3 reasons why Ethereum’s market cap dominance is on the rise

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Ethereum has been the dominant smart contract and decentralized application (Dapp) network since its inception. An analysis based on Ether’s price (ETH), and its market capitalization, shows indisputable evidence that the blockchain has been gaining market share over time. 

Ether market capitalization dominance (%). Source: TradingView

As shown above, Ether’s dominance in market capitalization terms grew over the past couple of years, from an 18% average in July 2021 to the current 20%. Excluding Bitcoin (BTC) from the analysis, Ether’s market share presently stands at 40.6%, while the next competitor, BNB, holds a 7.2% share.

This shows the disparity from the leading Dapp-focused network to the incumbents, which is also evident when analyzing the total value locked (TVL) on each network’s smart contracts. Ethereum is the absolute leader with $24.6 billion in TVL, followed by Tron’s $5.4 billion and BNB Chain’s $3.3 billion.

Total value locked market share (%). Source: DefiLlama

The above chart depicts the Ethereum network’s TVL market share declining from 70.5% in June 2021 to 49.5% in May 2022. The movement happened while Terra and Avalanche gained a combined 20% market share in smart contract deposits. However, after the Terra-Luna ecosystem collapse in May 2022, which culminated with developers halting network activity, Ethereum quickly regained a 58% market share.

Despite the emergence of Dapps on the BNB and Tron blockchains, Ethereum’s leadership has remained unquestioned over the past 12 months. This data shows the irrelevance of the total number of unique active wallets interacting with smart contracts (UAW) per chain.

For instance, according to DappRadar, WAX has 363,600 active users, followed by BNB Chain’s 517,300 30-day UAW. These figures are way higher than the Ethereum network’s 66,300 unique active addresses, but they reflect a much lower transaction fee, opening room for manipulation.

Decentralization matters, and Ethereum stands out among its competitors

Ethereum is the ecosystem with the highest number of active developers, surpassing 1,870, which is more than the next three competitors combined: Polkadot (752), Cosmos (511), and Solana (383).

Currently, the Ethereum network has over 700,000 validators, with 99% of the balances locked in staking participating in the process. The 32 ETH threshold limit per validator undoubtedly inflates this number, but Lido, the largest known staking pool, controls 32% of the staking, with Coinbase coming in second with 9.6%.

Consequently, it is safe to say that Ethereum is far less centralized in terms of development and validation in comparison to Tron, BNB Chain and Solana.

Other reasons why Ether’s dominance has been on the rise, even as Bitcoin reached a 50% market share on June 19 are: derivatives activity and Ethereum’s dominance of the NFT market

Derivatives markets are essential to institutional investors

Ether’s future contracts are essential for institutional trading practices like hedging and trading with leverage. Ether’s cash-settled futures were added to the Chicago Mercantile Exchange in February 2021. To date, no other cryptocurrency, apart from Bitcoin, has ever reached the world’s largest derivatives exchange.

In futures markets, longs and shorts are balanced at all times, but having a larger number of active contracts — open interest — allows the participation of institutional investors who require a minimum market size. Ether futures aggregated open interest stands at $5.4 billion, while competitors BNB hold $380 million and Solana a mere $178 million.

Ethereum is still the market leader in NFTs

Nonfungible tokens (NFT) are a perfect example of how cheaper and faster transactions do not always translate to increased adoption. There’s nothing stopping NFT projects from shifting between blockchains, whether for new listings or existing collections. In fact, y00ts and DeGods moved to Polygon earlier in 2023.

Despite facing gas fees that oftentimes break above $10, Ethereum remains the absolute leader in the number of buyers and total sales. According to CryptoSlam!, the leading network reached $380 million in sales in the past 30 days, while Solana, Polygon and BNB Chain totaled a combined $93 million.

Ultimately, the data favors Ethereum versus the competing smart contract-focused blockchains. The positive trend in Ether’s dominance might fade over time if the promised upgrade to allow parallel processing (sharding) does not come to fruition, but for now, Ether’s 20% market capitalization share remains unchallenged.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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