In recent years, the crypto industry has changed a lot. A lot has happened, especially with smart contract platforms like Ethereum. For example, in 2017 and 2018, Ethereum was still primarily used by initial coin offering (ICO) projects for fundraising purposes. In contrast, today, decentralized finance (DeFi) applications and the field of non-fungible tokens dominate the Ethereum blockchain.
Some alternative smart contract platforms (Fantom, Terra, Binance Smart Chain, Solana) have since tried to capitalize on this success. To do this, they have developed their own blockchains, often less decentralized and secure, but in return cheaper and faster.
Alternative layer 1 blockchains such as Terra (LUNA), Binance Smart Chain (BSC), Avalanche (AVAX), Fantom (FTM) or Solana (SOL) have managed to gain significant market shares in the DeFi ecosystem.
Data from Analysis of Coin98 show that alternative layer 1 blockchains now account for more than a third of all capital residing in DeFi protocols.
But while Terra and Co. has been able to catch up, particularly in the DeFi sector, the situation in the NFT sector is noticeably different.
Ethereum is responsible for over 90% of NFT transaction volume
Ethereum has so far been able to maintain its market share in the NFT sector. According to this User’s NFT 2021 Year in Review 1 confirmation At the end of last year, Ethereum and its scaling solutions (e.g. Polygon, Ronin, Arbitrum) still accounted for over 90% of NFT transaction volume.
Of course, it is possible that alternative smart contract platforms will also gain more market share in the NFT sector over time. Nevertheless, it is surprising that NFTs, which have so far been particularly popular with small investors compared to DeFi, are still mainly traded on Ethereum.
Despite high transaction fees, many retail investors do not seem to hesitate to buy NFTs on Ethereum.
Reasons for Ethereum Dominance
1. Largest infrastructure and community
Ethereum was the first smart contract platform in the crypto space and has built the largest blockchain infrastructure and community over the years. Because of this, users can access a far greater number of decentralized applications and NFTs within the Ethereum ecosystem. Moreover, there is much more capital in the ETH network than in other smart contract platforms. This is a great advantage for NFT traders as they can trade their NFTs in relatively more mature markets.
2. Most Active Developer Community
Additionally, Ethereum has the largest and most active community of NFT developers and creators. From the latest scaling solutions to experimenting with the next generation of NFT, Ethereum is currently the epicenter of the NFT world. Replicating or imitating this talent en masse is not easy. It is therefore much more difficult to replicate the success of an NFT ecosystem than in the DeFi realm.
3. The longest story
Another reason for ETH’s continued dominance is that Ethereum’s NFT scene has by far the longest history. The first NFT projects on Ethereum were conceived as far back as 2015, and for many NFT collectors, older digital collectibles such as Crypto Kitties or Crypto Punks are valuable for this very reason.
4. The most secure smart contract platform
Ethereum has also maintained perfect uptime throughout its life. The network therefore has the longest and most proven track record for reliably securing NFTs.
5. Highest quality NFT projects
Precisely because of the security and underlying history of many NFT projects, NFTs on Ethereum are considered by many to be the most desirable NFTs.
So when it comes to users wanting the best NFTs from the most interesting projects, NFTs from other blockchains can’t quite match in terms of perceived quality.
Things can change incredibly quickly in the crypto space. It is therefore entirely possible that Ethereum will lose some of these important advantages of its NFT ecosystem over time. For now, however, the benefits remain at scale, and scaling solutions like Polygon make ETH transactions low-cost, similar to layer-1 blockchains. The fight for market share in the NFT sector should therefore be much more difficult for alternative layer 1 blockchains than in the DeFi realm.
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