• Ethereum is facing a growing structural challenge that few are openly discussing. 
• Who really sets the rules when the money isn’t native?

Ethereum [ETH] is currently the backbone for a massive chunk of crypto’s financial activity. 

Right now, there’s over $127 billion in stablecoins sitting on the network, with Tether [USDT] making up more than 50% of that. That’s real, on-chain liquidity being put to work across DeFi, staking, and yield farming.

But a closer look reveals a growing disconnect.

The stablecoin layer is growing much faster than ETH’s own market value. If this imbalance continues, could Ethereum fail to uphold the decentralization it was originally designed to guarantee?

Ethereum’s economic model faces a scaling paradox

Ethereum entered 2025 with $110 billion in stablecoins circulating on-chain. Now, heading into the second half of the year, that number has surged to $127 billion. That’s a hefty $17 billion increase in just six months.

Notably, $64.36 billion of that supply comes from USDT alone, representing 40.36% of Tether’s total $160 billion market cap. But that might just be the beginning.

Source: DeFiLlama

Looking ahead, JPMorgan projects the stablecoin market could scale to $500 billion by 2028. As that capital scales, Ethereum’s role as the primary settlement layer is likely to deepen.

However, this is where a structural imbalance starts to emerge.

Ethereum began 2025 with a $400 billion market cap, yet that figure has slid to $304 billion at press time. In contrast, the USDT supply has climbed by approximately 15.45% over the same period.

This gap raises concerns. If Ethereum’s native asset doesn’t grow with the value it secures, its proof-of-stake system could weaken. In turn, making the network more dependent on external, centralized capital.

As stablecoins rise, does ETH’s control slip?

Imagine USDC, which already plays a key role in Ethereum’s DeFi stack. 

Protocols like Aave and Compound rely on it as core collateral. Meanwhile, DAOs, traders, and institutions use it to move capital, manage treasuries and earn yield. All this activity helps fuel Ethereum’s proof-of-stake system.

But the catch is, that liquidity is largely controlled by centralized issuers. In USDC’s case, that’s Circle.

And while stablecoin supply continues to climb, ETH-denominated DeFi volume has dropped to $6.8 billion, down from a $30 billion high earlier this year, highlighting a structural imbalance in Ethereum’s economic model.

Source: DeFiLlama

This divergence signals a critical shift: Capital is flowing into stable, externally governed assets rather than Ethereum’s native token. 

More users are leaning on stablecoins to lend, stake, and move capital, while skipping over ETH entirely. 

Consequently, ETH’s demand slips, decentralization gets harder to sustain, and the market cap starts feeling the pressure.

With capital favoring stability over the asset that secures the chain, Ethereum may be facing the early signs of a deeper structural shift.