Even after the merge (2.0), will Ethereum dominance continue? Covered: dApp Dominance Falling Gas Fees Will Not be Solved in 2022 Layer 2’s Take Liquidity From Ethereum dApp Dominance Falling  As 2022 rolls on and gas fees plummet, it’s easy to forget that Ethereum will be shipping the most intensive network overhaul in the history […] The post How Long Can Ethereum Hang On To Its Market Share? appeared first on CryptosRus.

How Long Can Ethereum Hang On To Its Market Share?

Even after the merge (2.0), will Ethereum dominance continue?

Covered:

  • dApp Dominance Falling
  • Gas Fees Will Not be Solved in 2022
  • Layer 2’s Take Liquidity From Ethereum

dApp Dominance Falling 

As 2022 rolls on and gas fees plummet, it’s easy to forget that Ethereum will be shipping the most intensive network overhaul in the history of crypto. Because Ethereum uses proof-of-work, miners must use their hash power to bid for the next block. Ethereum’s immense popularity means that the congestion on the network makes for a slow, expensive experience.

This has taken a toll on Ethereum as users flock to cheap, fast, EVM compatible chains like Polygon, Fantom, and Avalanche. Before 2021, Ethereum was the only game in town. There were no chains that had ported over dApps like AAVE or Curv. Now, as each day goes by, Ethereum is losing market share to these new chains.

A great example of how quickly this can happen can be seen in the rapid rise of AAVE on Avalanche. AAVE is an Ethereum DeFi staple and currently has the second most value locked in all of DeFi. Of the ~$20 billion in TVL that AAVE commands, ~$5 billion of it lives on Avalanche, according to DefiLlama.

In other words, Avalanche nabbed a quarter of the liquidity in a matter of 6 months — AAVE only launched on Avalanche in October of 2021. Avalanche has even recently flipped Ethereum in daily gas paid. This means people are using Avalanche more, and while gas is rising on Avalanche, $5 is considered very high, which is rarely even seen on Ethereum.

Credit: Nansen.AI

Gas Fees Will Not be Solved in 2022

We know for sure that in 2022, gas fees will not be solved. That requires sharding of the chain, which is slated for 2023. This means the same problems will plague Ethereum, but that’s assuming that the network will even be congested enough to cause higher gas prices. How long can Ethereum hang on to its market share stuck in the mud like this?

Now, the argument is that gas fees will be lessened by layer two scaling solutions like Polygon, Arbitrum, and, ironically, Avalanche, as you can see in the above tweet. However, experts have noted that the relationship between Ethereum and the sidechains, rollups, and solutions that have a token and their own community, is not quite symbiotic or even beneficial to Ethereum at all.

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Layer 2’s Take Liquidity From Ethereum

The idea from the Ethereum camp is that all the scaling solutions “settle” on Ethereum. While this is obviously not true for Avalanche, Tascha Labs explained in a December 2021 blog why it’s a flawed concept to assume these scaling solutions actually benefit Ethereum or holders.

“Eth Layer 1 does 1.3 million daily transactions right now. ZK rollups can have 60k-80k transactions in a batch before submitting to Layer 1. If we move all end-user transactions from Eth Layer 1 to rollups today and all Layer 2 batches are full, that means the number of transactions on Eth Layer 1 could drop to 1/20 of the current level.”

She poses that right now, Ethereum is in “no man’s land” because there isn’t enough demand on Layer 2’s, and that would have to change drastically to benefit Ethereum at the Layer 1 level, or as the “settlement layer” to make up for all the lost activity ceded to Layer 2’s.

“Layer 2 growth is taking existing transactions away from eth Layer 1, while Layer 2s don’t have enough business yet for their proof-verification transactions to more than compensate for activities they take away from eth Layer 1.” Still, even with sub-par demand, Polygon still flipped ETH in ‘active addresses’ last October. Increased activity = increased demand for token. Not the ETH token, but the MATIC one.

Credit: CoinDesk

With the rise of Layer 1’s eating up nearly half of all DeFi, and Layer 2 making it, so you won’t even need to own ETH to use DeFi on Ethereum. All this can result in a loss of liquidity for the ETH token. This applies to Polkadot and Cosmos too. You don’t really need exposure to Polkadot or Cosmos to use their networks. “Face time” with users and activity on the main chain matters.

Liquidity is to web three what eyeballs are to web 2. When a Layer 1 redirects that liquidity, they are giving up a lot. Considering everything mentioned above, and without even going into the non-EVM alliance that’s growing between chains like Algorand, Solana, Terra, and Cardano, I think Ethereum will lose its market share sooner than later.

Sharding, which is the whole point of ETH 2, is not new. What Ethereum will roll out will not “change the game.” All that tech is out there (Harmony, NEAR, Cosmos, Polkadot), and it’s a matter of time before more users find it.

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The post How Long Can Ethereum Hang On To Its Market Share? appeared first on CryptosRus.