ETHEREUM FACING CHALLENGES AS DEFI SOARS
As the decentralised financial room begins to move in parallel with the booming crypto-currency community, Ethereum is not the only blockchain network seeing a huge rise in value. The New Year, evident in the sheer amount of value that has been injected into different platforms, has continued to be good for the DeFi space.
According to DappRadar, the valuation stake in DeFi protocols momentarily exceeded $27 billion on Jan. 20, powered in part by the rise in value of a vast majority of crypto-currency tokens. Nevertheless, the space has seen rising acceptance and growth since past few months.
As the most popular smart contract blockchain technology for developers and ventures to create and deploy applications and platforms, Ethereum currently holds the mantle. In its current state, the DeFi space is intrinsically associated with Ethereum, with a vast majority of the main DeFi ventures and protocols operating on its blockchain.
All things considered, a few of Ethereum market rivals are experiencing resounding popularity and success since the start of 2021, indicating that there are more participants driving the rate in the DeFi space. Although the rise and popularity of DeFi networks put a strain on the capacity of the Ethereum network to handle transactions and increased fees, these platforms have resulted in the Ethereum ecosystem being locked with an immense amount of value.
Prominent rivals are experiencing great gains
Seen the most influential rival of Ethereum, Polkadot saw a massive rise in 2021 with DOT token rates almost doubling since the start of the New Year. It’s a next generation blockchain that links private and public blockchains and networks. The project was initiated by the Web3 Foundation and aims to push the future of interoperability between blockchains to power the decentralised Internet.
Polkadot basically runs a multichain protocol that uses “parachains” to allow other blockchains to connect to its network as sidechains. The protocol also has the ability to process thousands of transactions per second, which has been placed against Ethereum in the eyes of some commentators.
Another smart contract blockchain network that has been rising in popularity since its introduction in April 2020 is Near Protocol. Recently, its native token NEAR saw a value increase of more than 100%. The project runs on its own proof-of-stake algorithm that incorporates sharding, which is also being applied by Ethereum this year.
Cardano, another project which runs on its own proof-of-stake algorithm has also seen some development. By market capitalization, the native token Ada pushed past Bitcoin Cash (BCH) to become the six-largest cryptocurrency. The platform is yet to introduce practical smart contract capabilities, but this year it is planned to do so, which would allow the protocol to be built on DeFi platforms.
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Considerable scope for rival chains
Evidently, the DeFi space is a booming market that has ample space for more than one blockchain to fuel the plethora of apps and offers produced over the past year. Dan Reecer, Head of Polkadot Development at the Web3 Foundation, acknowledged that by total locked value, Ethereum is the incumbent leader in the DeFi space.
“According to Reecer, this does not mean, however, that users are not willing to try alternatives: “The increase of DeFi networks based on blockchains other than Ethereum is absolutely a strong indication that DeFi, crypto, and blockchain are becoming multi-chain in general.
As Reecer said, competition is always healthy for an industry, and he noted that the cryptocurrency space is no exception. He stressed that Ethereum percentage share of TVL, users and developers in the broader ecosystem will depend on the project’s ability to scale and keep pace with its peers, especially sharded, multichain ecosystems.
He also emphasised that, given how clustered, conventional applications and networks presently function, a shift to a multichain DeFi environment would become a must in the future.