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Saturday Jun 03, 2023

Ethereum’s Dominance in DeFi Is under Threat

Thanks to smart contracts, such segments of the crypto economy as NFT (non-interchangeable tokens) and DeFi (decentralized finance) have appeared. Since Ethereum was the first blockchain with full support for smart contracts, it has become widespread. However, with the growing recognition and implementation of smart contracts, the network load increased to critical values, which led to a record increase in commission among cryptocurrencies.

Ethereum is based on the proof-of-work protocol, where miners are responsible for assembling transactions into blocks. On average, it takes 13 seconds to include a new block in the network, 100 – 200 transactions are packed into a block, which is about 12 transactions per second and does not meet modern needs.

The slow operation of the network and high commissions have led to the emergence of competitors who, instead of the cumbersome method of proof of work, use the proof-of-stake protocol. For example, the Terra blockchain processes over 1000 operations per second with a commission from 0.1 to 1.0 SDR (1 SDR = $1.4). This year, Terra broke into second place in DeFi in terms of blocked funds with a 10% share, while the share of Ethereum continues to decline and will soon be less than 50%.

Ethereum’s loss of its position is reflected in the value of the cryptocurrency.

So, the LUNA coin (Terra blockchain) has already recovered after the winter correction and is preparing to test the historical maximum, and Ethereum is inferior in recovery even to Bitcoin.

Ethereum is still the most decentralized network with support for smart contracts, but its share is gradually being absorbed by faster blockchains. The situation can be corrected by switching to proof-of-stake – the merger of two branches (ETH and ETH 2.0) is scheduled for the second quarter of this year. However, the event is postponed every year, which is why new projects are increasingly abandoning Ethereum as the base blockchain.