Ethereum ignores JP Morgan’s demise of DeFi’s leadership

Ethereum popularized Decentralized Finance (or DeFi for short) and web application developers have turned it into a $250 billion industry. But its dominance could decline in 2022.

That’s what a team of analysts at investment bank JP Morgan Chase says.

In a note to investors published on Wednesday (5), team leader Nikolaos Panigirtzoglou said that “sharding” (a method that dramatically scales the number of transactions that can be executed on a blockchain) “may be too late” for that Ethereum chases away the growing market competition for alternative blockchains.

Avalanche, Binance Smart Chain (or BSC), Solana and Terra managed to deliver many of the same applications as Ethereum with higher speeds and lower rates.

“Currently, Ethereum is in an intense race to maintain its dominance in the applications sector, whose race outcome is far from being defined, in our opinion”, states the note.

But several Ethereum developers and contributors told the decrypt that reports of the end of the network are wildly exaggerated.

“All in all, it seems like a lazy review,” said Tim Beiko, who coordinates meetings with developers at Ethereum.

“Rollups are available today and sharding will lower your costs, but the technology works and is now largely risk free,” referring to a method of executing off-blockchain transactions that is already being implemented to help the network scale .

“Ethereum remains the most used chain when analyzing data,” explained Tegan Kline, who co-founded the team that developed The Graph indexing protocol. “Of the 26 networks that The Graph supports, 66.7% of requests are on Ethereum.”

DeFi refers to applications built on blockchain that allow people to do all kinds of financial transactions without needing a bank or brokerage.

These applications remove intermediaries to enable peer-to-peer realization and borrowing, trading, saving so no one has control over your assets.

The first major decentralized (or dapp) application to gain traction at Ethereum was MakerDAO in 2017. Over the years, DeFi at Ethereum has expanded. The DeFi Llama website registers over 250 protocols with at least $1 million ETH stored.

But other blockchains are picking up the pace, mainly because they’ve overcome network congestion (and high transaction fees) by implementing proof of stake (or PoS) systems that are more scalable.

Ethereum is also moving to a PoS system, but the progress of “Ethereum 2.0” is either complete or slow, depending on who you ask.

The prediction is that the current blockchain (which uses proof of work, or PoW, just like Bitcoin) will merge with the beacon chain (which uses PoS) in the next year. Then Ethereum developers will be able to focus on sharding.

Pooja Ranjan, who leads a decentralized project management team known as Ethereum Cat Herders, said that while scalability (including sharding) is important, other issues are a priority.

Developers at Ethereum, for example, preferred to consistently focus on security over speed while ensuring that the network didn’t experience outages.

For comparison purposes, in September, the Solana network was suspended for nearly 18 hours because it was unable to handle high transaction volumes.

“Ultimately, chain security is absurdly important for financial transactions and, in the near future, Etehreum will have the most security,” Kline told decrypt.

According to her, DeFi projects on other blockchains are “very good reasons for token incentives”, meaning people receive tokens that can be traded or sold as a reward for their participation.

“When Ethereum’s second tier adopts the same incentives, we’ll likely see a lot more DeFi activity at Ethereum,” he explained.

But Peter Mauric, head of public affairs at Parity, developer of the Polkadot network, believes developers are tired of waiting for the release of Ethereum 2.0.

“The roadmap [roteiro de desenvolvimento] Ethereum has changed so many times that it is difficult to understand what is really going to happen and when”, he replied.

He mentioned the recent Electric Capital report showing that Polkadot has the second largest developer pool after Ethereum and that it is growing much faster than Ethereum has grown at a similar stage.

Paul Veradittakit, partner at Pantera Capital, is limiting his bets among multiple blockchains developed for DeFi, noting that Solana has become home to several DeFi game startups.

“We’ve made numerous bets on Polkadot and Solana and hope to explore and expand to more chains, such as Near and Avalanche, in the next year,” Veradittakit told decrypt.

This does not mean that Ethereum cannot continue its majesty. “My naive opinion is that DeFi exists because of Ethereum, and as long as Ethereum is there, DeFi is definitely a strong driving force for mass engagement,” concludes Ranjan.

*Translated and edited by Daniela Pereira do Nascimento with permission from Decrypt.co.