Ethereum Dominance Will Go Down As Competitors Emerge, Says Morgan Stanley


Global investment bank Morgan Stanley has released thoughts around leading smart contract platform Ethereum. In a recently published note titled “Cryptocurrency 201: What Is Ethereum?” the bank revealed its outlook for the future of the blockchain. Ethereum which continues to maintain large dominance over the decentralized finance (DeFi) and NFTs space might find itself losing more market share to competitors, Morgan Stanley revealed.

Ethereum Is Less Decentralized

Comparing bitcoin to Ethereum, Morgan Stanley arrived at the conclusion that the latter was less decentralized. Its metric for this comparison was the number of each digital asset that was held by whales. Although bitcoin gets flack for its holder concentration where the top 100 wallets held 14% of supply, Ethereum is even more concentrated with the top 100 wallets holding 39% of its total supply.

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Ethereum no doubt has always had more centralized traits compared to bitcoin. This is apparent in the upgrades that can be carried out on the network but have not hindered its success over the long term.

The blockchain is still the leading smart contracts network in the space. It possesses the dominant market share in decentralized finance (DeFi) and the NFT market, with ETH accounting for more than 60% of total value locked (TVL).

Nevertheless, Morgan Stanley says that this dominance may not last for long. Already, other networks are quickly springing up and taking market share from the blockchain and the investment bank predicts that this will continue to happen.

What Is The Cause?

One of the reasons Ethereum is seeing declined dominance is the fact that newer networks like Solana and Cardano are presenting with more scalability, faster and cheaper transactions. It has seen more and more users move to alternative blockchains, taking their funds with them and increasing the dominance of these other blockchains.

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Furthermore, the Morgan Stanley note explains that the rapidly evolving regulations to which the DeFi and NFT markets are subject could also lead to reduced demand for transactions on the network given that they make up the majority of the activity on Ethereum. They are also subject to new risks that restrict certain areas such as finance, which DeFi falls under.

Ethereum price chart on TradingView.com

ETH declines below $3,000 | Source: ETHUSD on TradingView.com

Another major risk for the Ethereum network that Morgan Stanley notes is the “blockchain bloat and scalability” risk. As already mentioned above, atheneum’s competitors are coming out with faster and cheaper transactions, whereas the leading network continues to suffer from slow transactions and high fees brought about by the increased demand on the network.

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The note also points out that the rate at which Ethereum is growing also raises the issue that is storage space. The blockchain is set to outpace its resources due to high storage demand. However, with the move to the consensus layer (ETH 2.0) which is underway, this can be averted.

Featured image from MARCA, chart from TradingView.com


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