Here’s why Ethereum’s dominance on DeFi is falling

Ethereum is undoubtedly the leading DeFi blockchain, but this could be about to change as analysts at JPMorgan have pointed out that the asset’s dominance in the space could already be fading.

According to analysts, the rise of smart contract-enabled protocols like Terra, Avalanche, and Solana has shown that Ethereum’s leadership is not absolute in DeFi.

These projects, it was revealed, have eaten their dominance and could have a bigger impact in this new year.

Ethereum is losing dominance in DeFi

To put this in perspective, Ethereum’s DeFi TVL market share was almost 100% in early 2021. However, that figure had dropped to around 65% by the end of the same year.

Nikolaos Panigirtzoglou, leader of the analyst team, wrote that the main cause of the loss of ground could be related to the scalability of the ETH network.

According to the note, the scale upgrade Ethereum needs to maintain its dominance of space could come too late.

“Ethereum is currently in an intense race to maintain its dominance in the applications space and the outcome of that race is far from over.”

Due to this scale issue, other independent blockchains such as Terra, Avalanche, and Solana have enjoyed large investor funding and are incentivizing the use of their platforms.

Why is Ethereum losing its dominance?

A cursory look at the number of transactions that each DeFi-compliant blockchain could perform in a second would reveal that Ethereum is far behind its competitors.

Based on available data, while ETH can complete between 15 and 45 transactions per second (TPS), competitors such as Terra and Solana can complete 1,000 TPS and 50,000 TPS, respectively.

Apart from this, there is the problem of high gas fees, which is quite common with the Ethereum blockchain. Although the network has been fighting this with its EIP-1559 update, the transaction fee from rivals like Solana is still much cheaper.

All of this could have influenced the analysts’ conclusion that the Ethereum network might not enjoy its current level of activity when its scale upgrade is complete, as users could have migrated to the ecosystems of its competitors.

We are already beginning to see claims about what the Bank of America recently said that Avalanche provides a credible alternative to Ethereum for DeFi protocols, NFT and other activities. Since then, the TVL of projects on its blockchain has grown to more than $ 11 billion, according to data by DeFiLlama.

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Source: https://cryptoslate.com/here-is-why-ethereums-dominance-in-defi-is-falling/

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