A lot has changed in the crypto industry in recent years. 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 of Decentralized Finance (DeFi) and the non-fungible token area dominate the Ethereum blockchain.
Some alternative smart contract platforms (Fantom, Terra, Binance Smart Chain, Solana) have since tried to build on this success. For this they have developed their own blockchains, which are often less decentralized and secure, but in return 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 capture significant market shares in the DeFi ecosystem.
Dates from Coin98 analysis show that alternative Layer 1 blockchains now account for more than a third of all capital in DeFi protocols.
But while Terra and Co. could make up some ground, especially in the DeFi sector, the situation in the NFT sector is significantly different.
Ethereum accounts for more than 90 percent of NFT trading volume
Ethereum has so far managed to maintain its market share in the NFT sector. According to that Overview of the user’s NFT year 2021 1confirmation 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.
It is of course possible that the alternative smart contract platforms could also gain more market share in the NFT sector over time. Nevertheless, it is surprising that NFTs, which until now have been mostly popular with small investors compared to DeFi, are still mainly traded on Ethereum.
Despite high transaction costs, many retail investors don’t seem to shy away from buying NFTs on Ethereum.
Reasons for Ethereum dominance
1. Largest infrastructure and community
Ethereum was the crypto 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 much larger number of decentralized applications and NFTs within the Ethereum ecosystem. In addition, there is significantly 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
In addition, Ethereum has the largest and most active community of developers and NFT makers. Whether it’s the latest scaling solutions or experimenting with the next generation of NFTs, Ethereum is currently the epicenter of the NFT world. Massively reproducing or imitating this talent is not easy. It is therefore a lot harder to reproduce the success of an NFT ecosystem than it is in the DeFi realm.
3. Longest History
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 designed way back in 2015 and for many NFT collectors older digital collectibles like the Crypto Kitties or the Crypto Punks are therefore valuable.
4. Most secure smart contract platform
Ethereum has also maintained perfect uptime throughout its life. The network thus has the longest and most proven track record of 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 out there.
So when it comes to users wanting the best NFTs from the most interesting projects, other blockchains’ NFTs can’t quite match in terms of their perceived quality.
Things can change incredibly quickly in the crypto space. It is therefore quite possible that over time Ethereum will lose some of these important advantages of its NFT ecosystem. For now, however, the benefits remain at scale, and scaling solutions like Polygon make ETH transactions cheap, similar to Layer 1 blockchains. The battle for market share in the NFT sector should therefore be much more difficult for alternative layer 1 blockchains than in the DeFi area.
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