Analysts at JPMorgan led by Nikolaos Panigirtzoglou have suggested that the second-largest cryptocurrency by market capitalization, Ethereum ($ETH) could see its dominance in the decentralized finance (DeFi) space fade to rivals.
The analysts, according to Bloomberg, revealed that until the final phase of sharding, which they described as the “most critical” development for scaling Ethereum, arrives in 2023, the network’s market share in the DeFi space could keep on dropping.
Sharding refers to a partitioning technique that improves a network’s scalability and is set to allow it to process more transactions per second. Sharding splits a blockchain into smaller partitions, known as shards, each one having its own data.
JPMorgan’s analysts, led by Panigirtzoglou, wrote that the “optimistic view about Ethereum’s dominance is at risk,” and as a result scaling “is necessary for the Ethereum network to maintain its dominance,” although they believe it might arrive too late.
Ethereum has been a dominant force in the decentralized finance space and held 100% of the market share at the beginning of last year. As demand for the network skyrocketed, transaction fees went up to the point many were priced out of the network.
Panigirtzoglou’s analysts wrote that a “rather problematic” aspect of the market share loss is that it’s occurring to other independent blockchains. Competitors like Avalanche, the Binance Smart Chain, Solana, and Terra have been seeing their total value locked skyrocket. As CryptoGlobe reported, Terra’s DeFi ecosystem surpassed $20 billion in total value locked late last year.
The analysts estimate that competitors’ ecosystems will have grown so much that when Ethereuim’s sharding is deployed, investors won’t return to its network en masse. Less demand for ether, they wrote, could negatively impact its price. They wrote:
In other words, Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given, in our opinion.
As reported, the total value locked on the decentralized finance ecosystem built on top of the Solana ($SOL) blockchain grew throughout November 2021 while Ethereum transaction fees hit a new all-time high that month, suggesting investors rotated to Solana over its cheaper transaction fees, according to a CryptoCompare report.
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