Trend Research: Why We Are Bullish on ETH on the Eve of a Surge

Original Title: “Trend Research: On the Eve of a Surge, Why We Are Bullish on ETH”

Source: Trend Research

Yesterday, ETH and its ecosystem blue-chip assets experienced a price rally. ETH rose by 6.4%, UNI (which we highlighted in a previous research report) surged by 24.4%, AAVE increased by 13.1%, and ENA rose by 6.6%. Trend Research maintained a consistent strategy during this cycle, building positions in ETH from $1,400 onwards, expressing confidence, increasing exposure to ETH-linked assets, and recently purchasing ETH call options. As a result, we have become one of the first secondary market investment institutions to openly express bullish views and publicize wallet addresses showcasing our holdings.

Currently, we remain optimistic about ETH due to the following underlying fundamentals: The Trump administration is committed to establishing a stablecoin framework, leveraging blockchain’s decentralized and on-chain features to absorb M2 liquidity from other countries, thereby increasing demand for U.S. Treasuries. To achieve this, the Trump administration has loosened macro-level crypto regulation and accelerated the implementation of regulatory frameworks. Measures are being taken to normalize the crypto space to accommodate larger flows of capital. At the heart of stablecoins and on-chain finance (DeFi) lies Ethereum, which serves as the crucial infrastructure. An influx of stablecoins and the continued development of Real World Assets (RWA) drive further DeFi proliferation, leading to increased Ethereum usage, higher GAS revenues, and ultimately boosting ETH’s market capitalization.

I. Sustained Optimism in Crypto Regulations

(1) Changing Crypto Regulatory Philosophy

The Trump administration is crypto-friendly. SEC Chairman John Atkins, who assumed office in April 2025, has explicitly pushed for a transformation in crypto asset regulation.

1. Public Commitment to Process Simplification

· Rules over Enforcement: Atkins criticized the previous administration’s approach of “defining compliance through litigation” and emphasized creating clear and predictable rules to reduce uncertainty in the industry.

· Classification Regulation Framework: A plan to release token classification standards within 90 days is underway, accompanied by the establishment of a “safe harbor” system for compliant projects.

2. Long-term Policy Direction

· On-Chain Securities Compliance: In May 2025, Atkins proposed exploring “on-chain securities trading platform listings,” potentially reshaping issuance and trading processes.

· Cross-department Collaboration: Plans to collaborate with the CFTC and FTC to establish a joint regulatory framework aimed at reducing jurisdictional conflicts.

DeFi aligns with core American values, and an "Innovation Exemption" framework will be introduced.

(2) Further Refinement and Relaxation of the Crypto Regulatory Framework

1. The CLARITY Act

The CLARITY Act aims to establish a structural regulatory framework for the crypto market, addressing the regulation of the $3.3 trillion digital asset market. Its regulatory objectives are twofold: first, to clarify asset classifications, distinguishing between security tokens (regulated by the SEC), commodity tokens (regulated by the CFTC), and licensed payment stablecoins, resolving the longstanding "security or commodity" debate. Second, to regulate institutional oversight by requiring financial institutions that custody digital assets to meet capital reserve and customer fund segregation requirements, thus mitigating risks similar to those associated with FTX. On June 11, 2025, the Act passed the U.S. House Committee with 47 votes in favor and 6 against, moving it to the House Financial Services Committee for the next stage of review.

Under the Act, major cryptocurrencies such as Bitcoin and Ethereum are classified as commodity tokens, while company equity tokens (representing ownership and offering voting or dividend rights), bond-like tokens (promising fixed interest returns), and revenue-sharing DeFi governance tokens (reliant on ongoing project operations) are classified as security tokens. This will provide clarity where ambiguity previously reigned, paving the way for clear enforcement and ease of compliance. The clarification of roles and responsibilities is expected to foster the growth of DeFi platforms.

Mainstream infrastructure tokens like SOL are increasingly likely to be classified as commodities. On June 11, the SEC requested Solana ETF issuers to submit revised S-1 forms within the following week. The SEC has stated that it will respond to the S-1 filings within 30 days of submission. This suggests that regulatory agencies are becoming more relaxed and expeditious in their determination of crypto commodities.

2. The Genius Act

The Genius Act seeks to address the regulatory vacuum surrounding stablecoins, bolster the dollar’s position as the world’s reserve currency, and resolve challenges related to U.S. Treasury bond demand. This is the first comprehensive federal framework for stablecoin regulation, defining issuer qualifications, reserve requirements, and operational standards. It mandates a 1:1 peg of stablecoins to the U.S. dollar, driving the expansion of the dollar via stablecoins into the global crypto economy and cross-border payment systems, thereby reinforcing the dollar's dominance in international finance. Through mandatory reserve requirements (reserves must consist of short-term U.S. Treasuries or cash), the Act aims to create structural demand for U.S. Treasuries and alleviate U.S. fiscal pressures.

In recent years, stablecoins like USDT and USDC have faced multiple reports of regulatory risks and redemption risks, leading to over a 10% depeg on occasions. Incorporating federal regulation would undoubtedly enhance the security and credibility of stablecoins. Furthermore, once the federal legislative stance becomes clear, more issuers are expected to participate in the issuance of stablecoins, attracting additional capital inflows into the crypto market. Standard Chartered Bank predicts that if the relevant bill is passed, the stablecoin market could grow to $2 trillion by 2028.

3. Easing Regulatory Stance on Issuance, Custody, and Trading of Crypto Assets

SEC Chair Atkins mentioned in a speech that there would be more lenient regulations in three key areas of crypto assets: issuance, custody, and trading.

In terms of issuance, the SEC will establish clear and reasonable guidelines for issuing crypto assets under securities or investment contract frameworks. To date, only four crypto asset issuers have issued securities under Regulation A. Regulation A is a simplified issuance exemption mechanism for small-scale projects proposed by the SEC, allowing issuers below a certain funding threshold to issue stocks and bonds under this framework. The biggest regulatory obstacle for crypto asset issuance has been the lack of clarity on whether an asset constitutes a security and, if so, what type of security it is categorized as. This uncertainty creates legal concerns for issuing entities and, as a result, few projects utilize this rule. Atkins has called on SEC staff to explore measures such as business guidance at the working-level, registration exemptions, and safe harbor frameworks to streamline the issuance of crypto assets within the U.S.

On the custody front, the SEC encourages registrants to have greater autonomy in determining how to custody crypto assets. Investment advisors and fund companies can adopt self-custody solutions, which are more technologically advanced than those currently offered by traditional custodians. This approach addresses a historical gap, as traditional custodians typically lack the technological sophistication required to meet blockchain-specific needs.

Regarding trading, the SEC advocates for investors to access a broader range of assets on trading platforms. These platforms could facilitate the trading of both security and non-security assets, and even provide other financial service offerings. Staff have been asked to evaluate whether specific guidelines or rules are necessary to allow crypto assets to be listed and traded on nationwide securities trading platforms.

4. DeFi Likely to Receive "Innovation Exemptions"

At the June 9, 2025, roundtable titled "DeFi and the American Spirit," SEC Chair Paul S. Atkins explicitly stated: "The core principles of DeFi—economic freedom, private property rights, and decentralization—are highly aligned with America's core values. Blockchain technology is a revolutionary innovation, and the SEC should not hinder its development."

The SEC is drafting conditional exemption rules for DeFi to quickly allow both registrants and non-registrants to bring on-chain products and services to market. These innovative exemptions could position the United States as the "global crypto capital" by encouraging developers, entrepreneurs, and other companies willing to comply with specific conditions to drive on-chain technological innovation domestically.

UNI has previously been burdened by compliance concerns. Despite being the most significant DEX on-chain, its token price has underperformed. If the innovative exemption rules can be implemented swiftly, UNI is likely to be among the first beneficiaries. This is also one of the key reasons for the significant price surge of leading DeFi tokens following the roundtable discussion.

5. Ethereum ETF Staking Approval Expectations

On May 29, 2025, the U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance issued a statement clarifying that certain staking activities on proof-of-stake (PoS) blockchain protocols do not constitute securities transactions. During the "DeFi and the Spirit of America" roundtable, Atkins further emphasized, "Voluntarily participating in proof-of-work or proof-of-stake networks as a 'miner,' 'validator,' or 'staking-as-a-service' provider does not fall under the scope of federal securities laws." Additionally, steps to draft relevant regulations were announced. This indicates that Ethereum staking activities (including self-staking by node operators and staking through service providers), when meeting certain conditions, will not be regarded as securities transactions, paving the way for staking through the approved Ethereum ETF.

If the SEC approves an Ethereum ETF that includes staking yields, it will enable institutional investors to earn ETH staking returns through the ETF. ETH may become the "bond" of the crypto industry, channeling a massive wave of institutional funds legitimately into ETH. On one hand, a significant amount of ETH will be staked and locked, further enhancing the decentralization and security of on-chain finance. On the other hand, compliant on-chain yields will significantly boost ETH demand, driving prices higher.

In conclusion, it appears that the Trump administration is implementing a more systemic and adaptive regulatory approach toward crypto assets and markets. Regulations are becoming clearer and more lenient, promoting blockchain innovation and attracting more capital into the crypto space.

II. Ethereum Remains the Most Important Infrastructure for On-Chain Finance

The implementation of "DeFi" statements and related legislation is expected to break compliance barriers and open up channels for traditional capital to flow into on-chain finance. Trillions of incremental funds are anticipated to enter on-chain finance in the form of stablecoins, and the largest and most secure "soil" for this growth remains Ethereum.

(1) Ethereum Foundation Pushes "Defipunk"

The Ethereum Foundation’s 2030 plan explicitly outlines its intention to promote the establishment of an evaluation mechanism for "Defipunk" and facilitate the transformation of DeFi projects. The core concept of "Defipunk" revolves around building a DeFi ecosystem that adheres to the principles of Cypherpunk, aiming to safeguard user autonomy, privacy, and censorship resistance through technological means.

The core principles of Defipunk include: First, security—prioritizing battle-tested, tamper-proof, and open-source technology architectures, while avoiding reliance on centralized trust mechanisms (such as multisig or legal recourse). Second, financial sovereignty—emphasizing users' complete control over their assets, supporting permissionless self-custodial wallets and on-chain transactions, and reducing dependency on intermediaries. Third, prioritizing technology over trust—leveraging cryptographic tools and smart contracts to achieve trust minimization, such as employing zero-knowledge proofs to enhance privacy protections. Fourth, open-source and composability—promoting transparent code development, ensuring interoperability between protocols, and encouraging modular design to foster innovation.

The Ethereum Foundation holds high expectations for DeFi's development, with the Ethereum ecosystem actively expanding its DeFi-related endeavors. Ethereum is well-positioned to serve as the foundational layer for next-generation on-chain financial paradigms.

(2) Stablecoin Issuance and Distribution Status

1. Total Stablecoin Supply

Since Trump took office, the total stablecoin supply has increased by approximately $76 billion, with a 7-month growth rate surpassing 40%. This growth rate significantly outpaced the total supply and increase of stablecoins during the market recovery bull run of 2023. As of September 2023, the stablecoin market cap hit a four-year low of around $123.7 billion, increasing to $173.7 billion by November 2024—a $50 billion rise, equating to a 40% uptick over 13 months.

2. Current Distribution of Stablecoins On-Chain

Approximately 50% of stablecoins circulate on Ethereum, 31% on TRON, 4.5% on the Solana chain, and 4% on the BSC chain. Ethereum accounts for half of the stablecoin liquidity dominance.

3. Current State of Major Public Chains and DeFi's Use of Stablecoins

From the comparison in the above chart, it can be seen that over 50% of the funds on Ethereum are locked in DeFi protocols, giving it the largest scale of DeFi TVL. Tron, despite possessing a significant amount of stablecoins, primarily uses them for payments and has a limited number of ecosystem protocols, with its DeFi TVL accounting for only 6.5%. The DeFi TVL proportions for Solana and BSC are relatively high, but their absolute sizes are small, and the maturity of their DeFi infrastructure is average. Based on this, once the stablecoin regulation bill is passed, Ethereum is most likely to attract the largest influx of capital.

(2) New Stablecoin Flows

Currently, it is anticipated that new stablecoins will flow in four directions:

1. Flow into crypto-native DeFi markets with higher yields

The high volatility of crypto enables many on-chain DeFi protocols to offer significantly higher yields compared to traditional financial markets, with easy access. Some portion of the inflow from stablecoins is inevitably going to explore more intelligent, efficient, and yield-oriented investment opportunities. Ethereum’s high degree of decentralization, security, and scalability makes it the primary choice for this capital. Among them, UNI, which is the largest on-chain DEX, and AAVE, the largest on-chain lending protocol, are standout blue-chip assets. Smaller-cap DeFi protocols with strong business metrics, such as COMP, are also worth paying attention to.

In the DEX space, UNI currently holds a clear advantage, with a TVL of $5.1 billion, a 7-day trading volume of $17.6 billion, and 7-day fee revenue of $19.26 million. Its TVL is significantly higher than other DEXs. A notable exception is PancakeSwap, which recorded a 7-day trading volume of $33.4 billion and fee revenue of $56.81 million. Its trading volume surpasses UNI mainly due to Binance alpha wash trading.

In the lending sector, AAVE holds an absolute advantage, with a TVL of $26.4 billion, 7-day fees of $11.68 million, and 7-day protocol revenue of $1.49 million. The TVL of other lending markets is below $5 billion.

2. Flow into the RWA markets spearheaded by U.S.-based regulatory-compliant institutions

Many traditional funds entering the blockchain space are unlikely to engage heavily in speculative altcoin markets. Instead, much of this capital is expected to flow into RWA (Real World Asset) markets established by leading U.S. financial innovation institutions, such as BlackRock's on-chain BUILD fund. The BUILD fund primarily invests in:

· Cash: High-liquidity cash or cash equivalents to ensure the fund's stability and instant redemption capabilities;

· U.S. Treasuries: Short-term U.S. Treasuries that serve as low-risk, high-credit-rated assets, providing a stable source of yield;

· Repo Agreements: Short-term borrowing agreements, typically collateralized by Treasuries, to ensure the fund's liquidity and returns.

The composition of these assets is designed to maintain the stability of the BUIDL token's value (targeting $1/token) while distributing dividends to investors through daily accrued revenues, paid out monthly in the form of new tokens. The fund is managed by BlackRock, with custody provided by BNY Mellon, and the tokenization platform is Securitize. The platform's TVL has seen rapid growth over the last three months: in March 2025, the TVL had just surpassed $1 billion, but it has now grown to $2.87 billion, an increase of 187%; among this, $2.687 billion resides on Ethereum, accounting for 93% of the total.

Native crypto projects are also closely observing the RWA market. Circle, the issuer of USDC, acquired Hashnote, the issuer of U.S. YieldCoin (USYC), to address its shortcomings in the RWA business space. Hashnote is a startup incubated by Cumberland Labs with a $5 million investment and specializes in tokenized Treasury products. Its core product, USYC (U.S. YieldCoin), is pegged to short-term U.S. Treasuries and had reached $1.3 billion in scale by the time it was acquired. Circle aims to tightly integrate USYC with USDC, establishing a closed loop of "cash + yield-bearing assets" to meet institutional demand for on-chain collateral and yield tools.

Besides BUIDL and Circle, other major RWA projects include ENA and ONDO. ENA faces challenges as it is primarily used for funding rate arbitrage in crypto token contracts, limiting its market size due to trading volume constraints and a learning curve for off-chain capital, leading to little growth in the past six months. ONDO, on the other hand, has grown from $600 million to $1.3 billion since the beginning of 2025, an increase of approximately 116%. This demonstrates that although stablecoin legislation has not been fully passed, debt tokenization is already making steady progress. Moreover, Chainlink plays a vital role in the RWA space, serving as the largest oracle for bridging off-chain assets to the blockchain and integrating them with on-chain DeFi.

3. Flowing into payment domains to solve traditional finance efficiency challenges

The conversion of traditional funds into stablecoins to enter the blockchain serves a critical purpose: addressing payment-related challenges. For instance, it optimizes the conventional SWIFT payment system by enhancing transaction efficiency. Take JPMorgan’s Kinexys platform (formerly Onyx) as an example, which focuses on wholesale payments, cross-border payments, FX trading, and securities settlement. It supports multi-currency cross-border transactions, reduces intermediaries and settlement times, and provides tokenization capabilities for digital assets. Additionally, it explores use cases for stablecoins and tokenized bonds in payment scenarios. Kinexys is built on the Ethereum tech stack, leveraging its smart contract and distributed ledger technology. Currently, Kinexys has a daily trading volume exceeding $2 billion.

4. Flowing into Speculative Crypto-Native Markets

A small portion of incremental capital flows quickly into the speculative altcoin markets within the crypto-native space.

In summary, compared to other on-chain ecosystems, Ethereum and its on-chain DeFi have become the primary destination for stablecoin inflow growth. On-chain DeFi might experience a new "DeFi Summer" by 2025, paired with increased demand for staking to bolster network security. Additionally, the SEC’s June 10 statement on "DeFi" could pave the way for ETH ETF staking. If approved in the future, ETH could become the "bond" of the crypto market, triggering substantial buying. These changes could drive ETH into deflationary territory again (current annual inflation rate: 0.697%).

III. Contract Market Hits New High in Open Interest; Bearish Sentiment Persists; Spot ETF Continues Inflows, Bullish Options

1. Record-High Open Interest, Active Funds

Currently, ETH is approximately 40% below its all-time high (ATH), but the total open interest across contracts has reached a record high of $37 billion, indicating excellent liquidity in the derivatives market.

2. Market Sentiment High Point Not Yet Reached

Meanwhile, the current market sentiment has not yet peaked. The Fear and Greed Index has just transitioned from neutral to greed, meaning the euphoric sentiment within the market hasn’t arrived, and external incremental capital has yet to flow in.

3. Increasing Short Interest on Exchanges

From the perspective of long-short ratio in contract open interest on trading platforms, the ratio of long to short positions is continually declining, with an increasing number of short positions. At the same time, the overall open interest keeps rising, which means short positions in total value are also increasing. However, the long-short ratio remains relatively balanced, and funding rates are comparatively stable.

```html

4. Some Exchanges Hold Less ETH in Spot Wallets Compared to Contract Positions

In April, when the market reversal trend research report was released network-wide, we noticed that some exchanges held significantly less ETH in their wallets compared to their contract positions. This situation still persists. For example, the Bybit exchange has open contract positions totaling 1.44 million ETH, while its wallet balance is only 316,000 ETH, which is 4.5 times its wallet balance. Similarly, the Gate exchange has contract positions totaling 1.96 million ETH, and wallet holdings of 166,000 ETH, which is 11.8 times its wallet balance. Bitget's open contract positions stand at 1.52 million ETH, but the exchange has not disclosed its wallet balance as of now.

5. CME Open Interest Reaches a New High

Based on data from CME, current ETH trading volume on the exchange has yet to hit new highs, but the open interest (OI) has reached historically high levels. Analyzing the long and short positions, non-commercial traders hold 18,699 long contracts and 19,572 short contracts, resulting in a net short position of 873 contracts. This indicates a predominantly bearish sentiment among speculators in the futures market. If 30%-40% of these non-commercial short positions are hedged, then 60%-70% are naked shorts. At a price of $2,750 per ETH, the speculative naked short positions on CME equate to approximately $1.6–1.8 billion.

6. AAVE Lends Out $6.8 Billion in ETH

According to data from the largest on-chain lending protocol AAVE, the current amount of ETH borrowed on-chain is approximately $6.8 billion. Based on market norms, not all of this borrowing is hedged; a significant portion is likely being used to execute leveraged short positions. We estimate that the naked short positions within this amount exceed $1 billion.

7. Spot ETFs Experience Continuous Net Inflows, Options Market Turns Bullish

Through data from futures and derivatives markets, we observe that bearish sentiment persists, with billions in naked shorts. However, options and spot markets are demonstrating some bullish positioning. In the spot market, ETH ETFs have reversed their previous weakness and have been undergoing continuous net inflows over the past 15 days. On June 10 alone, there was a net inflow of $125 million, and the total inflow for June reached $450 million. Among these, BlackRock led the buying with $360 million, confirming a bullish trend.

```

The changes in BlackRock's ETH spot ETF holdings are as follows: It has been in a continuous accumulation phase since May 2025.

BlackRock is selling a portion of its BTC spot holdings and reallocating to ETH spot purchases.

According to Deribit, the number of open interest call options currently far exceeds put options. For options set to expire before June 20, the two are relatively balanced, but for options traded after June 20, the number of call options significantly surpasses put options.

Liquidation monitoring indicates that $2.1 billion worth of ETH short positions will be liquidated at the $3,000 level. The market is likely to squeeze these shorts, potentially driving ETH up to $3,000 in the short term.

8. Ethereum Vault SBET Brings New Demand

Under a crypto-friendly and regulation-light environment, several companies in the U.S. stock market are adopting a strategy similar to MSTR, purchasing mainstream tokens such as BTC, ETH, and SOL as underlying assets.

Ethereum co-founder and ConsenSys founder and CEO Joe Lubin announced that he will serve as Chairman of the Board for SharpLink Gaming (ticker: SBET) and lead its $425 million Ethereum Vault strategy. The Ethereum Vault will be an active vault that, in addition to benefiting from token price appreciation, will stake a large portion of its ETH tokens, actively contributing to network security. Investors can also earn at least 2% staking rewards. This model is expected to drive new demand for ETH.

9. Crypto Companies Intensively Going Public, Creating Ongoing Capital Hotspots

Stablecoin issuer Circle debuted on Nasdaq in early June, with its stock soaring over 200% on its first trading day, sparking immense market enthusiasm for crypto-linked stocks. Several crypto companies have revealed plans to list on Nasdaq. These include Peter Thiel-backed crypto asset trading platform Bullish Global, established exchange Kraken, crypto asset management firm Galaxy Digital, crypto custody and institutional service provider Bitgo, and crypto mining equipment manufacturer Bgin Blockchain, among others. Some of these companies have already filed for IPOs. The successive listings of these projects are expected to create continuous funding hotspots, attracting more capital attention and participation in crypto assets.

```html

In summary, we believe that the ETH contract open interest is at a high level, indicating active capital flow; market sentiment is heating up, but has not yet entered the extreme greed phase; the number of bearish positions on trading platforms is increasing, but a significant imbalance between longs and shorts has yet to appear. ETH spot is in a continued inflow phase, while options show a bullish trend. The price has broken through a key support-resistance flip zone and further surpassed short-term resistance levels. Long-term accumulated short positions may further fuel the continuation of the bullish trend. Coupled with the easing of cryptocurrency regulations, the gradual increase in stablecoin market capitalization, the growth of Ethereum vault strategies in the US stock market, and the increasing acceptance of crypto companies by the US equity markets, ETH has the potential to break through $14,000 in the mid to long term.

4. Summary

In the United States, cryptocurrency regulations are becoming more systematic, standardized, and clarified, simplifying the processes for issuing, custody, and trading of crypto assets, while promoting the issuance of stablecoins. Additionally, it is exploring innovative assets like DeFi and RWA. These measures will collectively expand the crypto asset market size. Ethereum, which has the most mature on-chain financial ecosystem, is well-positioned to capture funds stemming from the regulatory compliance of stablecoins. DeFi projects and RWA projects built on Ethereum are also likely to benefit from this, paving the way for long-term growth.

This article is contributed and does not represent the views of BlockBeats.

```