Remember when everyone thought Ethereum had won the race to be the top blockchain network? Well, things have changed. This shift helps explain why the price of ETH, Ethereum’s native cryptocurrency, isn’t soaring as some expected.
During the recent crypto market downturn, many believed Ethereum would emerge as the clear winner among layer-1 (L1) blockchains. This belief led investors to sell off their holdings in alternative L1 networks and stock up on Bitcoin and Ethereum, thinking these were the safest bets.
Why did people think other L1 networks would fade away? There were two main reasons:
- Lack of Originality
Most alternative L1 networks were essentially copies of each other. They all tried to attract users by offering rewards for providing liquidity to decentralized finance (DeFi) protocols. These protocols were often just clones of popular Ethereum-based platforms like Aave and Uniswap.
There wasn’t much innovation happening on these networks. The only real differences between them were:
- Lower transaction fees
- Faster transaction speeds
- Different branding strategies
- The amount of cryptocurrency rewards they could offer users
- The Rise of Ethereum Layer-2 Solutions
As alternative L1 networks were struggling, a new trend emerged: Ethereum layer-2 (L2) solutions. Platforms like Optimism and Arbitrum promised to make Ethereum more scalable without sacrificing security.
These L2 solutions gained traction even during the market downturn, while alternative L1 networks kept losing users and total value locked (TVL) in their ecosystems.
The Comeback of Alternative L1 Networks
Facing these challenges, alternative L1 networks had to reinvent themselves – and many did just that.
Solana: The Ethereum Challenger
Solana’s resurgence has been particularly impressive. Despite being hit hard by the collapse of FTX, Solana not only recovered but also challenged the idea that Ethereum’s approach to scaling was the only viable solution.
As more L2 solutions launched on Ethereum, issues with liquidity fragmentation and user experience became more apparent. This made Solana’s single-chain approach increasingly attractive.
The debate between modular and monolithic blockchain designs effectively ended the notion that “Ethereum had won the L1 wars.” Many of the same traders who had previously loaded up on ETH during the market downturn began selling it in favor of SOL and other L1 tokens.
Innovation Across the Board
Other L1 networks have also innovated and now offer more diverse visions than they did a few years ago:
Avalanche: Avalanche recently launched Avalanche 9000, allowing anyone to create their own L1 (not L2) networks for specific applications. Unlike Ethereum L2s, these Avalanche-based L1s benefit from unified cross-chain communication. Avalanche also has a clearer way of capturing value for its main chain.
A major win for Avalanche has been the “Off the Grid” game, which demonstrates that their vision is working. This success could revive interest in blockchain-based gaming.
NEAR Protocol: NEAR is positioning itself as both a monolithic and modular blockchain. It offers features like:
- Chain abstraction for L2s through a unified user interface
- L2 account aggregation
- Implemented sharding (a scaling technique Ethereum has postponed)
BNB Chain: Formerly known as Binance Smart Chain, BNB Chain has launched an L2 solution called opBNB to reduce fees. However, their more significant upgrade is BNB Greenfield, which focuses on:
- Data and intellectual property monetization
- Decentralized artificial intelligence, including training large language models with privacy protections
Fantom: Fantom is doubling down on its monolithic design with the Sonic upgrade, aiming to process 2,000 transactions per second without sharding or L2 solutions. Their goal is to attract a new generation of decentralized applications (dApps).
Gnosis: Gnosis is building practical financial dApps that are gaining daily usage among crypto enthusiasts.
The Importance of Innovation
L1 networks that failed to innovate are struggling. Cosmos, once a pioneer in modular blockchain design, is now losing users, liquidity, and attention. The price of its ATOM token has fallen below levels seen before the 2020/2021 bull market.
However, newer L1 networks like Sui, Sei, and Aptos are still benefiting from being the “new kids on the block.” To thrive long-term, they’ll need to innovate and differentiate themselves from the competition.
The New L2 Landscape
Interestingly, today’s new L2 solutions on Ethereum resemble past L1 networks in many ways:
- They offer very low transaction fees
- There’s little to differentiate them beyond branding
- They attract forked versions of existing protocols, mainly for “airdrop farming” (where users interact with protocols in hopes of receiving future token rewards)
As the airdrop trend declines and total value locked (TVL) drops, L2s must diversify and attract unique dApps to survive. Their tokenomics (the economic design of their native cryptocurrencies) are often problematic as well.
L2s that fail to adapt may be abandoned, much like some of the less successful Ethereum-compatible chains from the 2020 “DeFi summer” boom.
There are, however, some signs of diversification among L2s:
- L2 interoperability alliances (like the OP superchain and zkSync Elastic chain)
- Base benefiting from its connection to Coinbase
- zkSync offering significant financial incentives to attract unique dApps
No Clear Winner (Yet)
Contrary to earlier beliefs, Ethereum hasn’t definitively won the L1 wars. The value that will accrue to Ethereum from all these L2 solutions is still unclear.
This uncertainty is actually good for the blockchain industry as a whole. Even if Ethereum stumbles, alternative L1 networks are building their own futures and providing use cases where Ethereum might not be the best fit.
Now it’s time for L2 solutions to prove their worth as well.
The Ongoing Debate
Some argue that Ethereum has indeed won, pointing to its dominant share of total value locked (TVL) across all blockchains, its role in the stablecoin ecosystem, and the widespread adoption of its technology stack (the Ethereum Virtual Machine, or EVM).
However, there’s significant activity happening on other chains now. It’s likely that we’ll see a situation where different networks excel in specific areas:
- Ethereum might maintain its lead in overall TVL
- Solana could become the leader in transaction volume
- Avalanche might dominate in NFT (non-fungible token) trading
No single network is likely to be the winner across all metrics.
Ethereum’s Unique Position
Ethereum tends to follow a different pattern compared to other L1 networks during market cycles. It often rises early in a bull market and then again towards the end. This creates a situation where, just before a market crash, discussions about Ethereum’s dominance as an L1 can resurface.
The Challenge for Ethereum
Some observers wonder what truly sets Ethereum apart at this point, beyond its first-mover advantage and large TVL. As alternative L1 networks continue to innovate and carve out their niches, Ethereum will need to clearly articulate and demonstrate its unique value proposition.
Looking Ahead
The blockchain landscape is more diverse and competitive than ever. The idea of a single “winner” in the L1 wars is becoming less relevant as networks specialize and find their strengths. For users and developers, this means more options and potentially better solutions for specific use cases.
The challenge now is for these networks – both L1s and L2s – to move beyond short-term incentives and build sustainable ecosystems with real-world utility. Those that succeed will likely shape the future of decentralized technology and finance.