The new financial backend of the world

5 min read Keywords:  ethereum, economy, crypto
A luminous classical harbour at golden hour: ships at anchor, figures loading rowboats from the quay, a colonnaded palace on the right and a ruined arch on the left, the low sun mirrored across the calm water.
Seaport with the Embarkation of the Queen of Sheba, Claude Lorrain, 1648. National Gallery, London, public domain, via Wikimedia Commons.

By Federico Carrone and Roberto Catalan

The previous article argued that the internet left a gap in institutional infrastructure: it moved information but not ownership. Ethereum fills that gap by embedding ownership, transfer, and enforcement into shared software. Financial institutions today spend enormous resources on authorization, accounting, reconciliation, and compliance. Ethereum substitutes a portion of that apparatus with a programmable execution environment and cryptographic enforcement. This article looks at the specific economic mechanisms through which that substitution works.

#Three frictions

Some economists describe transaction costs through three frictions: triangulation, transfer and trust. Triangulation concerns how economic actors identify each other and agree on terms. Transfer concerns how value moves between them. Trust concerns the enforcement of obligations. Traditional financial architecture manages these frictions through scale, proprietary systems, and coordination among intermediaries.

Ethereum lowers all three, and the numbers are now hard to wave away. Take transfer: stablecoins, dollar tokens that live on the chain, settled about $27.6 trillion in 2024, more than Visa and Mastercard combined, with roughly 95 percent of that volume on Ethereum and its rollups. Most of that figure is exchange and bot flow rather than honest payments, so discount it heavily, but the payments slice is real and growing, and a dollar can move between two strangers in different countries in seconds for cents, with no chain of correspondent banks in between. Take trust: a loan on Aave never asks who you are. The collateral rules sit in a contract that liquidates the position automatically when it crosses a threshold, and anyone can read that contract before they sign.

None of this removes institutions; it changes which parts of the stack they have to build. A startup offering dollar accounts in Lagos or Buenos Aires no longer builds settlement, custody, and clearing. It inherits them the way a web startup inherits TCP/IP, and spends its effort on product and distribution. That lets firms serve markets incumbents wave off as too small or too complex.

Having a single global ledger also changes operational dynamics. Many institutions operate multiple databases that require frequent reconciliation and remain vulnerable to error. Ethereum maintains a continuously updated and replicated record that cannot be amended retroactively. Redundancy and recoverability become default properties rather than costly internal functions.

Security follows the same pattern. Instead of defending a central database, Ethereum distributes verification among many independent actors. Altering history requires coordination at scale and becomes prohibitively expensive. Confidence arises from system design rather than institutional promises.

#New financial services and global reach

You can see this in what people actually do with it. In Argentina, where the peso lost more than half its value against the dollar in 2023, ordinary savers hold USDT the way they once held paper dollars in a drawer, except this version moves. Remittances that cost the global average of around 6 percent through a money-transfer operator move as stablecoins for a fraction of that. And the instruments are climbing the respectability ladder: tokenized US Treasury funds grew from about $140 million in early 2024 to roughly $8 billion by late 2025, led by BlackRock’s BUIDL at around $2.8 billion, with Franklin Templeton running a government money-market fund whose shareholder records live on seven different chains.

The pattern underneath is always the same. Work that used to live inside an organization, reconciling ledgers, proving balances, enforcing the terms of a deal, moves into shared software that every participant can read. The firm is left with the parts that actually differentiate it, product and distribution, and it grows by winning users rather than by rebuilding plumbing its competitors already have.

The impact is most visible in markets with fragile financial systems. In economies with unstable currencies or slow payment networks, Ethereum provides immediate functional gains. In developed markets the benefits appear incremental but accumulate as more instruments and processes become programmable.

#Institutional transformation and long term dynamics

Many financial instruments are heterogeneous. Corporate debt is a clear example. Terms differ by maturity, coupon, covenants, collateral, and risk. Trading depends on bilateral negotiation and intermediaries who maintain records and enforce obligations. Ethereum can represent these instruments digitally, track ownership, and execute terms automatically. Contracts retain their specificity, while administration becomes standardized and interoperable.

The boundary between what firms must build and what software can enforce is moving. Regulation and legal systems remain central, but the institutions sitting on top of them look different when settlement, custody, and enforcement are handled by shared infrastructure instead of proprietary systems.

Ethereum already functions as an alternative financial rail. Multiple independently developed clients, substantial real world usage, an active research community, and a commitment to openness and verification set it apart from other blockchain networks.

#Conclusion

Ethereum converts core financial frictions into software functions, and that changes the economics of building and operating financial services. Institutions become lighter, focused on product and distribution rather than internal infrastructure.

Technological transitions begin in niches where incumbents do not meet demand. As systems mature, costs fall and broader adoption becomes feasible. Ethereum followed this path. It began with internet native communities, expanded across emerging markets where users lacked reliable financial tools, and is now positioned to upgrade mainstream markets by making financial companies easier to create and operate.

Software is becoming the organizing principle of financial infrastructure. Ethereum makes that concrete. Regulation and institutional adaptation will shape how far it goes, but the economic incentives already point toward systems that are open, verifiable, and resilient.

#Further reading