Ethereum And The Race to DeFi Dominance

By Kevin • January 10, 2022 9:42 pm • Comments

Emerging from the crypto and blockchain industry is a new space called decentralized finance (or DeFi for short) which has attracted a lot of attention recently.

To summarize, decentralized finance is all about removing the middlemen like banks or other financial institutions out of traditional financial services.

By doing so, no one but the owner will have access or ownership to the digital currency.

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Additionally, DeFi provides opportunities to everyone as it eliminates the barrier to entry for many financial transactions which includes using it as a lending network, as a decentralized exchange, or as stablecoins to offset price volatility.

Currently, ethereum is the most popular blockchain used in the DeFi space, but it may not be 1st place for long.

This is due to the fact that many of the essential upgrades that investors are expecting are not coming until 2023 which may be considered too late.

Business Insider reports:

Ethereum is at least a year away from getting its key blockchain upgrade out into the world, and that could give rival networks a chance to eat away at its lead in crypto apps, according to JPMorgan analysts.

The ethereum network dominates in usage for decentralized finance, or DeFi, which aims to cut traditional intermediaries like banks out of financial services.

The blockchain is undergoing a long-awaited change to how transactions are processed, and the upgrade has drawn investors to ethereum because they believe it could reduce congestion and costs.

Many crypto watchers believe ethereum’s shift from “proof of work” to “proof of stake” in mid-2022 will encourage more investors to bet on the network and its native token ether, JPMorgan analysts said in a note Wednesday.

But another key stage in the etherum 2.0 upgrade, known as “sharding,” isn’t expected to take place until 2023. That timeframe provides an opening for other crypto app networks, they pointed out.

“In our mind, this optimistic view about ethereum’s dominance is at risk,” the analysts, led by Nikolaos Panigirtzoglou, said.

“This is because the scaling of the ethereum network, which is necessary for the ethereum network to maintain its dominance, might arrive too late.”

Opinions from JP Morgan analysts seem to agree due to the arrival of many other strong competitors in the space which include blockchains like solana, fantom, and tron.

These other blockchain alternatives, according to the company, have gained significant market share and have the potential to surpass ethereum in the DeFi space in the upcoming years.

Ethereum still holds it’s dominance though partly due to the fact that it launched in 2015 which gives it a head start compared to other popular blockchains like solana which launched in 2020.

The longer ethereum delays critical upgrades that makes it more attractive for investors and developers, the more time competitors will have to gain ground.

At the time of publishing, Ethereum has a market cap of $405 billion giving the blockchain the second highest marketcap behind Bitcoin and still holds about 60-70% of the DeFi marketshare compared to close to 100% marketshare at the start of 2021.

Analysts expect multiple competitor blockchains to continue to gain ground in the DeFi space this year.

 

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