JPMorgan: Ethereum rivals mounting severe challenge to its DeFi dominance

    09 Jan 2022

    Analysts at JPMorgan led by Nikolaos Panigirtzoglou have suggested that Ethereum, the second-largest cryptocurrency by market cap, could see its dominance in the decentralized finance (DeFi) space fade to rivals.


    According to Bloomberg, the analysts revealed that until the final phase of sharding, which they described as the “most critical” development for scaling Ethereum, arrives in 2023, the network’s market share in the DeFi space could keep on dropping.

    Sharding refers to a partitioning technique that improves a network’s scalability and is set to allow it to process more transactions per second. Sharding splits a blockchain into smaller partitions, known as shards, each with its own data.

    Led by Panigirtzoglou, JPMorgan’s analysts wrote that the “optimistic view about Ethereum’s dominance is at risk,” and as a result, scaling “is necessary for the Ethereum network to maintain its dominance,” however, they believe it might arrive too late.

    Ethereum has been a dominant force in the decentralized finance space and held 100% of the market share at the beginning of last year. However, as demand for the network skyrocketed, transaction fees went up to the point many were priced out of the network.

    The analysts wrote that a “rather problematic” aspect of the market share loss is that it’s occurring to other independent blockchains. Competitors like Avalanche, the Binance Smart Chain, Solana, and Terra have seen their total value locked skyrocket. For example, as CryptoGlobe reported, Terra’s DeFi ecosystem surpassed $20 billion in total value locked (TVL) late last year.

    Panigirtzoglou’s analysts estimate that competitors’ ecosystems will have grown so much that when Ethereuim’s sharding is deployed, investors won’t return to its network en masse. Less demand for ether, they wrote, could negatively impact its price. They wrote:

    “In other words, Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given, in our opinion.”

    As reported, the total value locked on the decentralized finance ecosystem built on top of the Solana blockchain grew throughout November 2021 while Ethereum transaction fees hit a new all-time high that month, suggesting investors rotated to Solana over its cheaper transaction fees, according to a CryptoCompare report.

    According to JPMorgan, here’s why these four potential “Ethereum killers” could put a further dent into Ether’s dominance.

    1. Solana is much faster.

    “Solana is one of the fastest-growing cryptocurrencies. Its developers have claimed that it can process around 50,000 transactions per second, whereas Ethereum currently processes 15-45 TPS. SOL has over 400 projects running on its ecosystem, including stablecoins like Circle’s USD. It also runs wallets, decentralized exchanges, and other DeFi projects,” JPMorgan said.

    1. Cardano is more scalable.

    “Cardano was launched by one of Ethereum’s co-founders, Charles Hoskinson. It has taken a research-intensive approach to the development, with each stage peer-reviewed and thoroughly tested before implementation. Cardano is now also launching its smart contract capabilities. This third-generation cryptocurrency is considered more scalable than Ethereum,” JPMorgan said.

    1. Polkadot is more interoperable.

    “Polkadot aims to solve some of Ethereum’s scalability and cost issues. But Polkadot shines in its interoperability capabilities as it enables blockchains to communicate effectively. This approach also makes it easier for developers to switch to Polkadot’s system,” JPMorgan said.

    1. Tezos

    “Tezos is a user-focused, open-source project that allows users to weigh on project governance and the direction of the blockchain. In addition, Tezos provides well-regarded security and modularity and is viewed as more scalable,” JPMorgan said.

    But these four cryptos still have a long way to go before they can seriously challenge Ethereum’s dominance. The combined market value of all four “Ethereum killers” is still worth less than a third of ether’s market value.

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