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Should Investors Be Worried About “Ethereum Killers”?

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Since Ethereum’s inception, dozens of well-funded teams have launched new blockchains or side chains that promise to deliver where Ethereum is lacking. These blockchains claim to provide new infrastructure that is scalable, faster, more secure and cheaper for end users. With Ethereum’s current gas costs rapidly increasing to all-time highs and ETH 2 still moving through testnets, these so-called “Ethereum Killers” are pushing forward to try and take a piece of the Ethereum pie.

Currently, none of these blockchains have so far achieved any meaningful network effects, which is the ultimate provider of value for participants of any given network. Far from that, many of these infrastructures don’t have real usage. But could that all be set to change?

Increased Adoption Forces the Limits of Ethereum

With the emergence of DeFi, Ethereum has entered a new adoption cycle only comparable to the 2017 frenzy. Unique wallet addresses are at 107M (an inter-annual growth of 50%), the total value locked (TVL) in DeFi is at an all-time high at $3.82B and total DeFi users have grown 2.7x since January.

Source: Dune Analytics

Week after week, the most popular protocols launch new incentive designs that increase the inflow of capital and institutional investment products continue to gain traction. Even Bitcoin has been bridged to Ethereum.

Source: Dune Analytics

But adoption has come at a cost and is forcing the Ethereum blockchain to its limits. Daily gas fees have skyrocketed to more than 5,000 ETH (roughly $1.6 million) in the past seven days according to data from Etherscan. The block gas limit has also been increased by miners, and transactions continue to pile up in record-breaking average block sizes. 

Source: Etherscan.io

If Ethereum doesn’t scale soon, could an Ethereum Killer use this opportunity to get their foot in the door?

One of these blockchain hopefuls is Tron, a long-time Ethereum competitor that has recently switched its focus from R&D to C&P (copy and paste).

Source: @DegenSpartan

Tron’s copycat approach may be laughable to many but this strategy could find significant success in attracting those users who are squeezed out of Ethereum due to the chain’s high transaction costs.

Early signs, however, suggest that this is unlikely. Tron has added several DeFi copycats in recent months but more than 80% of Tron’s volume is still driven by simplistic casino dapps.

So while Tron might remain in Ethereum’s shadow, reduced to picking up scraps with its portfolio of copycats, there are other better positioned blockchains who are also looking to get a piece of Ethereum’s pie. In the past months and years, many other Ethereum Killers have appeared. Most of them have stellar teams with deep pockets and claim to solve all of Ethereum’s inefficiencies.

To name a few: 

What many of these platforms have in common, besides venture capital funding, is that most sell themselves as next generation blockchains. They all provide Proof of Stake platforms with higher throughput (they achieve a greater number of transactions per second), faster transaction finality and overall more scalable platforms that, in many cases, are interoperable with other blockchains. 

Most of these Ethereum Killers have tech teams that design and implement their technology stack with a top-down approach, as opposed Ethereum, where teams are distributed and often work and compete on the same set of problems. The top down strategy that these blockchains take helps them to ship faster and get to market quicker than Ethereum, and this could pose a threat to ETH if their value propositions become attractive enough for users and developers to flock to their faster and cheaper networks.

The big question is, can this more centralized approach generate stronger network effects than the permissionless and less VC-oriented ecosystem of Ethereum?

Today Ethereum is by far the number one blockchain for value settlement, and competitors don’t come close in terms of transaction volume, development, user adoption and community.

Many of these so-called Ethereum Killers even seem to be trying to leverage the already existing network effects on Ethereum. NEAR launched with a decentralized bridge to Ethereum, AVA features complete support of the Ethereum Virtual Machine (so Ethereum tools such as Metmask work out of the box), and Polkadot, by design, can be bridged to Ethereum.

As Gavin Wood, the founder of Polkadot puts it: “In any case, Parity is as committed as ever to supporting and bridging “Ethereum”, however it is intended, into Substrate and Polkadot.” With so many different players trying to gain Ethereum’s market share by offering similar value propositions, one question arises: aren’t “Ethereum Killers” really competing against each other? 

While many of these blockchains are fighting to get a piece of Ethereum’s pie, layer two scalability solutions are already a reality on Ethereum. Deversifi and Loopring exchanges, for example, use zk-rollups to offer more scalable solutions. Deversifi’s product is similar to a centralized exchange and handles more than 9K transactions per second, and Loopring allows users to transfer ERC-20 tokens in a P2P fashion without paying gas fees.

With the launch of the Medalla testnet, which was announced on July 27th and will go live on August 4th, ETH 2 is making substantial progress and starting to become a reality. It remains to be seen if these “Ethereum Killers” will gain any traction on their own or if they will end up being adjacent services without any tangible value besides providing greater access to the Ethereum financial system.

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