Ethereum Defi Dominance at Risk to Smart Contracts Crypto Networks

According to a note from JPMorgan, Ethereum may be at risk of losing its defi dominance if it is unable to quickly forge effective scaling solutions. It also stated other smart contracts-enabled blockchains are taking market share from Ethereum sidechains or other Ethereum-based solutions, according to a note written by Nikolaos Panigirtzoglou, managing director, global markets strategy.

Ethereum Dominance at Stake According to JPMorgan

A note from JPMorgan states that Ethereum might keep losing dominance in the field of decentralized finance in the coming year. The note, written by Nikolaos Panigirtzoglou, managing director of global markets strategy at JPMorgan, states this dominance is at risk due to the problems Ethereum has had scaling its network.

On this, the note stated that scaling:

Which is necessary for the Ethereum network to maintain its dominance, might arrive too late.

Ethereum has centered on an L2 (Layer 2)-centric roadmap, that supports the rise of rollups and sidechains to try and find alternatives to the intensive activity and high fees that are happening on its Layer 1 blockchain. Even with this strategy, the percentage of defi dominance, which was estimated at almost 100% at the start of last year, has dropped to an estimate of 70% of the market right now.

The Rise of New Challengers

Panigirtzoglou further explains that what’s more problematic is the fact that Ethereum has lost part of its influence in the defi arena to other chains, instead of to its own L2 scaling solutions. Solana, Avalanche, BSC, and Terra, a group of smart contracts-enabled cryptocurrencies and networks known as “ethereum killers,” have been gaining market share and creating a community behind them.

This has also resulted in the price increase of their respective native tokens. While Ethereum managed to also increase the price of its network asset, ether (ETH), each one of the aforementioned tokens surpassed ETH’s performance last year. Sharding, which is the strategy Ethereum will use to scale in its L1 blockchain, won’t arrive until next year after the merge, which will change the proof-of-work (PoW) consensus to a more energy-friendly proof-of-stake (PoS) consensus.

The note concluded:

In other words, Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given, in our opinion.