY Act has formally established.

The traits that slow down Ethereum (including strict decentralization, no unilateral upgrade authority, conservative consensus change mechanisms, and thoughtful validator decentralization planning) are precisely the traits that Section 104 currently praises.

Every article over the past three years asserting "ETH is losing to faster public chains" has mismeasured the variables. The truly critical variable has always been credible neutrality, and once regulatory direction becomes clear, credible neutrality will inevitably become the standout qualifying attribute.

The market's preference for choice is correct. It simply lacked a self-justifying legal framework before, and the bill currently under consideration in the Senate is the framework that writes this consensus into law.

The Shift in Reference Framework

Historically, ETH's natural comparators have been other smart contract platforms like SOL, BNB, SUI, and AVAX. In that framework, ETH is "the slow and expensive one," facing ongoing narrative pressure as competitors continuously launch faster execution layers.

Valuation multiples have been anchored to revenue, TVL share, and developer activity, all of which have natural valuation ceilings.

After the CLARITY Act, this reference framework has been shattered. Tier 2 public chains compete on cash flow multiples and value capture. The relevant reference framework for ETH has transformed into a Tier 1 monetary base asset with utility premiums: primarily BTC, conceptually including gold, and in extreme cases, sovereign reserve assets.

None of these frameworks will produce market capitalizations anchored to income. They all produce market capitalizations anchored to the monetary roles within larger economic systems.

This is a revaluation on the scale of trillions of dollars. In the last cycle, competitive pressures dragged ETH down to Tier 2 valuation logic. The CLARITY Act elevates ETH to Tier 1 valuation logic by establishing that its competitors no longer belong to that reference framework.

This also resolves a contradiction that has plagued ETH for years. The value capture of ETH from L2 Rollups has been viewed as theoretical and contentious, leading to the undervaluation of the base layer L1 relative to the active L2 ecosystem.

Under the new framework, this issue becomes less significant. The value of ETH is not anchored to the capture of L2 fees. It is anchored to its role as the only programmable digital commodity with monetary characteristics.

The L2 ecosystem expands ETH's economic reach without diluting its monetary premium, as the monetary premium derives from regulatory categories rather than fee income.

Estimating the Size of the Monetary Premium Capital Pool

The phrase "trillions of dollars in revaluation" deserves deeper interpretation, as the distinction between Tier 1 and Tier 2 valuation systems lies not in the size of the multiples but in the potential market size the asset is competing for.

Cash flow valuations are anchored to the network's fee income, which for current ETH is at a low of several billion dollars annually. If any reasonable multiple is applied, the implied market capitalization would fall within the range of several billion dollars.

Monetary premium valuations, however, are anchored in entirely different categories and on a much larger scale.

Gold is the clearest reference benchmark. The total supply of gold above ground globally is about 244,000 tons, which, at current prices, has a market value of about $32.8 trillion. The industrial demand for gold accounts for only a small portion of this.

The overwhelming majority purely belongs to the monetary premium: its value exists because gold has maintained purchasing power across centuries, something fiat currencies, sovereign bonds, and most other financial instruments cannot achieve.

Gold does not pay yield. It does not generate cash flow. But this does not prevent it from supporting a valuation of $32 trillion, as the market assigns monetary premiums to assets that can convincingly preserve wealth regardless of their utility.

The monetary premium function of gold comes with often-underestimated operational friction costs. Physical gold needs to be authenticated with each transaction. Gold bars require assay testing to confirm purity and weight. Coins need to be verified. The existence of the LBMA good delivery standard is because, without institutional-level infrastructure, trust in the quality of gold cannot be assumed.

Retail gold transactions typically trade at a 2% to 5% premium over spot prices to compensate for authentication and distribution costs. Cross-border transfers require customs declarations, security, and transport insurance.

In good market conditions, the time to liquidate is 30 to 90 days, while in poor markets, it can take much longer. Price discovery is opaque. Lot sizes are large and indivisible.

For decades, the monetary premium function of real estate has been subsidized by enduring these operational frictions. When no alternatives exist, this is inconsequential. But once alternatives emerge, everything will change.

The Ongoing Migration of Wealth

The monetary premium capital pool is not static. In response to two related dynamics that have become visibly apparent over the past decade, wealth is actively shifting between different capital pools: declining institutional trust and escalating geopolitical tensions.

From multiple dimensions, trust in institutions has been declining. The Edelman Trust Barometer consistently shows that institutional trust in most developed economies is at or near historical lows.

Geopolitical tensions have accelerated this trend. The freezing of the Russian central bank's reserves in 2022 was a watershed moment for sovereign asset managers. Recognizing that dollar-denominated reserves held in Western financial infrastructure depend on political alignments has changed the risk preferences of every non-aligned country's central bank.

This response is measurably reflected across three different asset classes.

The most obvious response is central banks increasing their gold holdings. In 2025, global central banks' net gold purchases exceeded 700 tons, the highest annual increment since 1967.

By the end of 2025, the People's Bank of China had been a net buyer for 14 consecutive months, reportedly bringing its total foreign exchange reserves to 2,308 tons. India has also synchronized its purchases.

In addition to increasing holdings, several countries' central banks have taken action to repatriate physical gold stored in overseas vaults. Germany repatriated half of its gold reserves from New York and Paris between 2013 and 2020. Poland, Hungary, the Netherlands, and Austria have also taken similar measures.

This pattern indicates that the response to declining institutional trust is not merely to hold more gold but explicitly to store gold outside the control of institutions that could fail or be weaponized.

The movements in the bond market are larger in scale but less frequently mentioned. For nearly 80 years, U.S. Treasuries have effectively served as monetary premium assets.

The positioning of "risk-free rates" in the global financial system essentially declares U.S. Treasuries as the ultimate store of value for dollar wealth. Governments, large corporations, and high-net-worth individuals have poured trillions of dollars into the Treasury market not for its yield but because Treasuries represent the deepest, most liquid, and most institutionally trusted store of value channel globally.

The outstanding size of the U.S. Treasury market is approximately $39 trillion, with overseas holdings varying between $8.5 trillion and $9.5 trillion depending on statistical methods.

A trend of asset rotation is already evident within this overseas capital pool. China's holdings of U.S. Treasuries peaked at $1.32 trillion in November 2013 but had dropped to about $760 billion by early 2026, a decline of 42%.

The actions of the People's Bank of China and large state-owned banks have been interpreted as an "orderly liquidation" of U.S. Treasury positions, further accelerated by explicit policy guidance in early 2026. Similar situations have occurred with other major sovereign holders, although the policy direction is less clear.

As the People's Bank of China reduces its U.S. Treasury holdings while increasing its physical gold purchases, this is the clearest example of cross-asset rotation: lowering U.S. Treasury positions while continuously buying gold for 15 months.

The share of the dollar in global foreign exchange reserves also tells the same story on a macro level. By the third quarter of 2025, the dollar's share of globally disclosed foreign exchange reserves had fallen to 56.92%, down from a peak of 72% in 2001.

This decline, while gradual, has been persistent. An analysis report released by the Federal Reserve in 2025 noted that the market share lost by the dollar has primarily been absorbed by smaller currencies (such as the Australian dollar, Canadian dollar, and Chinese yuan) rather than flowing into gold (with exceptions for China, Russia, and Turkey).

This is an important revelation: the trend of de-dollarization is real, but its impact is often overstated. The current trend is more about diversified allocations rather than a complete abandonment of the dollar, which still holds absolute dominance.

However, data from the past 20 years shows a persistent trend, and the underlying drivers (such as fiscal deficit conditions, risks of currency weaponization, and the widening structural deficit) have not improved.

The third response strategy is the gradual rise of digital currency premium assets, becoming the fourth major reservoir of wealth. Bitcoin has absorbed this overflow of funds.

Since 2017, the core logic supporting Bitcoin has been that BTC provides an option for the monetary premium function of the digital age that can replace gold, and the market is gradually realizing this expectation. Currently, Bitcoin's market capitalization has reached about $2 trillion, a feat achieved from zero in just fifteen years.

The rise of Bitcoin treasury companies, the inflow of spot ETFs, and recent reports of corporate adoption all reflect the same underlying logic: the monetary premium is seeking a home in the digital age, a home that must simultaneously address the high holding costs of real estate, the cumbersome friction of gold authentication processes, and the severe reliance of traditional financial instruments on institutions.

Thus, this migration of assets is not merely a theoretical discussion. It is an ongoing, large-scale reconfiguration that will span decades and involve multiple assets. This trend has already manifested in the flow of central bank gold, changes in Treasury holdings, and data on the composition of foreign exchange reserves.

The core question we need to focus on now is no longer whether capital pools are shifting, but where the next available destination will open.

ETH's Positioning and Potential Market Size Estimation

Until now, Ethereum has been excluded from this category due to regulatory uncertainty and competitive narrative pressures. The implementation of the CLARITY Act eliminates regulatory barriers.

As previously mentioned, once regulatory classifications reduce the number of competitors, the narrative based on competition will collapse on its own. The remaining core question is: what unique advantages can ETH provide compared to traditional monetary premium assets?

The answer lies in that ETH is the first candidate monetary premium asset in history that combines negative net holding costs (holding yields returns) with institutional independence.

Gold has positive holding costs, does not generate any yield, and has friction in the authentication process, which can only be partially resolved through institutionalized product packaging.

Real estate can provide some rental returns, but high holding costs offset those returns; at the same time, depending on the region, it faces transaction friction costs of 7% to 17% and is entirely subject to local government property protection policies.

Treasuries can provide positive yields, but as the freezing of reserves in 2022 demonstrated, they are highly dependent on the specific issuing institution.

In contrast, ETH has near-zero custody costs while providing about 3% to 4% annualized staking yields, which outpace the protocol's own inflation rate; its transaction costs are measured in basis points, with global instant liquidity, and its cryptographic identity verification mechanism completely frees it from reliance on any institutional infrastructure, let alone being constrained by any government jurisdiction's property system.

Holding ETH and participating in its network's consensus maintenance allows one to earn positive net returns before asset appreciation, and more critically, this asset's attributes can remain intact even in the event of crises in individual institutions or countries.

This combination of advantages is unprecedented. Any previous monetary premium asset has made compromises while solving certain problems.

Gold achieved independence from financial institutions but came with authentication hassles and no yield. Real estate can provide returns but is subject to jurisdictional constraints and high transaction frictions. Treasuries offer excellent liquidity and yield performance but are highly dependent on the credit of the issuing institution.

ETH is the first asset to successfully overcome all these limitations, and the introduction of the CLARITY Act is designed to have the institutional systems that control capital allocation recognize these attributes.

The potential market size derived from this is not a prediction but an estimation of market scale.

Assuming ETH can capture 10% of the current gold market value, that would imply a market capitalization of about $3 trillion, equivalent to 7 to 10 times its current market cap. If ETH conservatively captures 2% of the monetary premium portion of real estate, that would be about $2.4 trillion. If it captures 5% under more optimistic expectations, that would mean a $10 trillion market.

If ETH can, as asset rotations deepen, merely capture 1% of foreign Treasury holdings, that would also bring it $85 billion in incremental funds.

None of these scenarios require ETH to completely replace gold, real estate, or Treasuries. They merely need a small portion of the currently large global monetary premium pool that is already in the process of rotation to flow to a more advantageous new destination over the next decade.

Using a cash flow valuation framework cannot extrapolate such magnitude. According to traditional logic, Ethereum's annual fee income would need to achieve explosive growth, and even so, the calculated market cap ceiling based on stock market valuation multiples would still fall far below the range extrapolated from the monetary premium framework.

This is precisely the fundamental difference between Tier 1 and Tier 2. The foundational scale they assess is fundamentally different. These two valuation frameworks do not permeate or convert into one another. The valuation logic of any asset is either/or.

There are two potential risks worth highlighting.

First, the monetary premium is a reflexive phenomenon. The market assigns a monetary premium to an asset because it believes it will continue to be recognized, but this recognition can also dissipate at any time. The monetary premium position currently established by ETH is not a permanent guarantee; to maintain this position, it must continuously ensure the stable operation of the network, adhere to decentralization principles, and maintain credible neutrality.

Second, the process of capital migration is lengthy. Even if a significant portion of the existing monetary premium capital pool ultimately flows to a digital alternative, this evolution will be measured in decades, not quarters. This profound impact on valuation is objectively present, but the path to this goal is certainly not a straight line.

This analysis has revealed the enormous scale of the target capital pool and indicated the established direction of capital flows.

In the last market cycle, the pricing metric for ETH's valuation was its fee income and total value locked (TVL), and these two metrics often placed a several hundred billion dollar constraint on its market cap.

However, the CLARITY Act will free Ethereum from this constraint, elevating its benchmark capital pool size by two full orders of magnitude. This capital pool is currently undergoing a massive reconfiguration that will span decades, and prior to this, gold, Bitcoin (BTC), and to some extent, certain global reserve currencies have been the main beneficiaries of this reconfiguration.

This is the core significance of this valuation system reshaping.

Risk Factors

Three scenarios could weaken or even overturn the above framework.

The bill may not pass. The probability of the bill passing in 2026 on Polymarket is about 75%, with deliberations scheduled for Thursday; however, there are still political obstacles surrounding the missing ethical constraint provisions.

Since mid-2025, the decentralized framework has maintained broad consistency across different versions in both houses. The 49% threshold may be adjusted, but the likelihood of substantial changes to the basic structure of the five elements is very low.

If the bill is ultimately comprehensively rejected, the structural arguments of this article will be severely weakened. However, as long as the bill passes in any recognizable form, the framework remains valid.

Solana may achieve certification. If the Solana Foundation takes aggressive reform measures during the four-year transition period regarding foundation restructuring, validator decentralization layout, and treasury redistribution, then ETH may lose its absolute dominance in the "decentralized programmable platform" space.

But as discussed above, merely obtaining certification is not enough to push SOL into the ranks of Tier 1 valuation, as the Solana ecosystem's positioning is based on cash flow considerations, and the network's design philosophy leans more toward increasing throughput rather than the high reliability that monetary premiums depend on.

Nevertheless, a successful certification would still significantly narrow the gap between it and ETH, especially in the competition for institutional investment entry and ETF fund inflows. Governance decisions made by Solana in the next 24 months will be crucial for its approval chances and any shifts in its ecosystem's asset valuation framework stance.

Even if a category allows for the existence of monetary premiums, the market may not blindly follow. Regulations merely provide space for valuation frameworks; they do not compel the market to accept them.

If institutional analysts cling to traditional valuation models, then even if ETH perfectly passes all standard tests, it may still only trade based on cash flow logic.

While the success cases of gold, BTC, and certain reserve currencies have proven that monetary premiums are widely accepted, and institutional infrastructures such as ETFs, custody services, and prime brokers are already prepared to provide Tier 1 treatment for qualifying assets, this is not an automatically completed transition process.

ETH itself still faces structural challenges. The issues of L2 fragmentation, some believing the staking economics undervalue L1 ETH, a conservative development path that frustrates developers, and a deflationary mechanism that falls short of expectations.

These issues cannot be resolved by the CLARITY Act. The bill's role is to remove the two largest structural mountains and eliminate the influence of competitors that are dragging down ETH's valuation framework. It does not make Ethereum perfect.

Where to Go Next

The direct impact it brings is limited. No token will automatically delist, nor will there be a reshuffle overnight, nor will funds be forced to move. The SEC has 360 days to finalize rules regarding the definition of "common control" in practice. The four-year transition period provides ample time for various projects to make structural adjustments.

The first wave of certifications and rejections will not formally begin until 2027.

The speed of the framework's transformation may far outpace the pace of regulatory mechanisms taking effect. Within months, asset management firms, ETF issuers, custody service providers, and bank-affiliated funds will begin adjusting their internal asset classification and allocation frameworks.

Mainstream sell-side institutions are expected to release the first research report declaring "ETH is the only programmable digital commodity" in the coming weeks. The establishment of the narrative does not depend on the complete conclusion of regulatory processes. It only requires a convincing regulatory signal.

Historically, the cryptocurrency market has often reacted before regulatory clarity emerges. BTC ETFs were traded for two years before approval. The news of ETH ETF approvals was also priced in months ago. Major regulatory positive events are often digested in advance.

For those holding or trading these assets, the core issue is not whether the bill becomes law on July 4 or in 2027. It is whether the market will begin to front-run the profound impacts that the finalization of this regulation will bring.

The underlying logic supporting ETH's valuation is quietly undergoing a significant transformation: from "a smart contract platform burdened with regulatory compliance risks" to a glamorous pivot as "a unique programmable digital commodity with monetary premium potential."

This major shift has yet to be fully reflected in prices.

Over the past five years, holding ETH has meant enduring dual structural pressures: regulatory uncertainty and the risk of competitors catching up.

The bill deliberation set to begin on Thursday is expected to dispel both of these clouds simultaneously, and more critically, it will effectively eliminate ETH's direct competitors.

The market will eventually realize all of this. The only suspense now is a matter of time.