Is this the Ethereum loophole? From February 3 to 10


Finance Redefined is Cointelegraph’s DeFi-centric newsletter, sent out to subscribers every Wednesday.

It seems that this week finally the community has grown tired of Ethereum gas fees.

Obviously that’s a little hyperbole as gas fees are high precisely because people are willing to pay such a high premium for Ethereum block space. But we are seeing a kind of “applied trickle economy,” in which some brave ventures abroad to see what else exists in the world.

The effect has been particularly pronounced on Binance Smart Chain. The amount of daily transactions has exploded in recent days, driven by new users coming out to play with its DeFi offering.

Daily transactions at BSC, source Bscscan.com (yes, it’s an Etherscan clone)

What is Binance’s DeFi offering, you ask? Well, it’s a bunch of clones.

One of the most famous projects is PancakeSwap, a kind of clone of SushiSwap. That means it uses Uniswap’s technology stack and SushiSwap’s “gourmet” interface that always directs you to your yield farms. Another reputable project is Venus, basically Compound and MakerDAO in one. Cream Finance, a member of the Yearn.finance ecosystem, also has a BSC version. After that, there is a long list of unnamed forks from Uniswap, Compound, Synthetix, and a few others.

What makes a successful Ethereum competitor?

The “Ethereum Killer” narrative has probably been around since there was an Ethereum to kill. Projects like EOS, Tron, NEO, Cardano attracted a lot of attention in 2017-2018 for their promise of better scalability. Except for Cardano, which has not been fully released to this day, all offer a more scalable environment for DApps, although that comes at the cost of worse decentralization.

However, three years later, we still complain about Ethereum gas fees. Some may interpret that as a victory for decentralization, but frankly, I think the reason for Ethereum’s dominance is simple – the bear market happened.

The bear market quickly eroded interest and lowered fees to manageable levelss, which made all of these other platforms completely unnecessary. All people needed was a blockchain network to transact with tokens, and Ethereum’s network effect made it excel at that.

It is important to note that Ethereum was also very developer-friendly, at least partially due to its network effect. Platforms like EOS were never able to replicate that. That kept all the innovation that was brewing under the lid firmly on Ethereum, sealing the fate of these first generation Ethereum killers. They may have some traction, but they will probably never kill or surpass Ethereum.

So I think today’s traction on BSC is very much a case of bull market foam. When fees go down on Ethereum, Binance Smart Chain and all smart contract platforms that don’t attract truly innovative developers will fail.

Think like a DeFi developer for a second: you have this amazing idea that no one else implemented, where do you build it? The first natural thought is Ethereum. There’s a lot of funding, a lot of liquidity, and since your idea is new, you don’t need to worry about DeFi’s competitors anyway. The only instance where you might prefer another blockchain network is if you literally can’t implement it on EthereumFor example, due to the limitations of the EVM or because its protocol would consume all the gas on its own.

Without giving users and developers a compelling reason to change, Ethereum’s new killers are just as doomed as the old ones. Unfortunately, that reason can’t just be scalability, as you’re betting Ethereum will fail both on the Ethereum 2.0 roadmap and its rollup development. Nevertheless, there is a decent opportunity to “pick up the debris” by acting as a layer two for Ethereum, and it appears that many of Ethereum’s potential competitors are moving in that direction.

Can any smart contract blockchain really beat Ethereum at this point? I think it can. It requires creativity and a bit of systemic failure on the part of Ethereum, the two ingredients of any historical case of upstarts dethroning the champion. Think BlockBuster, Nokia, Poloniex. People thought they would continue to dominate at that time, But companies ended up making massive mistakes that cost them their position.

The Ethereum community acts to ensure its leadership

I can’t help but feel like the pressure to act is part of what led to this week’s biggest news for Ethereum and DeFi, the rebrand from Matic to Polygon and the pursuit of a self-described “Polkadot on Ethereum” strategy. The project, backed by prominent Ethereans, aims to create an interoperability framework for all Ethereum rollups and sidechains.

The plan is good and very necessary. Without rollup interoperability, DeFi developers would have been forced to go where everyone else is, overloading that particular platform. The news is really huge for Ethereum’s dominance potential, but the strategy requires good execution.

Even so, the rollup-centric path Ethereum is taking makes me feel like the Ethereum killer narrative will eventually disappear. Winner takes all results are extremely rare and there is no reason to think it will be any different with cryptocurrencies. Over time, good interoperability solutions, where compatibility does not depend on building with the correct SDK, will mature into a single environment. From a practical perspective, there is no difference between using a rollup or a Polkadot parachain. The whole concept of “killing Ethereum” would make little sense in a deeply interconnected environment, although I’m sure the projects will continue to compete for the prestige and honor of being a blockchain hub.

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