Ethereum popularized decentralized finance, and app developers on the network turned it into a $250 billion sector. But its percentage of the pie may shrink in 2022.

So says a team of analysts at investment bank JPMorgan Chase. In an investor note on Wednesday, team lead Nikolaos Panigirtzoglou wrote that sharding—a method for drastically scaling up the number of transactions that can be executed on a blockchain—”might arrive too late” for Ethereum to stave off increased market competition from alternative blockchains. Avalanche, Binance Smart Chain, Solana, and Terra have been able to provide many of the same types of applications as Ethereum with higher speeds and lower fees.

“Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given, in our opinion,” the note reads.

But several Ethereum developers and contributors told Decrypt that reports of the network’s demise are greatly exaggerated. 

“Overall, it seems a bit like a lazy / very high level critique,” said Tim Beiko, who coordinates Ethereum core developer meetings. “Rollups are live today, and sharding will lower their costs, but the tech works and is now massively derisked,” referring to a method of executing transactions off-chain that is already in place to help the network scale. 

“Ethereum is still the most used chain when you look at the data,” said Tegan Kline, who co-founded the team that built the Ethereum indexing protocol The Graph. “Of the 26 networks that The Graph supports, 66.7% of the queries are on Ethereum.” 

Decentralized finance, or DeFi, refers to blockchain-based applications that allow people to make all sorts of financial transactions they might otherwise need a bank or broker for. These apps remove intermediaries to make lending, trading, saving or borrowing possible on a peer-to-peer basis so no one else has control over your assets. The first major DeFi app to gain traction was MakerDao on Ethereum in 2017. Over the years, DeFi on Ethereum has expanded. DeFiLlama counts over 250 protocols with at least $1 million of ETH inside.

But other chains are catching up, mainly because they’ve bypassed the network congestion—and high transaction fees that come with it—by implementing proof-of-stake systems, which are more scalable.

Ethereum, too, is transitioning to a proof-of-stake system, but progress on “Ethereum 2.0” has been either deliberate or slow, depending on whom you ask. The current chain (which uses proof of work, just like Bitcoin) is scheduled to merge with the beacon chain (which uses proof of stake) in the coming year. After that, Ethereum core developers can focus on sharding.

Pooja Ranjan, who leads a decentralized project management team known as the Ethereum Cat Herders, said that while scalability (including sharding)  is important, other issues take priority.

Ethereum developers, for instance, have consistently stressed security over speed while making sure the network doesn’t have any downtime. By contrast, the Solana network shut down for almost 18 hours in September because it was unable to handle high transaction volumes. Kline told Decrypt, “At the end of the day, chain security is incredibly important for financial transactions and for the foreseeable future Ethereum has the most security.” 

According to Kline, DeFi projects on other blockchains are “heavily driven by token incentives,” meaning that people receive tokens that they can then trade or sell as a reward for participating. “Once Ethereum layer 2 adopts those same incentives, we are likely to see a lot more DeFi activity on Ethereum,” she said.

But the head of public affairs for Parity, which built Polkadot, believes developers are getting tired of waiting for Ethereum 2.0 to be fully ready. “The Ethereum sharding roadmap has changed so many times it is difficult to understand what is actually going to happen and when,” said Peter Mauric. He pointed to a report this week from Electric Capital showing that Polkadot has the second-largest pool of developers after Ethereum—and that it’s growing faster than Ethereum did at a similar stage. 

Paul Veradittakit, a partner at Pantera Capital, is hedging his bets among multiple blockchains built for DeFi, pointing out that Solana has become a home for several DeFi gaming startups. “We have made a number of bets on Polkadot and Solana and look forward to exploring and expanding into more chains like Near and Avalanche in the coming year,” he told Decrypt.

That doesn’t mean Ethereum can’t remain top dog. Concluded Ranjan: “My naive opinion is that DeFi is there because of Ethereum and as long as Ethereum is there, DeFi sure is a strong driving force for mainstream engagement.”

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