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Is that the escape from Ethereum? 3rd – 10th February

Finance Redefined is Cointelegraph’s DeFi-centric newsletter that is delivered to subscribers every Wednesday.

It seems that this week the community has finally had enough of Ethereum’s gas fees.

Obviously, this is an exaggeration as gas fees are high precisely because people are willing to pay such a premium for Ethereum block space. But we are experiencing a kind of “applied trickle-down economy” where a few brave degens venture outside to see what else there is in the world.

The effect is particularly pronounced with Binance Smart Chain. The number of daily transactions has skyrocketed in the last few days, fueled by new users playing with its DeFi offering.

Daily transactions on BSC, source Bscscan.com (yes it is a clone of Etherscan)

What is Binance’s DeFi offering, you ask? Well it’s a bunch of clones.

One of the most famous projects is PancakeSwap, a kind of clone of SushiSwap. That means it uses Uniswap’s tech stack and SushiSwap’s “foodie” interface that always takes you to its high-yield farms. Another serious project is Venus, basically Compound and MakerDAO in one. Cream Finance, a member of the Yearn.finance ecosystem, also has a BSC version. This is followed by a long list of no-name forks from Uniswap, Compound, Synthetix, and a few others.

What Makes a Successful Ethereum Competitor?

The story of the “Ethereum killer” has probably been around since there was an Ethereum to kill. Projects like EOS, Tron, NEO, Cardano attracted a lot of attention in 2017-2018 because they promise better scalability. With the exception of Cardano, which has not fully hit the market to date, all of them offer a more scalable environment for DApps, but this comes at the expense of poorer decentralization.

However, three years later we are still complaining about Ethereum’s gas fees. Some may interpret this as a win for decentralization, but honestly I think the reason Ethereum is dominant is simple: the bear market happened.

The bear market has quickly eroded interest and reduced fees to manageable levels, making all of these other platforms completely redundant. All people needed was a blockchain to trade tokens and the ethereum network effect made it great.

Importantly, Ethereum has also been very friendly to developers, at least in part because of its network effect. Platforms like EOS could never replicate that. That kept all the innovation that was brewing under the lid firmly on Ethereum and sealed the fate of these first-generation Ethereum killers. They may have some pull, but they will likely never actually kill or “flip” Ethereum.

So I think that today’s traction at BSC is very much shaped by bull market foam. If the fees for Ethereum go down, Binance Smart Chain and any smart contract platforms that don’t attract truly innovative developers will stall.

Think like a DeFi developer for a second: you have this amazing idea that no one else implemented, where are you building it? The first natural thought is Ethereum. There’s lots of money, lots of liquidity, and since your idea is new you don’t have to worry about DeFi competitors anyway. The only case where you might prefer a different blockchain is when you literally can’t implement it on Ethereum, for example due to limitations of the EVM or because your protocol would use up all of the gas on its own.

Without giving users and developers a compelling reason to switch, newfangled Ethereum killers are just as doomed as those of yesterday. Unfortunately, that reason cannot be scalability alone, as you are betting that Ethereum will fail on both the Ethereum 2.0 roadmap and rollup development. There is a good opportunity to “pick up the leftovers” by acting like a second shift for Ethereum, however, and it seems that many potential Ethereum competitors are moving in that direction.

Can every smart contract blockchain actually “turn around” Ethereum at this point? I think it can. It takes creativity and a bit of systemic failure on the part of Ethereum, the two ingredients in any historic case of upstart dethroning the champion. Think BlockBuster, Nokia, Poloniex. People thought they would continue to dominate at the time, but companies made some massive mistakes that cost them their position.

The Ethereum community is acting to stay ahead of the game

I can’t help but feel that pressure to perform is part of this week’s biggest news for Ethereum DeFi, Matic rebranding Polygon and chasing a self-described “Polkadot on Ethereum” strategy. The project, supported by prominent Ethereans, aims to create an interoperability framework for all of Ethereum’s rollups and sidechains.

The plan is good and very necessary. Without rollup interoperability, DeFi developers would have been forced to go where everyone else is and overload that particular platform. The news is indeed huge for the potential for dominance of Ethereum, but the strategy requires good execution.

Still, the roll-up-centric path that Ethereum is taking makes me feel like the Ethereum killer narrative is going to die out at some point. Winner-takes-all outcomes are extremely rare and there is no reason to believe that it will be any different with crypto. Eventually, good interoperability solutions – where compatibility doesn’t depend on building with the correct SDK – will be mature and allow a single environment to be built. From a practical point of view, there is no difference between using a roll up or a polkadot parachain. The whole concept of “killing Ethereum” would make little sense in a highly connected environment, although I’m sure projects will still compete for the prestige and honor of being a blockchain hub.

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