Which Blockchain Mainnet Should DeFi Projects Use?
Blockchain Network Comparative Analysis for DeFi Projects.
The Xangle Research team has issued a new report that analyzes the benefits and drawbacks of various major blockchain projects that offer their own mainnet for DeFi developers on which to build. The analyses in this report come on the heels of a big push for DeFi projects that launched their projects into the public domain throughout 2020, but which, in many cases, have been long in development since even before 2018.
DeFi, which is short for Decentralized Finance, made a big splash among cryptocurrency traders to kick off the 2020 summer season marred by Covid-19 lockdowns. As traders remained inside due to government mandates, they found new types of governance tokens for platforms that promised easy access to funds to people who might otherwise be denied such access from centralized financial institutions.
Some market analysts compared the surge in DeFi crypto assets, that would otherwise be labeled as altcoins, to the 2017 crypto boom that saw Bitcoin reach a value just shy of $20,000, and other altcoins reach speculative values still far above their current valuations. What some early analysts missed was that DeFi was not just a fleeting fad. In fact, DeFi platforms continue to proliferate in the market along with the governance tokens that holders use to determine strategies for the platforms on which to run. Knowing this, is there a best mainnet option for DeFi projects?
The Ethereum Network supports the most DeFi projects by a significant margin. About 200 DeFi projects build on Ethereum while the Tron Network comes in at a distant second, hosting just under 50. This disparity served as the impetus for trying to dig deeper into what other mainnets offer as potential benefits over Ethereum, and how so many appear to fall short of the capabilities Ethereum offers.
The leaders among the DeFi category are all built on Ethereum, as well. Projects like MakerDAO, Compound, Uniswap, and Aave use the Ethereum ecosystem. The Xangle Research team pinpointed four reasons as to why Ethereum hosts these major projects:
- A convenient development environment
- A solid infrastructure and wallet support
- Ample stablecoin support
- A large pre-existing user base
Despite its strengths, Ethereum displays a few limitations, such as high transaction fees and limited scalability, which have been the main push factors for DeFi projects to move to other networks. For example, ETH fees tend to skyrocket as on-chain transaction volume increases. During the DeFi crypto boom of last summer, transaction fees on the Ethereum Network rose to an average of $14/transaction. That high-water mark represents a 175-time increase in transaction fees from January of the same year when fees averaged about $0.08 each.
There is also a scalability issue on Ethereum. In 2017, Cryptokitties flooded Ethereum with thousands of transactions more than it could handle in a timely fashion. At its peak in early December, Ethereum held over ten thousand pending transactions largely as a result of just the one dApp. One begets the other, though, so as pending transactions build up, miners are forced to favor the transactions with higher and higher GAS fees.
Other blockchain mainnets now challenge Ethereum’s dominance as they work to attract new and popular DeFi projects to their platform. The Xangle Research team found four benefits over Ethereum offered by other mainnets that could begin to draw users away:
- Lower transaction fees
- Higher transaction speeds
- Greater project funding
- Improved development environments
Low fees are currently a major advantage for other mainnets. For example, Klaytn features a no-fee structure for a year, while others, such as Litecoin, feature average transaction fees maxing out at $0.17. Through 2020 to-date, Ethereum’s average transaction fee is $1.50. Therefore, it should be easy to see this clear benefit of other mainnets over the current DeFi leader.
Higher transaction speeds help keep pending transactions to a minimum; they could potentially eliminate the possibility altogether. Ethereum’s maximum transactions per second (TPS) currently is at 15, whereas other platforms’ theoretical max TPS reaches 4000 or higher. This means that they are capable of handling more transactions than Ethereum in the same time frame. Both EOS and Klaytn feature vastly superior theoretical TPS as high as 4000. Even the third place IOTA clocks in nearly ninety times faster than Ethereum at just under 1500 TPS. Cryptokitties could likely operate much more smoothly.
Other blockchain projects have much greater funding than Ethereum has currently taken in. This benefit is somewhat tangential but becomes clear when considering how much development they require. It costs money to attract the best blockchain developers, which Tezos and Binance have in ample supply. Tezos Foundation Grants boasts a budget of $30 million and Binance Smart Chain Accelerator Fund has $10 million, both well above the Ecosystem Support Program’s $7.7 million for Ethereum.
Developers for Ethereum’s competitors are continuously reshaping their platforms to be more convenient environments than Ethereum by becoming solidity-compatible. Currently Ethereum supports the most developers in large part due to the favorable development environment and its dominance in the industry. Binance and Tron, however, run closer and closer on Ethereum’s heels for developers to create more robust platforms and dApps.
Trade-Offs and Points to Address
Ethereum still supports the largest number of stablecoins; however, competing blockchain platforms are adding support for various stablecoins to their network to facilitate DeFi infrastructures. Ethereum supports no fewer than 11 stablecoins, not to mention the dozens of spin-off stablecoins based on the DeFi platforms themselves, whereas Stellar and Binance support at least 4 and Polkadot has yet to support any. This limitation on other networks will be one that requires addressing as stablecoins have become an invaluable tool for traders and users of DeFi platforms.
As competitors currently boast differentiated benefits but none offer a whole package of wide improvements over Ethereum, we must ask the question: Which project could truly rival Ethereum? As explained already, Some mainnets offer lower transaction fees, and less funding, while others have higher transaction speeds but less-favorable development environments. As existing blockchain projects launch their own mainnets, they may need to take a long look at how well they support Decentralized Finance platforms in order to stay relevant in the market. Their limitations will need to be consolidated, their advantages will have to be killer, and their usability will need to outshine even Ethereum.
To see all the available blockchains running on their own mainnet, visit CoinJab and type mainnet.
*Note - for various additional source citations, reference the full report.