Ethereum, with its scaling solutions such as Arbitrum and Polygon PoS, makes up about 60% of the TVL across all of Decentralized Finance. This number has been steadily narrowing since early 2021 due to the emergence of Alt-L1s such as AVAX and Solana and will likely continue to do so. Currently sitting at about 40% of the DeFi market share, these Alt-L1 systems made a grand entrance late in 2020, and early 2021 as the need for cheaper alternatives inevitably grew. However, Ethereum and its layer 2 solutions still maintain a massive grip in the NFT sphere, as opposed to the DeFi ecosystem.
According to 1confirmation’s annual report, Ethereum and its L2 solutions accounted for a whopping 90% of the NFT trade volume.
Regardless, it’s worth noting that the Alt-L1s have only just entered this digital competition and are yet to establish themselves. Yet, the question arises – what if it is just impossible to replicate the ETH ecosystem’s success, in a fundamental sense?
One can safely assume that the rise of Ethereum’s L2 solutions will shadow the L1 systems that have been slowly gaining a footing since 2021. What makes Ethererum such a dominant player in this game?
Resources and Infrastructure
Ethereum was the first smart contract platform, and it has witnessed significant infrastructural and tooling improvements over time. Due to this, NFT users on Ethereum have access to a far larger number of apps and services. Furthermore, it’s reasonable to state that ETH is the greatest money in the crypto-economy; therefore, it’s no surprise that the majority of NFT activity is still conducted in ETH.
By a long shot, superior infrastructure combined with the most forward-thinking users results in the greatest NFT liquidity in the cryptosphere today. While the NFT bridging technology pertaining to Ethereum is still in its infancy, there’s a “moat effect” at work, with most new NFT projects launching and operating in the Ethereum ecosystem because of the concentration of all meaningful liquidity today. Having the highest liquidity has translated into more prospects for conventional NFT users as well as NFT projects and developers.
Track record and quality
Unlike the Alt-L1s, Ethereum’s first NFT related projects were seen way back in 2015, and it has maintained a very steady and promising runtime for almost 7 years so far. This rich history of the Ethereum ecosystem sort of makes it an “OG Player” in the NFT market, and these factors combined with Eth’s amazing track record and reliability in securing NFTs give it a huge upper hand over the Layer 1 solutions. It simply is the fact that the longer a blockchain exists, the more valuable its history gets, therefore making it significantly harder for competing – new blockchains.
Owing to these factors and their dependability, Ethereum’s ERC-71 NFTs are said to be the most valuable and sought-after NFTs by experts and collectors alike. Ethereum’s blowing its competitors out of the water in terms of sheer quality.
Community and prospects
Currently, the biggest, most active community filled with developers and pioneers seems to be concentrated in Ethereum. It also is the research capital whether it comes to novel L2 tech or next-gen NFTs. Catching up with this would seem like a monumental task. This generates a lot of much-needed confidence and trust in this system. And since Ethereum has been here a long time accumulating trust and establishing itself, the competition will have to work even harder to match Ethereum in these areas, making the future prospects of Ethereum look very promising.
The bottom line
While it is certainly possible that the advancements in Layer 1 technology may push them ahead of Ethereum in some areas, the advantage is mostly with Ethereum and its growing L2 ecosystem, thus making Ethereum the Bahubali of NFTs.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.