Recession Fears, Ethereum's Outlook & Finternet's Vision
Third edition of the Ryze Roundup.
Market Commentary
The market experienced a volatile Labor Day weekend, with liquidity and trading activity at subdued levels. Market participants were primarily focused on the negative seasonal trends of September, historically a month of poor returns for risk assets. On Tuesday, U.S. equities suffered their worst day since the early-August downturn, driven by renewed concerns over the unwinding of the JPY carry trade. This was triggered by comments from BOJ Governor Ueda, who indicated that the bank would continue raising rates if economic conditions and inflation align with expectations.
Tuesday also saw the release of Job Openings and Labor Turnover Survey (JOLTs) data, which revealed further weakness in the labor market, coming in at 7.63 million—its lowest level since January 2021 and below the expected 8.1 million. Economist Claudia Sahm cautioned, however, that “the swing from labor shortages caused by the pandemic to a burst in immigration is magnifying the increase in the unemployment rate.” She believes recession fears are overstated, noting that labor market recessions are typically driven by a sharp increase in layoffs, a trend we have yet to observe.
“Although some surveys suggest that American consumers increasingly expect a recession, Ryze maintains that a soft landing remains more likely than not. Further, inflation has moderated and despite some softening unemployment rates remain low historically.” -Matthew Graham, managing partner.
Looking ahead, we anticipate liquidity conditions to tighten as we approach year-end, largely due to the drawdown of the Treasury General Account (TGA). This is driven by the upcoming reinstatement of the Federal Debt Ceiling on February 1, 2025, which legally mandates the reduction of the TGA.
Key News and Events
Ethereum and $ETH: What Is the Market Sentiment?
The Ethereum ecosystem has seen significant growth and development, with dozens of infrastructure, AI, and DeFi projects launching over the past few years. Additionally, a majority of Real World Asset (RWA) initiatives are happening on Ethereum. Despite this, $ETH has been one of the biggest underperformers among the “blue chip” cryptocurrencies, posting a modest 3.4% year-to-date (YTD) return. Ironically, its success as an ecosystem contributes to its underperformance—these new projects, along with competition from Bitcoin (BTC), Solana, and other ecosystems, are vying for limited liquidity. The rapid pace of development is outstripping adoption, leaving Ethereum struggling to attract new retail users and address distribution challenges. Moreover, the user experience (UX) still lags behind Web2 standards.
Web3-native players built positions in $ETH last year at an estimated price of around $2,400-$2,600. Now, they continue to rotate these holdings between protocols, chasing farming incentives and airdrops. Examining the ETH Exchange-Traded Fund (ETF) flow chart reveals that traditional financial institutions also don’t find $ETH particularly attractive at this time. Misaligned or unclear positioning of ETH as “ultrasound” money or “digital oil,” coupled with traditional metrics like the price-to-earnings (P/E) ratio being confusing or unimpressive, are likely factors contributing to this sentiment.
Ethereum’s decision to scale through Layer 2 (L2) chains has led to fragmentation in liquidity and user attention. The EIP-4884 (Proto-danksharding upgrade), which reduced fees on L2s, has also made $ETH slightly inflationary again. While this inflation is largely psychological—remaining under 1% and significantly lower than other large chains—it challenges the “ultrasound money” thesis.
In summary, it’s easy to adopt a short-term bearish stance on Ethereum, but what could shift this sentiment in the mid-to-long-term? Ethereum remains one of the most decentralized and reliable networks, with many talented developers actively building on it. The DeFi and RWA sectors could attract new institutional liquidity if regulatory clarity improves. Interoperability and scalability solutions may help address the fragmentation issues caused by L2s. Many teams are working on these challenges, but capturing the interest of both Web2 and Web3 retail users is a more complex task, especially as competing chains like Ton, Solana, and Sui invest heavily in user onboarding and retention. Ethereum could ultimately become the trusted chain for asset storage, with institutions primarily using it for DeFi activities.
“Ethereum remains an epicenter for innovation but will continue to struggle with respect to mainstream user adoption. Ethereum faces substantial pressure from Solana’s superior technology on the one hand, and TON’s ability to tap into an enormous user base on the other. It’s increasingly difficult to envision Ethereum innovating its way out of a competitive position that is deteriorating over time.” – Matthew Graham, managing partner.
Finternet: A Vision for a Global, User-Centric Financial Infrastructure
At the recent Global Fintech Fest in Mumbai, Nandan Nilekani, the architect behind Aadhaar and the Unified Payments Interface (UPI), and Siddharth Shetty introduced the Finternet—an ambitious initiative aimed at transforming the global financial system. The project envisions tokenizing any asset on a unified ledger, with a live demonstration on Solana showcasing its potential impact on financial transactions worldwide.
The Finternet is built on three core principles: user-centricity, unification, and universality. It focuses on giving individuals and businesses control over their financial interactions, utilizing privacy technologies like zero-knowledge proofs for selective data disclosure. Users can manage multiple accounts across platforms, conduct transactions in various assets or currencies, and interact with different financial entities securely.
Unified ledgers, such as Solana, are central to the Finternet, consolidating financial assets and transactions into a single system while integrating with existing legal and regulatory frameworks. This setup allows for interoperability across different ledgers and supports a range of financial activities, including payments, credit, insurance, and savings.
Security is a key component, with identity verification through digital signatures and advanced cryptographic methods ensuring transaction finality. In cases where reversals are necessary, authorized entities manage compensatory actions to maintain system integrity.
The universal principle aims to democratize financial access globally, supporting tokens that represent various assets and enabling secure interactions within the unified ledger ecosystem. Users can create accounts linked to globally resolvable virtual addresses, manage assets across ledgers, and engage in token-based transactions.
The Finternet aims to create a cohesive financial ecosystem that integrates traditional and digital systems, promoting efficient, secure, and compliant financial interactions on a global scale, powered by high-performance distributed ledger technology (DLT) like Solana.
“India punches way above its weight in digital payments and a significant part of this success is due to UPI (Unified Payments Interface), a real-time payment system that allows users to transfer money between bank accounts instantly using a mobile device. Although India’s crypto regulatory landscape is complicated, Finternet is worth a close follow.” – Matthew Graham, managing partner.