Ethereum Fighting to Hold DeFi Innovation or Just a Matter of Time Till Layer-2?

The issue of scalability and daunting gas fees seems to be a real problem for Vitalik and Ethereum. There is still hope for the Ethereum network in Ethereum 2.0 but layer-2 solutions need to be implemented ASAP.

Utulu Hope
March 20, 2021
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Decentralized finance (DeFi) and the Ethereum network have dominated the crypto market, toppling other crypto niches. DeFi, in general, has amassed considerable growth in terms of engagement and volume. Data from DappRadar shows that DeFi's volume is currently close to $56 billion. 

Asides DeFi, NFTs (Non-fungible tokens) have also earned considerable growth. Many analysts have predicted that this year will be a milestone for the NFTs. However, the talk of the town as regards cryptocurrency remains Ethereum. This is because the Ethereum blockchain has the most activities in the decentralized finance space. But the second-best cryptocurrency is facing some challenges.

What is a Layer-2 Solution? 

A layer-2 is defined as a secondary framework built on a pre-existing blockchain. The main objective is to solve problems of transaction speed and high transaction fees, which networks like Ethereum face. For instance, Ethereum can't make thousands of transactions per second which is disappointing. A problem like this needs better technology to be tackled. 

This is where the layer-2 solution comes in. In that instance, layer-2 is a form of multiple solutions needed to tackle the transaction problem of Ethereum. One example of a layer-2 solution on the Ethereum blockchain is the Ethereum plasma. So as layer 1 offers security, layer-2 provides output in hundreds and thousands of transactions per second. 

The Case for Ethereum and Decentralized Exchanges 

The Ethereum blockchain is struggling. The current high gas fees and congestion has made it very difficult for small and medium-scale investors to make transactions on DeFi exchanges. Now, a simple transaction may cost upwards of $10, which is ridiculously high. This has led to a considerable rise in the search for alternatives to the Ethereum network. 

Earlier this month, on the 3rd of March, the popular Decentralized exchange platform, SushiSwap, announced its introduction of several Ethereum alternatives. The DEX (Decentralized Exchange) deployed contracts on Fantom, Binance Smart Chain, Moonbeam, Polygon, and xDai. However, the introduction of these alternatives above was not supported by the community. Notable personalities such as Hayden Adams — Uniswap's founder, and Chef Nomi expressed their disappointments. 

Hayden Adams was quick to play down the praises received by SushiSwap. He said that the DEX is far from being a top decentralized exchange that offers unique products but just a platform that provides liquidity mining and some form of marketing. Regardless, SushiSwap seems to be flourishing, according to recent statistics. Data from Dune analytics disclosed that the platform is the second-best decentralized exchange by volume. Even though it is not intentional, SushiSwap is drawing customers away from the Ethereum blockchain with better alternatives due to its high transaction rates and congestion. 

More DEXs Seeking Alternatives 

While Ethereum remains a top asset, many decentralized exchanges are seeking alternatives. The most popular choice is the Binance Smart Chain network. BSC has gained massive popularity in recent weeks with many exchanges moving in. 1inch is the latest to add support for BSC. Its users can enjoy lower transaction rates. However, the platform does not plan to leave the Ethereum network. 

In an interview with Cointelegraph, the co-founder of 1inch disclosed the reason why BSC was added. He explained that BSC support was due to its customer's demands and the high number of activities on the network. 

Layer-2 Scaling Gaining Interest 

Even as alternatives to Ethereum like BSC are dominating the DeFi space, layer-2 seems to be in the game. According to SushiSwap's chief technology officer, Joseph Delong, the exchange plans to adopt layer-2 options. The DEX is planning to implement a layer-2 solution known as Optimism. 

Although SushiSwap is the latest platform to adopt the layer-2 solution, other projects also plan to embrace the same initiative. Projects like Synthetics have also shown interest in adopting Optimism. The founder of the platform, Kain Warwick, has urged every project on the Ethereum blockchain to embracing the use of layer-2 solutions. 

Ethereum 2.0 and the Wait for Layer-2 Solutions? 

The development of Ethereum 2.0 promises to improve the blockchain in a time where Ethereum is facing a lot of troubles. However, will this postpone the adoption of layer-2 solutions? Staking and sharding features of Ethereum 2.0 give rise to optimism as it will not only reduce transaction fees and congestion but will also bring much more improvement on the wasteful proof-of-work model. This means that miners will no longer need to burn electricity to verify the network. 

Although Ethereum 2.0 promises to improve the ETH framework, it may not bring back lost customers. BSC is now a popular alternative due to the present struggles of the Ethereum network. Many customers have opted for the BSC framework, and this is unsurprising. Now, the DeFi alternative has seen massive growth, and in no time, its native BNB token may surpass ETH. 


The issue of scalability and daunting gas fees seems to be a real problem for Vitalik and Ethereum. Although he has promised that the introduction of Ethereum 2.0 will provide solutions, the transformation will take up to two years to be complete. 

This is currently a wrong time for Ethereum to be facing these problems with the continuous rise of BSC and layer-2 solutions being called for by DEXs. There is still hope for the Ethereum network in Ethereum 2.0 but with the DeFi ecosystem's increased interest, layer-2 solutions need to be implemented ASAP. 

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Utulu Hope

UC Hope is a passionate fan of crypto who could weave the latest event into sparks of inspiration and information. He leaves no stone unturned to get to the core of a story. Aside from writing, he spends his hours poring over algorithms and protocols, preparing for a future career as a computer programmer.