Over the past five months, Cardano (CRYPTO: ADA) has largely kept pace with blockchain rival Ethereum (CRYPTO: ETH), making it one of the surprise crypto stories of the year. In the aftermath of The Merge, many investors expected Ethereum to decisively break away from all of its blockchain challengers, but that doesn't seem to be happening. For the year, Ethereum is up 55%, while Cardano is up 48%.
Cardano has finally started to have success in key areas of the blockchain world where it has historically lagged, but some investors are still skeptical. Just how much longer can Cardano continue to keep up with Ethereum? If you're thinking about buying Cardano now, here are a few points to consider.
Blockchain upgrades
While all the attention has been on Ethereum's recent technological upgrades, Cardano has been upgrading its blockchain network as well. In fall 2022, Cardano completed its Vasil upgrade, which brought further functionality to the blockchain in terms of being able to handle smart contracts. These smart contracts are small pieces of self-executable computer code that make it possible to create sophisticated decentralized finance (DeFi) offerings.
At the same time, Cardano is moving forward with other initiatives that are designed to make the blockchain run even smoother and faster. For example, Cardano recently unveiled Hydra, which is a new Layer 2 scaling solution that could eventually make it possible to handle as many as 1 million transactions per second. This transaction processing speed has become a sort of mythical goal in the crypto world. Ethereum has been promising 1 million transactions per second for years, but has never delivered.
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All of these new upgrades are great, of course, but it's easy to see how some investors might view them as just incremental improvements. After all, doesn't every blockchain make periodic upgrades? Yes, but in the case of Cardano, we are starting to see key metrics improve significantly as a result of these upgrades. For example, Cardano transaction volume is already up 205% year to date, and the latest blockchain analytics data appears to show strong Cardano growth in a number of different areas.
DeFi growth
Where things get really interesting for Cardano is decentralized finance (DeFi). As noted above, recent Cardano upgrades have focused on smart contract functionality, and this is the key to success in the DeFi world. At the outset of 2023, Cardano promised to make significant improvements in DeFi, and we are just now starting to see the fruits of these labors.
For example, in January 2023, Cardano launched a new stablecoin that will make it much easier for traditional finance players to get started in DeFi on the Cardano blockchain. Cardano has also seen the blossoming of new decentralized exchanges for trading digital assets. As a result, Cardano has seen a dramatic uptick in its total value locked (TVL) metric, which is a key indicator of how much Cardano is "locked" on the blockchain in the form of DeFi protocols. Until this year, Cardano was a non-player in DeFi, but now it looks like Cardano is starting to turn things around. Cardano's TVL is now at a 10-month high.
This newfound DeFi prowess is leading to new partnerships, new innovations, and new potential avenues for growth. For example, Cardano recently partnered with Acredius, a Zurich-based fundraising platform, on new lending initiatives for Swiss companies. This would not have been possible a year ago. And Cardano is pushing the envelope with new innovations such as Cardano Bitcoin, a new token that makes it possible to use Bitcoin on the Cardano blockchain.
Should you buy Cardano?
Given all of these promising signs of growth, a $1 price level for Cardano could be within reach. Based on Cardano's current price of $0.37, that implies a nearly 3x move to the upside. That might sound aggressive for Cardano, which is a crypto that has disappointed investors in the past more than a few times. However, I'm particularly encouraged by Cardano's growth in the area of decentralized finance. As long as key DeFi metrics continue to tick upward, I'm bullish on Cardano's long-term prospects.
