“Ethereum’s overwhelming mindshare helps explain why its users have been willing to pay over $15 million on average a day just to use the Blockchain,” a16z stated.
Cryptocurrency hedge fund giant Andreessen Horowitz (a16z) has highlighted that Ethereum’s development and demand are “unmatched” despite the network’s high transaction fees.
The firm warns, however, that its “popularity is also a double-edged sword” as Ethereum prioritizes decentralization over scaling, causing competing Blockchains to steal market share with “promises of better performance and lower rates.”
The comments came via a blog post featuring a16z’s 2022 “State of Crypto” report, in which the firm’s data scientist Daren Matsuoka, chief protocol engineer and designer Eddy Lazzarin, the General Partner Chris Dixon and Chief Content Officer Robert Hackett work together to provide five key takeaways from the study.
Aside from Ethereum, the report focuses on topics such as Web3 development, cryptocurrency adoption rates, decentralized finance (DeFi), and stablecoins.
Quoted from a Twitter post by @a16z: “Introducing a16z’s 2022 State of Crypto Report. A lot has changed since we started investing in crypto nearly a decade ago. Here are 5 key takeaways from the a16z crypto web3 industry survey and data analysis by @darenmatsuoka, @eddylazzarin, @cdixon & @rhhackett.”
Ethereum’s Current Status
According to the data in the report, Ethereum rules out the competition in terms of builder interest, as the network has around 4,000 monthly active developers compared to second-place Solana with 1,000. Bitcoin and Cardano are next, at roughly 500 and 400 each, respectively.
Analysts noted that, “Ethereum’s leadership has a lot to do with its early start, and the health of its community,” but highlighted the importance of continued development of the network despite high transaction costs:
“Ethereum’s overwhelming mindshare helps explain why its users have been willing to pay more than $15 million on average per day just to use the Blockchain, which is remarkable for such a young project.”
The demand for Ethereum can also be seen in the report’s estimated transaction fees paid on a Blockchain over an average of seven days, calculated as of May 12. The data show that Ethereum accounts for $15.24 million. In contrast, BNB Chain, Avalanche, Fantom, Polygon, and Solana account for about $2.5 million of combined fees.
The report notes that layer 2 scaling solutions are struggling to reduce Ethereum fees and increase transaction speeds while noting that long-awaited updates are coming to Ethereum to make the network more efficient and profitable.
However, the “long-awaited” updates cannot happen soon enough, and a16z also highlighted in the report that in an average of 30 days as of May 12, active addresses and transactions on competing Blockchains, including Solana, BNB Chain, and Polygon, are already way ahead of Ethereum.
Some Preliminary Conclusions
The data show that Ethereum has 5.5 million active addresses, representing 1.1 million daily transactions, while Solana has 15.4 million active addresses and 15.3 million daily transactions. BNB Chain is in third place, with 9.4 million and 5 million, respectively, while Polygon adds around 2.6 million and 3.4 million, respectively.
Analysts conclude that it will not be a winner-takes-all situation:
“Blockchains are the flagship of a new computing wave, like personal computers and broadband were in the 1990s and 2000s, and as mobile phones were in the last decade. There is a lot of room for innovation, and we believe there will be multiple winners.”
Other key highlights of the report are the total value of the DeFi sector, which at $113 billion would make it the 31st largest bank in the United States; estimates that Web3 adoption could reach 1 billion users by 2031; and that NFTs have so far generated $3.9 billion in revenue for creators.
By Audy Castaneda
