Over the past four-year cycle, the crypto space has evolved a lot, setting the stage for a potential shift in power dynamics. While Bitcoin remains unchallenged as the leader in the role of digital money, Ethereum's position as the leader of all things web3 faces increasing competition.
Its high fees and low transaction throughput have propelled the creation of many other layer-1 blockchains, such as Solana or Near, as well as Ethereum’s own layer-2 solutions, or sidechains, such as Polygon or Arbitrum. These networks – including layer-2s – are now starting to become a real threat to Ethereum. Furthermore, with Bitcoin entering the game and developing both NFT and DeFi capabilities, the competition becomes even fiercer.
It looks like Ethereum is losing its market share, and this might be the reason behind the comparatively slow ETH price recovery. Indeed, while BTC peaked at +67% since October (before this week’s correction), ETH, which usually has a bigger amplitude, scored “only” +55%.
Compared to Solana’s $SOL +260%, $NEAR’s +157%, or Polygon’s $MATIC +91%, ETH’s performance appears modest indeed. Does this mean that its time of web3 dominance is over?
NFT volume
Ethereum was the first blockchain to enable complex smart contracts, which in turn gave birth to web3 – a new iteration of the World Wide Web based on blockchain technology.
NFTs are an important part of web3, either as standalone collections, elements of crypto games, or carrying any other utility that developers’ imagination may assign to them.
Ethereum has kept its leading position since the beginning of web3, despite its low transaction throughput and high fees. Most superstar NFT collections were created on Ethereum: CryptoPunks, Bored Apes Yacht Club, Azuki… However, despite the status of these trailblazers, and the efforts their developing teams undertake (like Pudgy Penguins which recently released a game), an increasing number of new collections sprout on other blockchains. As to crypto gaming, it has never been Ethereum’s strong side due to the high fees, and its sidechains Polygon, Ronin, and Immutable X did the job much better.
The incredible rise of Bitcoin Ordinals has relegated Ethereum NFT sales volume to second place, and the rise of Solana could threaten a further decrease. According to cryptoslam, Solana’s 30-day trading volume is still twice less than Ethereum’s ($165 million vs $377 million), however, on several occasions this month Solana’s 24-hour trading volume has beaten Ethereum’s.
DeFi activity
Decentralized finance, or DeFi, has always been Ethereum’s bread and butter, and the blockchain still holds an impressive 65% of all TVL (total value locked).
However, the activity on other chains is gaining steam. In fact, Ethereum DEX’s volume is currently at its lowest point, with less than 30% of all the trades. According to DefiLlama, Solana’s 7-day DEX (decentralized exchange) volume of $6 billion is already two-thirds of Ethereum’s $9 billion, and this despite a drastic difference in TVL: $310 million locked on Solana vs $6.3 billion locked on Ethereum.
Yes, Solana is advancing on the DeFi front as well. Last week’s launch of Jito, a decentralized liquid staking protocol similar to Ethereum’s Lido, was a major success, with Jito DAO now holding over $654 million and the $JTO token listed on major exchanges.
An interesting metric on flipside shows a steep increase in transfers to Solana on Mayan Swap, a cross-chain bridge. Last week, the protocol transferred some $12 million from Ethereum, suggesting that more Ethereum holders are probably changing their allegiance.
What future for Ethereum?
With $15 billion worth of ETH traded daily, Ether is still second-most traded cryptocurrency after Bitcoin (excluding stablecoins), and it is still home to the most popular NFT collections and DeFi DApps. It also boasts the biggest developer community. However, the dynamic is clear: Ethereum is losing its market share.
Will the upcoming sharding and the following dramatic increase in scalability boost the blockchain use and change the dynamic is a valid question. Probably, if the sharding had come earlier, it could have changed the current outlook. Now, however, it may be a little too late for Ethereum to hope to keep its leading position. Competing layer-1s are developing, and its layer-2s are rather emancipated and have their own ecosystems. Polygon is even evolving into a standalone network.
The future of web3 will most certainly be multichain, without any blockchain holding supremacy. Ethereum will most likely be part of that future, and BlackRock filing last month for a spot ETH ETF confirmed that.
