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 mainly used by Initial Coin Offering (ICO) projects for fundraising purposes. In contrast, today applications from Decentralized Finance (DeFi) and the non-fungible token area Ethereum blockchain dominate.
Some alternative smart contract platforms (Fantom, Terra, Binance Smart Chain, Solana) have since tried to build on this success. To do this, they have developed their own blockchains, which are often less decentralized and secure, but in turn are 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 share in the DeFi ecosystem.
Data from Coin98 Analytics shows that alternative Layer 1 blockchains now account for over a third of all capital in DeFi protocols.
But while Terra and Co. was able to make up for something, especially in the DeFi sector, the situation in the NFT sector is significantly different.
Ethereum is responsible for over 90 percent of NFT trading volume
Ethereum has so far been able to maintain its market share in the NFT sector. According to it User’s 2021 NFT year in review 1 confirmation At the end of last year, Ethereum and its scaling solutions (e.g. Polygon, Ronin, Arbitrum) still accounted for more than 90 percent of NFT trading volume.
Of course, it is possible that the alternative smart contract platforms may 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 shy away from buying NFTs on Ethereum.
Causes of Ethereum Dominance
1. Largest infrastructure and community
Ethereum was the cryptocurrency space’s first smart contract platform and has built the largest blockchain infrastructure and community over the years. For this reason, users can access a far greater number of decentralized applications and NFTs in the Ethereum ecosystem. In addition, there is significantly more capital in the ETH network than on 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
In addition, Ethereum has the largest and most active community of developers and NFT creators. Whether it’s the latest scaling solutions or experimenting with the next generation of NFTs, Ethereum is epicentered by the NFT world right now. It is not easy to reproduce or imitate this talent galore. It is therefore much more difficult to recreate the success of an NFT ecosystem than in the DeFi area.
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 early as 2015, and for many NFT collectors, older digital collectibles such as Crypto Kitties or Crypto Punks are of value for this very reason.
4. The most secure smart contract platform
Ethereum has also maintained perfect uptime throughout its life. The network thus has the longest and most documented track record for reliable securing of NFTs.
5. NFT projects of the highest quality
Precisely because of the security and underlying history of many NFT projects, NFTs on Ethereum are considered by many to be the most coveted NFTs out there.
So when it comes to users who want the best NFTs of the most interesting projects, the NFTs from other blockchains may not quite match in terms of their perceived quality.
Things can change incredibly quickly in the crypto space. It is therefore entirely possible that Ethereum will lose some of these important benefits of its NFT ecosystem over time. So far, however, the benefits are still large-scale, and scaling solutions like Polygon make ETH transactions low-cost, similar to Layer 1 blockchains. The battle for market share in the NFT sector should therefore be much more difficult for alternative tier 1 blockchains than in the DeFi area.
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