Flipsides say the ongoing demand for economical alternatives to Ethereum, will drive more layer-2 projects to prioritize reducing end-user costs this year.
Ethereum is set to confront heightened competition in the blockchain space in 2024, driven by the persistent demand for cost-effective alternatives and the proliferation of Ethereum Virtual Machine (EVM)-compatible layer-2 networks, Flipside, a blockchain data platform, said in a recent research report.
As per analysts, a substantial portion of EVM users are now actively exploring alternative options to Ethereum due to the allure of lower fees and faster transactions offered by emerging layer-2 solutions. The significance of this shift is underscored by historical patterns, where past bull runs fueled by Ethereum-based protocols resulted in soaring transaction costs.
“The continued need for cost-effective alternatives to Ethereum, plus the growing number of EVM-compatible layer-2s, will pressure more layer-2 projects to focus on lowering end user costs.”
The competitive landscape is further shaped by a growing number of EVM-compatible layer-2 networks, compelling layer-2 projects to pivot towards prioritizing cost reduction for end users. As part of this evolution, governance tokens of layer-2 networks such as Optimism (OP), Arbitrum (ARB), and Polygon (POL) are gaining renewed attention.
“The ability of these governance tokens to impact each network’s competitive advantage will play a central role in the layer-2 narrative.”
Adding to the dynamics, Ethereum’s planned Dencun upgrade, featuring a new feature known as “blobs” that will allow storing large pieces of data on Ethereum blocks through EIP-4844, is anticipated to amplify the competition. Flipside says blobs will enhance block space on the mainnet and boost throughput for layer-2 networks, further challenging Ethereum’s dominant position.
Analysts at Mike Novogratz’s crypto bank, Galaxy Digital, echo a parallel sentiment, foreseeing a pivotal 2024 for Ethereum amid increasing stakes raised by other layer-1 blockchains.
Galaxy Digital highlights Ethereum’s modular architecture, specifically diverse rollup types, as a source of potential challenges and technological risks due to their early developmental stage. Singling out Solana as the primary contender with its distinctive monolithic architecture, Galaxy Digital positions it as the main competitor against Ethereum this year.