Australian Bloomberg Analyst Believes Most Competitors to ETH May Vanish

Australian analyst for Bloomberg, Jamie Coutts, said he believes that the growth and use of new Layer 1 (L1) competitors to Ethereum (ETH)  may be grinding to a halt. Over the past year, alternative L1s – networks such as Cardano (ADA) and Avalanche (AVAX) – have seen their market share slowly dwindle in light of new and improved Ethereum scaling solutions. 

👉The rise in L2s has meant that the Ethereum network has started to regain market share from the Alt-L1 peers.
👉In the past year Active Address L2 growth outpaced Alt-L1's by 2x (albeit from a lower base) pic.twitter.com/qdIIE9eH9V

— Jamie Coutts CMT (@Jamie1Coutts) October 4, 2023

The Ethereum dilemma

Ethereum has long stood as the king of decentralised finance, but as the network has grown in popularity, so too has its congestion. This has resulted in expensive transaction fees and slow confirmation times. To combat this, several competitors to Ethereum emerged in the early 2020s and began to gain traction as cheaper and faster alternatives. These blockchains stood on their own (Layer 1) and were completely independent of the Ethereum network.

However, interest in these projects is fading in light of popular Layer 2 protocols (such as Arbitrum (ARB)) hitting the market. Unlike L1 networks, L2 protocols aren’t independent and instead try to improve the scalability, speed and efficiency of a main blockchain – in this case, Ethereum. 

Coutts believes that the L1 competitors to Ethereum will eventually get consumed by L2 solutions that enhance the industry’s biggest DeFi network.

Coutts believes the crypto space needs to be “cleaned up”

The Bloomberg writer and market analyst detailed certain issues he has with the space – in particular regarding the tokenomics of certain projects. 

Coutts said in a podcast episode of Tapping Into Crypto:

However, Coutts wasn’t negative about all of Ethereum’s L1 competitors, detailing Solana (SOL) as a cryptocurrency with big aspirations that may stand the test of time. He highlighted Solana’s new partnership with Circle – the company responsible for issuing the USDC stablecoin – as demonstrating institutional interest in the blockchain as an alternative payment method.

Ethereum Becoming More Centralised, Says JP Morgan Report

While Coutts is bullish about Ethereum’s long-term prospects, a JP Morgan research report suggests the network is becoming more centralised due to its recent staking and tokenomic changes.

This is largely due to the prominence of liquid staking platforms like Lido, which has addressed these concerns by adding more node operators (validators) to improve decentralisation. However, this has a flow-on effect, as the heightened competition reduces the yield stakers can earn by locking up the Ethereum. Annual percentage yields have dropped from 7.3% to ~5.5% since the Shanghai Upgrade in April this year.