Has Ethereum Fallen Off The Altar?Is Solana Ready for The “Succession”?

5 min readFeb 25, 2022

On January 13th, the boxing champion Tyson suddenly posted on his personal social media that he planed to “All in on Solana”. In addition, according to the latest report by the Bank of America, Solana has the potential to become the “Visa of the digital asset ecosystem” by offering consumers a variety of use cases, which has sparked heated discussions in the community.

So, can Solana really beat Ethereum to become the “New Overlord” of digital assets? Let’s take a closer look!

Why did Ethereum lose its dominance?

According to a report by the analysts of JPMorgan, Ethereum may soon lose its dominance in the DeFi space.

Although there is no doubt that Ethereum is still the dominant player in the DeFi space for now, however this is likely to change as JPMorgan analysts point out that Ethereum’s dominance in the space may no longer exist.

The rise of smart-contract-enabled protocols like Terra, Avalanche, and Solana has undoubtedly challenged Ethereum’s leading position in DeFi, according to analysts. It has been revealed that these nascent projects have beaten into Ethereum’s dominance and could have further impact in the new year.

Ethereum’s market share in the DeFi TVL (Total Value Locked) space is almost 100% in early 2021, however, the number had dropped to around 65% by the end of the same year. According to Nikolaos Panigirtzoglou, head analyst of the JPMorgan team, the main reason for Ethereum’s loss of ground may be related to the scalability of its network.

It is reported that if Ethereum wants to continue its dominance, it will have to expand and upgrade. Unfortunately, it is too late to act now.

Nicholas Panigittezogro continues:

“Ethereum is currently in a fierce competition to continue its dominance, and the outcome of this competition is unknown.”

Some independent blockchains such as Terra, Avalanche, and Solana have received significant funding from investors based on their advantages in scaling capabilities, and they are using various incentives to promote their platforms.

As long as you take a cursory look at the number of transactions per second that DeFi-enabled blockchains can execute, Ethereum is already far behind its competitors.

A set of data shows that Ethereum can complete 15–45 transactions per second (TPS), while some of its competitors such as Terra and Solana can complete 1,000 and 50,000 transactions respectively.

In addition, the Ethereum blockchain also has a very common problem of high gas fees. Although it has been addressing this issue with the EIP-1559 upgrade, competitors like Solana still have significantly cheaper transaction fees.

As a result, JPMorgan analysts came to the following conclusion by analyzing the above factors:

Even if the Ethereum network completes the expansion update, it is likely that it will never return to the peak of the past, because its users may have moved to the ecosystem of its competitors’ already!

What are the strengths and weaknesses of Solana?

Notably, Bank of America pointed in a recent report that the smart contract platform Avalanche, while maintaining security and decentralization features, is scalable enough to allow it to provide the reliable alternative for Ethereum of DeFi protocols, NFTs and other activities.

According to data provided by DeFiLlama, the Total Value Locked (TVL) space of Avalanche blockchain project has grown to more than $11 billion since then. While the Solana blockchain has attracted hundreds of decentralized applications with great advantages in transaction speed.

Hence, Bank of America gave the top rating for cryptocurrencies in the industry, to compare Solana to Visa — — the world’s largest credit card network.

“Solana could become the Visa of the digital asset ecosystem” — — the global cryptocurrency and digital asset strategist Alkesh Shah of Bank of America wrote in a research note published.

He also mentioned that there are more than 400 decentralized applications on the Solana blockchain, covering everything from peer-to-peer transactions to NFT markets.

At the same time, he also pointed:

“Ethereum has the potential to be the exclusive blockchain for high-value transactions, as well as identity, storage, and supply chain use cases.”

Cryptocurrency proponents have long liked to compare blockchain to credit card networks of the transactions per second (TPS). In theory, Visa can process transactions at least 24,000 TPS, but in practice it averages around 1,700 TPS. However, the TPS value of Ethereum is usually 15.

Considering that decentralized applications are running “on-chain”, this speed is not high. And because of the limited amount, transaction fees on the network are usually in the double digits (USD).

While many projects are trying to solve the scalability issues of Ethereum — — including through sidechains on Polygon and rollups on Arbitrum — — the network congestion problem is unlikely to be significantly alleviated until Ethereum 2.0 is fully rolled out. The founder of Ethereum, Vitalik Buterin asserted in June 2020 that the upgraded Ethereum network transaction speed will reach 100,000 TPS.

In terms of transaction speed, Solana has an overwhelming advantage over Ethereum and Visa, with a theoretical limit of 65,000 TPS.

However, the above comparison made by Bank of America is not entirely acceptable.

Arkesh Shah also wrote in the report that,

“Solana prioritizes scalability while being relatively weak on decentralization and security, as illustrated by several network performance issues since its inception.”

Alkesh Shah was referring to a network outage last September and several other smaller issues that seemed to open up opportunities for other networks. Alkesh Shah mentioned not only the upgraded Ethereum, but also Avalanche, which he believes has found a balance between the security modeled by Ethereum and the transaction speed modeled by Solana, which is very likely to make the Avalanche blockchain the best choice for decentralized finance and enterprise.

Nonetheless, Alkesh Shah is careful to add that there is not necessarily one blockchain (apart from Bitcoin) that can do it all, every blockchain has its own use case that is best suited for it.

Speaking of Solana, he noted:

“Solana has the advantages of high throughput, low cost and ease of use, making it a blockchain well suited for consumer use cases such as micropayments, DeFi, NFTs, decentralized web(Web3) and gaming.”

Over time, through user adoption and attracting developers, Solana and other blockchains may take market share away from Ethereum — —

How long will this “time” be? Let us wait and see!

Writer: Jason.

Translator: Florence Ho

(The above information is not intended as investment advice, this article only represents personal opinion)

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