What happens to Avalanche, Solana, and other chains when Ethereum scales?

As second-layer protocols such as Arbitrum and Optimism continue to be developed and adopted, Ethereum scaling solutions become more common. When this happens, the use cases for first-layer alternatives such as Avalanche, Solana, Binance Smart Chain, and Cardano will be significantly reduced, as there is little benefit to using these chains on Ethereum. However, they can still find a place in the market.

Ethereum has been having issues with network congestion over the past two years. Even simple Ethereum transactions can cost as much as $5, and can cost over $100 during peak hours. Projects like Binance Smart Chain and Solana have begun to emerge as alternatives to Ethereum with lower fees and higher transaction throughput.

While these alternatives have gained huge popularity and market cap, their speed comes at a price: centralization. Binance Smart Chain has only 21 validators to confirm transactions, making it very centralized. Ethereum 2.0 already has 355,000 validators, making it the most decentralized blockchain to date. While centralization may seem inconsequential, a small number of outages could cause BSC to crash, or validators could collude to launch an attack on the chain.

Despite high fees and slow transaction times, Ethereum has the highest total value locked of any blockchain, making it attractive to developers and users alike. Developers are drawn to the chain due to high transaction volumes, which means their protocols are likely to generate more profits. Users are able to take advantage of a plethora of DeFi options and applications with high liquidity. The trend of developers and users turning to Ethereum is cyclical and will only intensify when high fees are no longer an issue.

Still, are all other chains doomed to irrelevance when users return to Ethereum? Probably some, but certainly not all. There is plenty of room for a few smart contract blockchains to dominate the space, especially if each chain finds its own niche. For example, Terra has so far been a blockchain primarily focused on DeFi and its stablecoin, UST. It has a suite of applications associated with using UST, including earning a 15% interest rate and redeeming it for other tokens. Even if Ethereum completely dominates all other chains, Terra will still have use cases due to its unique dApp portfolio.

Other chains that may survive are those that do not share an architecture with Ethereum. All of Ethereum’s dApps run on the Ethereum Virtual Machine, or EVM. Some of the most popular blockchains also make use of the EVM, including Avalanche, Binance Smart Chain, Fantom, and Harmony. This is why dApps like Aave and Uniswap have been able to be easily ported to other chains with minimal changes to their code. Other popular blockchains, such as Solana, Cosmos, Algorand, and Cardano, do not use the EVM or the Solidity programming language. While this may be a disadvantage right now as it means there are fewer developers on their chain, this may be their saving grace in the future as it allows for unique dApps to be built on their chain. For example, Cardano uses the Haskell programming language, which is more secure and verifiable to ensure there aren’t any glaring vulnerabilities in the code. This may be more suitable for enterprise and commercial applications that put security first.

Although the use cases and value of other chains may diminish when Ethereum emerges as a decentralized and scalable smart contract platform, specific niches can save them from falling into obscurity. Time will tell which chains are able to find their place in the market, but those with unique features and partnerships are most likely to stand the test of time.