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It seems that this week, finally, the community has had enough of Ethereum’s gas fees.
That is obviously a bit of hyperbole, as gas fees are high precisely because people are willing to pay such a premium for Ethereum block space. But we’re seeing a kind of “applied trickle-down economics,” where a few brave degens are venturing outside to see what else exists in the world.
The effect has been particularly pronounced on Binance Smart Chain. The number of daily transactions has skyrocketed in the past few days, fueled by new users coming out to play with its DeFi offering.
What is Binance’s DeFi offering, you ask? Well, it’s a bunch of clones.
One of the more famous projects is PancakeSwap, a clone of SushiSwap of sorts. That means it uses Uniswap’s tech stack and SushiSwap’s “foodie” interface that always directs you to its yield farms. Another reputable project is Venus, basically Compound and MakerDAO in one. Cream Finance, a member of the Yearn.finance ecosystem, also has a BSC version. After that goes a long list of no-name forks of Uniswap, Compound, Synthetix and a few others.
What makes a successful Ethereum competitor?
The “Ethereum killer” narrative has existed probably ever since there has been an Ethereum to kill. Projects like EOS, Tron, NEO, Cardano attracted a lot of attention in 2017-2018 for their promise of better scalability. With the exception of Cardano, which to this day has not fully launched, all of them offer a more scalable environment for DApps, though that is achieved at the cost of worse decentralization.
Yet, three years later we’re still complaining about Ethereum gas fees. Some may interpret that as a win for decentralization, but frankly I think the reason for Ethereum’s dominance is simple: The bear market happened.
The bear market quickly eroded interest and brought fees down to manageable levels, making all these other platforms completely unnecessary. All people needed was a blockchain to transact with tokens, and Ethereum’s network effect made it excel at that.
Importantly, Ethereum was also very friendly to developers, at least partially due to its network effect. Platforms like EOS were never able to replicate that. That kept all the innovation that was then brewing under the lid firmly on Ethereum, sealing the fate of these first-gen Ethereum killers. They may have some traction, but they’re probably never going to actually kill or “flippen” Ethereum.
So I think today’s traction on BSC is very much a case of bull market froth. When fees go down on Ethereum, Binance Smart Chain and all smart contract platforms that fail to attract truly innovative developers will falter.
Think like a DeFi developer for a second: You have this amazing idea that nobody else implemented, where do you build it? The first natural thought is Ethereum. There’s plenty of funding, a lot of liquidity, and since your idea is new you don’t need to worry about DeFi competitors anyway. The only instance where you might actually prefer another blockchain is if you literally can’t implement it on Ethereum, for example due to limitations of the EVM or because your protocol would use up all the gas by itself.
Without giving users and developers a compelling reason to switch, newfangled Ethereum killers are just as doomed as those of yesteryear. Unfortunately that reason can’t be scalability alone, since you’re betting that Ethereum will fail in both the Ethereum 2.0 roadmap and its rollup development. There is, however, a decent opportunity in “picking up the scraps” by acting like a layer-two for Ethereum, and it seems that a lot of would-be Ethereum competitors are moving in that direction.
Can any smart contract blockchain actually “flippen” Ethereum at this point? I think it can. It requires creativity and a bit of systemic failure from Ethereum’s side, the two ingredients of any historic case of upstarts dethroning the champion. Think of BlockBuster, Nokia, Poloniex. People thought they’d continue to dominate at the time, but the companies ended up making some massive blunders that cost them their position.
Ethereum community acts to secure its lead
I can’t help but feel that the pressure to perform is part of what led to this week’s biggest news for Ethereum DeFi, Matic rebranding to Polygon and chasing a self-described “Polkadot on Ethereum” strategy. The project, endorsed by prominent Ethereans, aims to create an interoperability framework for all of Ethereum’s rollups and sidechains.
The plan is good and very much necessary. Without rollup interoperability, DeFi developers would have been forced to go where everybody else is, overloading that particular platform. The news is actually huge for Ethereum’s dominance potential, but the strategy requires good execution.
Still, the rollup-centric path that Ethereum is taking makes me feel that the Ethereum-killer narrative will eventually die out. Winner-takes-all outcomes are extremely rare and there’s no reason to think it will be any different in crypto. Eventually, good interoperability solutions — where compatibility does not depend on building with the right SDK — will mature and allow creating a single environment. From a practical perspective there’s no difference between using a rollup or a Polkadot parachain. The entire concept of “killing Ethereum” would make little sense in a deeply interconnected environment, though I’m sure projects will still compete for the prestige and honor of being a blockchain hub.