A few years back, cryptocurrency existed on the fringes of the finance world, and many investors saw little appeal or long-term value in digital assets. But that sentiment is slowly shifting. Today, investment banks like Goldman Sachs are involved in the crypto market, and 83% of millionaire millennials own crypto.
Decentralized finance (DeFi) is one driver behind that trend. DeFi allows people to borrow, lend, and earn interest on money without going through a traditional financial institution. And by removing banks from the equation, DeFi can make financial services more efficient and more accessible.
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Ethereum has long been the largest ecosystem of decentralized software and services in the blockchain industry, but challengers like Avalanche (AVAX 2.79%) and Fantom (FTM 3.80%) are gaining ground and could eventually overtake Ethereum. For that reason, both cryptocurrencies look like smart long-term investments.
Here's what you should know.
1. Avalanche
Avalanche is a smart-contracts platform designed to be a faster, cheaper alternative to Ethereum. Its core innovation is the Snowman consensus protocol, a proof-of-stake (PoS) mechanism that accelerates throughput by allowing validators to confirm transactions by randomly sampling a small subset of nodes (computers), rather than checking each transaction with every node on the network.
As a result, Avalanche can handle 4,500 transactions per second (TPS), and it can finalize those transactions in just two seconds.
That speed makes Avalanche far more scalable than Ethereum, which currently handles just 14 TPS and requires up to six minutes to achieve finality. Moreover, because users aren't competing for limited computing resources on the blockchain, the average transaction on Avalanche currently costs about $0.20, while the average transaction on Ethereum will set you back $11.
Better yet, Avalanche is compatible with Ethereum's self-excuting smart contracts, meaning developers can easily port their Ethereum-based software and services to the Avalanche blockchain, which itself is a faster and cheaper alternative. Not surprisingly, that value proposition has translated into strong adoption.
Avalanche currently ranks as the fourth most-popular DeFi ecosystem, with more than $10 billion invested on the platform. And investors have good reason to believe that figure will continue to rise. In December, a native version of Ethereum-based USD Coin (USDC) went live on Avalanche, meaning investors no longer have to port USDC from the Ethereum blockchain. Who cares? USDC is a stablecoin pegged to the U.S. dollar, and it allows investors to participate in DeFi without holding volatile cryptocurrencies. For that reason, its presence as a native coin could supercharge DeFi adoption on the Avalanche blockchain.
As more consumers and investors use the software and services on Avalanche, demand for the AVAX token should rise, driving its price higher. And given its value proposition -- as a faster, cheaper alternative to Ethereum -- I think Avalanche investors could see big gains in the years ahead. With a market value of $22 billion, Avalanche is worth a fraction of Ethereum's $372 billion.
Better yet, Avalanche is also cheaper on a relative basis. Its ratio of market cap to DeFi investment value (which is analogous to share price to book value for corporations) is 2.3, while Ethereum's ratio of market cap to DeFi investment value is 3.2.
2. Fantom
The Fantom blockchain was designed to be a more-scalable alternative to Ethereum. Its core innovation is the Lachesis protocol, a proof-of-stake consensus mechanism that allows validators to confirm transactions at their own pace, without checking each transaction with every other validator on the network. That makes Fantom the fastest public blockchain in the crypto industry, according to the development team.
Whether that is true, the platform can handle thousands of transactions per second, and it can finalize transactions in just one second. Similar to Avalanche, Fantom's scalability keeps fees low: The average transaction currently costs a fraction of a cent.
Moreover, Fantom is also compatible with Ethereum smart contracts, meaning Ethereum-based software and services can easily be added to the Fantom blockchain. For instance, popular yield farming service Yearn Finance went live on Fantom in October. That interoperability could be a significant tailwind for this Ethereum challenger.
Like Avalanche, Fantom has a clear value proposition: Developers can build fast, scalable software and services, and consumers can use those products for less than a penny per transaction. And while Fantom went live just over two years ago, it's already the sixth largest DeFi ecosystem, with $6.4 billion invested on the platform. As more consumers adopt software and services on Fantom, demand for the FTM token should rise, pushing its price higher.
The ratio of Fantom's market cap to DeFi investment value currently sits at less than 0.6, meaning its far cheaper than Ethereum (and Avalanche) on a relative basis. From that perspective, Fantom appears to be undervalued. And given its potential to disrupt Ethereum, I think it's worth buying this cryptocurrency.
