The DeFi ecosystem has become a legitimate part of the crypto-ecosystem over the past year. It started as a yield farming experiment by Yearn Finance on Ethereum. However, very soon, multiple exchanges, lending, and payment protocols came into being from the decentralized finance segment.
The explosive nature of DeFi on Ethereum led to rising tx fees. Shortly, other blockchains were seen making themselves DeFi-compatible. Over the past few months, the likes of Solana, Binance Smart Chain, and Terra, among others, have seen much expansion following their incorporation of DeFi.
However, the question remains – Do these chains have what it takes to dislodge Ethereum from the top spot?
Ethereum is technically overvalued?
(Please note that ‘Ethereum being overvalued’ is with respect to the valuation of other chains in this context.)
Ether’s market cap, at press time, was $503 billion. The closest DeFi protocol that came next was BNB with a market cap of $88 billion. In fact, the likes of Solana were ten times smaller at $56 billion, with LUNA and AVAX limited to $17 billion and $14 billion, respectively.
While it didn’t exactly confirm that Ether was overvalued, it highlights the fact that these other projects have massive room to grow in terms of accumulating network value.
However, this is where Ethereum might be drawing the line between its thriving ecosystem to others’ developing ones.
Data from DeFi Llama found the Mcap/TVL ratio for the DeFi supportive chains. At the time of writing, it indicated that Binance Smart Chain and Solana was more overvalued than Ether when the overall locked value was considered.
Usually, any protocol projecting an Mcap/TVL below 1 is considered undervalued. Hence, the likes of Avalanche, Terra, and Fantom have technical room for growth. And yet, when it comes to a thriving network effect, Ethereum has cultivated its narrative over a spread-out period.
Straight up facts ft. Ether
Ethereum’s statistics evaluated from Q3 2020 to Q3 2021 have been as follows –
- The total value locked in DeFi increased by 1,242%
- Total DEX volumes rose 242%. This consists of all trading volume on decentralized exchanges.
- Stablecoins issuance jumped 405%
- BTC on Ethereum climbed by 133%. This represents the total amount of Bitcoin tokenized on Ethereum, increasing 133% from 123,500 in Q3 2020 to 288,234 in Q3 2021.
- OpenSea sales mooned 141,847%. This measures the trading volume of the leading NFT marketplace.
- TVL on L2 rose by 29,786%, representing the amount of value locked in layer 2 scaling solutions
To be taken into consideration, some of these comparisons with respect to other protocols may miss the lead. But, it is important to understand that Ethereum’s network effect has been generated for a longer period of time.
Presently, it has established a ‘crypto brand’. Hype and speculation do not have to catch up to Ethereum anymore as it will be inevitably attached during any bullish rally.
Ergo, it is difficult to see any project dislodge Ether’s grip on the DeFi ecosystem right now. Cheaper fees and faster transactions are one thing, but, trust, security, and dependability depths have been checked by the biggest altcoin chain.