Does the future of DeFi still belong to the Ethereum blockchain?

Ethereum, a decentralized finance giant, has seen significant growth over the past few years, driven by events such as the “DeFi Summer” and the rise of NFTs.

However, Ethereum's popularity could lead to its downfall as other protocols look to cannibalize or completely consume its market position.

Birth of Bitcoin and Ethereum

The mother of all blockchains, Bitcoin (BTC) was the first iteration of the cryptocurrency as it is widely known today. Since then, there have been many attempts to provide users with more powerful features, but most of them have not had long-lasting vitality. One that has taken up the challenge is ethereum, whose native ethereum (ETH) is currently the second-largest cryptocurrency by market capitalization.

Cointelegraph Research released a 74-page report that delves into the rise of Ethereum, starting with a comparison of Bitcoin’s history with Ethereum’s and where it stands today. Ethereum offers users a way to create smart contracts in a way that Bitcoin cannot, which has helped propel Ethereum to its current status as the leading blockchain for DeFi. It’s clear that Bitcoin is here to stay, and its DeFi capabilities have advanced — primarily leveraging layer 2 solutions to help with scalability, such as the Lightning Network, Portals, and DeFiChain. However, Ethereum is still far ahead of Bitcoin in the DeFi space, but can it maintain this position?

Current Strengths and Weaknesses of Ethereum

Ethereum has seen unprecedented adoption in 2021, peaking at 800,000 daily active users in November. It has real-life adoption use cases, with over $150 billion in total value locked in DeFi applications running on the blockchain in 2021. Some of the services offered by decentralized applications on Ethereum include lending, derivatives, asset management, stablecoins, trading, and insurance. However, due to the growing adoption of blockchain over the past few years, its popularity is also its curse.

The more the network is used, the more congested it becomes, and transaction costs (also known as gas fees) become higher. These fees help incentivize the network's miners to participate in the proof-of-work consensus mechanism it uses. The congestion and scaling problems have an answer, and that is Ethereum's move to proof-of-stake and other upgrades in its full transition to what is colloquially known as Ethereum 2.0. However, delays in the various phases of Eth2’s full rollout, combined with the growing popularity of other smart contract blockchains, could see Ethereum’s crown fall.

new kid

There are a lot of blockchain protocols trying to climb to the top of the crypto charts. In recent years, only a few have shown strong adoption, popularity and real use cases, and they are starting to get the attention of some people in the blockchain space who would normally go to Ethereum. The Cointelegraph Research report takes a deep dive into three of these blockchains: Solana, Polkadot, and Algorand. Each protocol's history, unique characteristics, ecosystem, and scaling potential are explained in detail to help determine whether any of these chains have what it takes to be an "Ethereum Killer."

Solana reports that it can handle over 50,000 transactions per second (TPS), but the network has yet to reach those levels, and while it still offers faster transaction speeds than Ethereum, each transaction costs a fraction of Ethereum's . Polkadot brings interoperability, allowing various chains to work together seamlessly. However, this hasn’t quite kicked off yet, and it’s unclear how Polkadot will play out when it actually works in the real world. Algorand is a blockchain created by some of the best minds in cryptography with a history of high TPS, low network fees, and no downtime. Its adoption metrics show a slow but steady pace - will the strategy ultimately pay off?

Solana, Polkadot, and Algorand operate very differently from each other, and in their current form, they all offer advantages over Ethereum. While the future may indeed be multi-chain and have a path to interoperability, only the best will dominate the DeFi space - which one will it be?

Can Ethereum maintain its status in 2022 and beyond?

Ethereum has some serious competition with Solana, Polkadot, and Algorand among others. Each offers a solution to Ethereum's current problems. If the full rollout of Eth2 is not executed well or continues to be delayed, these emerging protocols will happily replace Ethereum as the king of DeFi.