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The big battle of the layer-1 (L1) blockchains seems to be over. Ethereum is the big winner. It has attracted so much total locked value (TVL) in its decentralized finance (DeFi) ecosystem, that all its competitors, aka “Ethereum killers”, are far away behind… So, can we already say game over? It is probably what Nokia thought 20 years ago before Apple and Samsung launched smartphones.
The world of technologies is constantly evolving. In the 90’s, Alta Vista used to be the main search engine, before Google came out. In the L1 blockchain world, Ethereum has been so far an absolute leader. However, it is not the best tech. It mostly benefits from first movers advantage, which cannot last forever. Some other more recently developed L1 blockchains may come back on front of the scene. In order to get a better idea of which blockchain might compete against Ethereum in the future, we will study three metrics: the TVL, the number of users and the number of active developers.
Evolution of the TVL and users on the existing L1 blockchains
We will use an extract of Defillama as of May 16, 2023 for these metrics:
As Arbitrum and Optimism are Ethereum layer-2’s blockchains, and Polygon is a sidechain of Ethereum, we will not consider them in this analysis. Furthermore, we will only keep the blockchains having a least 100k active users, i.e., Tron, BSC (Binance Smart Chain) and Solana.
Active developers
According to Electric Capital’s 2022 Developer report, there were more than 2,000 developers on Solana in 2022, which is second in developer activity only to the Ethereum ecosystem.
The only comparable ecosystems in number of developers are Cosmos and Polkadot, but Cosmos is only a hub for Cosmos SDK chains like Cronos, and Polkadot has a low TVL compared to the other major L1 blockchains.
Other parameters
According to these metrics, Solana seems to be the best positioned to compete against Ethereum. However, there are challenges to overcome:
a) Solana has already faced several network outages which have damaged the confidence of large investors. It will take time to get them back.
b) Solana business model is to have low fees, which is good for retail users, but it will be an issue for validators if there are not enough decentralized applications (dapps) developed on Solana to increase network revenues.
c) Solana has also suffered from the collapse of FTX, with which they had close relationships, and the TVL on Solana has pummeted since this crash, what has led to a market cap/TVL ratio of 30 for Solana vs. 8 for Ethereum.
Solana team is working on its economic model in order to make it sustainable and is also trying to fix the network outage issue. If they succeed and show there is no outage anymore for a long period of time, they will become again a major competitor of Ethereum. Furthermore, Solana team’s initiatives like the Android phone, called Saga, might attract more retail users and dapps, allowing to significantly increase revenues.
Conclusion
By looking at key metrics like TVL, active users and active developers, we can conclude Solana might become an Ethereum competitor in the future, although they still have issues to fix, like outages and sustainable revenues.
Disclaimer: The information provided in this post is for informational purposes only and should not be considered financial or investment advice.
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