Buy Ethereum: Examining Ethereum's Domination in DeFi

February 04, 2022 Quick read

Ethereum is one of the most powerful blockchain networks and has been a pioneer in the field for so long that most of the popular crypto projects now operate on the Ethereum blockchain or used to. The native coin of Ethereum, ETH, is the second most valued cryptocurrency, with a gain of more than 200 percent in just 2021. However, Ethereum's market share has reportedly plummeted to 70% from 100% in early 2021. This could affect investors' decision to buy Ethereum and its dominance on DeFi. Will a new Ethereum competitor arise, or will the Web 2.0 champion continue to dominate the DeFi field for years to come?


Accessing Ethereum's DeFi Dominance


The downward trend in market share will continue to plague Ethereum for as long as Layer 1 solutions are not available. Because the scaling solutions aren't expected until late 2022, start 2023, it'll be too late to undo the harm. The gradual harm done to Ethereum as a result of the emergence of competing blockchain networks may have a negative impact on price forecasts for Ether in 2022 and investors' decision to buy Ethereum.


It's a fascinating question for a variety of reasons. One is that the DeFi space is still in its early stages of development. Early mover advantage can help you secure a market position, but that isn't always the case. It's very possible that a completely new blockchain system is already in the works, one that foresees market trends and fills multiple unmet needs as it establishes itself as vital.


An increasing number of industry insiders believe Ethereum will maintain its dominance in the short and medium term. This is because more investors are expected to buy Ethereum in the long run, further boosting Ethereum's chances of sustaining its dominance.


Last year, the crypto industry, which had previously been dominated solely on Bitcoin and Ethereum, began to diversify. Although cryptocurrencies other than Ethereum have been around for a long time, their growth has been stifled by the market's two behemoths. However, circumstances appear to be changing, as more coins with far superior systems and technical infrastructures than Bitcoin and Ethereum are vying for market share as investors who buy Ethereum, flock to other coins. Avalanche, Cardano, and Solana are just a handful of the many projects that have grown at an exponential rate. This list would be impossible to process if it included other meme coins, stable coins, and DEX initiatives.


End of the Road for Ethereum's DeFi Dominance?


As more investors buy Ethereum, it becomes more widely used, expenses rise, and when costs rise, people naturally hunt for cheaper alternatives, which some refer to as "Ethereum Killers." Higher throughput, faster settlements, and lower fees are all advantages of such platforms. It is possible that they might not be all that dissimilar to Ethereum.


While some of these, such as Solana and Avalanche, are experiencing a lot of activity and skyrocketing token prices, they are more Ethereum complements than Ethereum competitors. Each provides advantages to the consumer, such as speed and cost savings, and some are gaining traction with users. For instance, Solana has traded about $39 million in NFTs in recent times. As a result, the network now has over $11 billion in smart contracts, which is more than quadruple what it had only a few months ago.


None, however, can be compared to the Ethereum ecosystem in terms of size. Furthermore, recent advances suggest that if scaling solutions become available, Ethereum will be able to maintain its advantage."


Arbitrum, a layer 2 solution, runs transactions off the main chain to avoid higher fees and slower settlements, but it does so on a regular basis to take advantage of Ethereum's blockchain security. Although Arbitrum was launched just recently and already has over $1.5 billion worth of wealth locked in smart contracts on the platform. In the following weeks, further layer 2 solutions will be available.


It has plenty of potential, and as more developers join the business, it will get stronger. It will not, however, follow the usual pattern of multiple competitors arising to outdo one another.


Unlike previous network technologies, blockchain is not about winner-take-all, which the 'Ethereum killer' debate overlooks. These are relatively flexible platforms that change in response to user feedback and demand." It's likely that not all will succeed, but with the development of bridges and other connective functionalities, one dominant solution is no longer necessary.


Smart contract networks can assist each other, allowing the market to determine acceptable trade-offs while the end-users decide on success. All of these could affect investors' decision to buy Ethereum and thus lead to the end of Ethereum's DeFi Dominance.