Notable stakeholders have argued that the Ethereum ecosystem is performing below expectations, given its trajectory.
Most experts believe other newer ecosystems are challenging Ethereum’s dominance.
ETH Price Struggles Amid Development Challenges
The price action of ETH in the crypto market has not helped its shifting sentiment. The coin has experienced intense volatility in the past year.
Despite rising above $4,000 in March and June 2024, ETH price has failed to retest its all-time high (ATH) of $4,891.70 set in mid-November 2021.
Within the last 365 days, Ethereum price has suffered a massive value decline of 53.03%. In comparison, Bitcoin has registered a 13.58% growth within the same time frame.
Ethereum’s bearish trend has been attributed to strategic missteps. According to Cardano YOD₳ (@JaromirTesar) on X, the Ethereum development team’s decision to rely on Layer-2 solutions over sharding is one notable blunder.
Ethereum’s priority on L2 scaling over sharding has led to many L2s extracting value from the network while limiting direct activity on the base Layer-1.
Analysts say Ethereum L2 solutions dealt with scalability issues, but they also introduced fragmentation and centralization risks.
Additionally, many of the L2s are not interoperable, which has resulted in poor user experience.
Centralized sequencers and admin keys also undermine Ethereum’s decentralization and security.
Cardano YOD₳ believes the internal conflicts within the Ethereum Foundation also played a critical part in reducing the blockchain’s dominance.
He believes that the leadership shakeups and concerns over the abandoned development plans of sharding signaled a loss of direction to the community.
The analyst suggested that staking complexity, governance struggles, and centralization concerns negatively affected Ethereum’s dominance despite its strong user base.
Solana’s Growing Threat to Ethereum
Interestingly, other blockchains, such as Solana (SOL), have gained traction in crypto. The leverage of Solana is its user-friendly experience among users.
Solana also offers better alternative data availability solutions than Ethereum.
Solana’s transaction speed and low cost have also made it very attractive to users who are shifting from Ethereum. The blockchain delivers on these without sacrificing security.
Meanwhile, developers are also moving to Solana, which offers a seamless, low-cost environment for building and deploying decentralized applications (dApps).
While Ethereum dApps struggle with congestion issues and high gas fees, Solana has continued to offer better alternatives.
Market observers note that Solana’s potential has attracted institutional interest.
The blockchain has received attention from Pantera Capital and Multicoin Capital.
Card payment giant Visa also integrated Solana for USDC settlement in 2023.
In the meantime, asset managers actively pursue filing Solana ETF products with the Securities and Exchange Commission (SEC).
If the regulatory body green-lights the application, it could boost Solana’s ability to take on Ethereum.
Can Ethereum Overcome Its Leverage Problem?
Ben Zhou, CEO of Bybit, believes that Ethereum could begin to address some concerns around its leverage to regain its dominance.
For instance, citing Hyperliquid, a decentralized exchange, Zhou noted that a whale recently forced their Ethereum leverage position to liquidate.
He maintains that whales can exploit and abuse Ethereum’s leverage position, thereby offloading their risks on platforms instead of bearing the losses.
Zhou advocates higher risk control measures to prevent traders from exploiting the weaknesses in liquidation engines.
Analysts opine that as newer ecosystems take on Ethereum, its ability to adapt and innovate will determine its future trajectory.
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