Let's be clear: Ethereum (ETH 2.68%) remains the top dog in the world of decentralized finance (DeFi), and in the world of basically anything utility-generating in the crypto world (having invented smart contracts helps with that). This has provided investors in Ethereum with among the largest moats in the crypto sector.
When one company (or in this case, crypto network) dominates the discussion in a high-growth area of the market, alternatives are bound to pop up. Competitors have certainly stepped up their game, with plenty of "Ethereum killers" being launched over the past five years, looking to take their own slice of this pie.
These alternative Layer-1 networks (those that are base-layer blockchain platforms, upon which other applications and Layer-2 networks are built) have had varied success in taking market share away from Ethereum in the DeFi space. However, there are a couple I'm going to highlight in this article that continue to be a thorn in the side of Ethereum loyalists.
Of course, those bullish on Ethereum (or these alternative Layer-1 networks, for that matter) ought to believe that DeFi will continue to grow over time. The total value locked (TVL) metric, used to measure the amount of capital locked in DeFi applications, has been trending lower, suggesting that perhaps investors have their eye on the wrong ball. In December 2022, the total value locked in DeFi application slipped to its lowest level since 2021, a scary trend to be sure. Since then, this TVL figure has remained roughly the same, suggesting that the pie, at least for now, is relatively fixed.
Ethereum's market share remains solid. In the DeFi space, approximately $21.3 billion of the $37.9 billion TVL (56% market share) belongs to Ethereum.
Thus, I'm not sure that either of these projects realistically can dwarf Ethereum. But if there were two projects with the potential to do so, and investors want to bet on the DeFi pie expanding once again, here are two places I'd look at first.
What's interesting about Solana is the network is built for efficiency. Unlike Ethereum, which has been known to become very digested (and expensive in terms of transaction fees), Solana's network has proven itself to be among the fastest, most cost-effective of the Layer-1 blockchains operating at scale.
Unfortunately, something called the "blockchain trilemma," a term actually coined by Ethereum's founder Vitalik Buterin, has come into play for Solana. The blockchain trilemma basically asserts that each blockchain is similar to a three-legged stool, supported by scalability (speed and cost), decentralization, and security. Solana's blockchain is certainly highly scalable and scores well on decentralization metrics, but has had its share of security issues in the past.
The good news is that Solana's blockchain has had 100% uptime in Q2 2023. While that shouldn't be something that's cheered (should be table stakes), it's a sign that the Solana team has successfully worked through some key security issues.
Additionally, investors in Solana do have some growth prospects to focus in on moving forward. The company's focus on non-fungible tokens (NFTs) has led to a No. 2 position (after Ethereum) in this high-growth sector. And the network's mobile strategy has been picking up steam, with the launch of the Saga crypto phone becoming a divisive but intriguing talking point for investors.
I think there are plenty of risks with Solana, but if the network's security concerns get hammered out, the speed and cost advantage with this network are enough to potentially propel this token to new highs. Whether Solana is able to compete head-to-head with Ethereum in terms of size remains uncertain. But this is one crypto worth considering as a potential contender down the road.
Looking further down the list of cryptos ranked by market capitalization, Avalanche (AVAX 0.87%) is really perhaps the only other Layer-1 platform I think could have a shot at taking on Ethereum's impressive ecosystem. Unfortunately, Avalanche has been on quite the downtrend over the past year, losing more than half of its value over this timeframe and dropping to the 20th spot in terms of crypto rankings.
Given it wasn't that long ago Avalanche was being touted alongside Solana as a potential Ethereum-killer, it's clear there are some issues to contend with when it comes to Avalanche. The Avalanche network has seen its DeFi numbers decline dramatically over the past quarter and over the past year. This decline in TVL from Avalanche's peak coincides with its 90% token price drop from the top. That's not good, and doesn't signal there's growth on the horizon, hence the less-than-exciting price action for this crypto of late.
Additionally, the whole growth narrative around asset tokenization (moving contracts and ownership of real-world goods to the blockchain) hasn't played out as expected. This could be a massive long-term opportunity, but Avalanche's highly scalable network hasn't seen the kind of uptake over the near term many had hoped for.
That said, for those thinking long term, there's a lot to like about Avalanche's position as a key player in this high-growth niche area of the market. I do think Avalanche has made some promising progress, but much more needs to be done. If the team behind Avalanche can build momentum and get the likes of BlackRock to make good on their bid to tokenize billions (or even trillions) of dollars of assets, it's game on for this crypto.