JPMorgan Analysts: Ethereum Could Lose Its Dominance In DeFi Space Soon
Currently there is no question that Ethereum is the leading blockchain in DeFi, but this could be changing soon as analysts at JPMorgan have noted that the dominance of the asset in the space could already be diminishing.
The rise of smart contract-enabled protocols like Terra, Avalanche, and Solana have shown that the lead of Ethereum is not absolute in DeFi, the analysts say.
These projects, which are already taken a toll of Ethereum’s dominance, and as it seems that they could potentially charge further impact this year.
To put this in perspective, Ethereum’s market share of DeFi TVL was almost at 100% at the beginning of 2021. However, that figure had dropped to around 65% towards the end of the same year.
Nikolaos Panigirtzoglou, the team leader of the analysts, wrote that the major cause of the lost ground could be tied to the scalability of the ETH network.
He opined, the scaling upgrade needed by Ethereum to maintain its dominance of the space might arrive too late.
“Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given.”
The scaling problem has enabled other independent blockchains like Terra, Avalanche, and Solana to raise large funding rounds from investors and are incentivizing the use of their platforms.
A cursory look at the number of transactions each DeFi-supporting blockchain could perform within a second would reveal that Ethereum is far behind its competitors.
Data reveals that while ETH can complete between 15-45 transactions per second (TPS), competitors like Terra and Solana can complete 1,000 TPS and 50,000 TPS, respectively.
There is also the big issue with the high gas fees which is quite well-known with the Ethereum blockchain. Though the network has been battling this with its EIP-1559 upgrade, the transaction fee on rivals like Solana is still very much cheaper.
All of this might have played a role in the analysts concluding that Ethereum’s network might not keep its current level of activity when its scaling update is completed, as users might have moved to competing ecosystems.
Bank of America recently said that Avalanche provides a credible alternative to Ethereum for DeFi protocols, NFTs, and other activities. Since then, the TVL of projects on its blockchain has grown to over $11 billion, according to data from DeFiLlama.
