• Because of DeFi’s potential, there will be more institutional demand for next-generation tokens

  • The profits made by other smart contract-enabled projects have largely overshadowed Ether’s impressive YTD gains.

    There’s no denying that the altcoin market has exploded in recent years, having a significant impact on the overall crypto market. Indeed, a quick look at Google Trends shows that searches for the term “Ethereum killer” have been on the rise for the past 90 days, indicating an increase in investor interest in various altcoins.

    In this regard, a number of cryptocurrencies, including Cardano (ADA), Solana (SOL), Polkadot’s DOT, and Terra (LUNA), have recently made significant market gains. SOL, in particular, has been attracting a lot of attention from investors, thanks to its recent rally, which saw the cryptocurrency surge despite a massive selloff in the market.

    There are also a number of other networks that have shown a lot of promise. Cardano, for example, has been able to post significant profits following the completion of its much-hyped Alonzo hard fork, with gains of +70 percent and +1,200 percent over the last 90 and 180 days, respectively.

    Next-generation tokens are in high demand. soars

    We reached out to Antoni Trenchev, managing partner and co-founder of lending platform Nexo, to get a better understanding of what the aforementioned developments mean for the market as a whole. According to him, institutional demand for coins like Solana’s SOL and Terra’s LUNA is growing, as evidenced by the fact that both assets have made it into the top 15 cryptocurrencies by total market capitalization. ULTCOIN365 spoke with Trenchev, who said:

    “This is a reflection of businesses getting more involved in cryptocurrency. Major institutions like BlackRock, Square, and MicroStrategy were only just dipping their toes into Bitcoin in the first two months of 2021. Now that they’ve experienced the benefits, they’re looking to tap into the untapped potential of emerging blockchains and DeFi coins to generate higher returns.”

    Such developments, according to Trenchev, indicate that the crypto market is currently in the midst of an alt-season; however, what’s different this time is that established coins like Ethereum (ETH) and Bitcoin (BTC) are demonstrating a higher level of stability than some of these newer assets. “Think of the current situation as alt season meets institutional interest,” he said, adding, “I believe we will see more and more trends like this in the future.”

    When Solana experienced a major outage on Sept. 16, instead of going into a panic-induced sell frenzy, SOL lost less than 10% of its value, demonstrating the stability these institutions bring.

    The market has taken notice of Solana’s performance.

    Institutional traders flocked to Solana earlier this month as demand for Ether and Bitcoin (BTC) exposure appeared to be leveling off. In this regard, SOL-centric investment products accounted for 86.6 percent of total weekly inflows into the crypto investment market in the first week of September.

    According to data recently released by digital asset management firm CoinShares, SOL’s combined investment products saw inflows of more than $49.4 million between Sept. 6 and 10. Furthermore, SOL’s value increased by 275 percent week over week, accounting for 86.6 percent of total capital inflow into the crypto investment sector.

    Finally, for the fourth week in a row, other digital asset products have seen significant cash inflows, with demand for various altcoins far outstripping that for BTC, with the latter only seeing minimal inflows of $200,000. For instance, during the first half of September, multi-asset products such as XRP, Polkadot’s DOT, and Bitcoin Cash (BCH) saw significant financial inflows of fa$3.2 million, $3.1 million, $1.7 million, and $600,000, respectively.

    Institutional interest is piqued by “undiscovered” projects.

    According to Kadan Stadelmann, chief technical officer of Komodo, a provider of end-to-end blockchain infrastructure solutions, the crypto market’s rising demand for undiscovered projects is nothing new. The sheer amount of capital flowing in from institutions, however, distinguishes this cycle from previous cycles. He stated, ”

    “The risk is that this will lead to faster market cycles for specific cryptocurrencies that are outliers from overall market movements. We see extreme FOMO and price increases, followed by a large sell-off and price declines. With SOL, in particular, prices are down 20% this week. That doesn’t mean it won’t quickly return back to its all-time high. It’s just that people who are new to crypto should be aware that volatility is par for the course.”

    Finally, Stadelmann agrees with Trenchev that as the world becomes more decentralized, it will become more common to see a sharp increase in the price of various altcoins. “There are hundreds of DeFi projects that are going unnoticed. Many of these projects have solid technology and have the potential to gain upward price momentum once institutions recognize their value,” he said.

    Altcoins’ rise is understandable.

    The Ethereum network’s lack of scalability has been one of the main reasons for the rise of many of the above-mentioned altcoins. Despite all of its recent highly lauded functional updates, the platform can only process around 15–25 transactions per second in its current state, with an extremely low throughput capacity.

    Furthermore, despite the fact that the recently completed London hard fork was intended to help regulate Ether’s rising gas fees — after rates reached as high as $40 and $70 earlier this year in Q1 and Q2, respectively — the figure appears to be hovering around the $15–$20 range, which is quite high for the average Ethereum user.

    Furthermore, minting a nonfungible token (NFT) on the Ethereum network during peak traffic hours can cost up to 3 ETH, which, in many cases, can cost more than the NFT itself. Solana, like many other projects, offers not only faster transaction speeds but also significantly lower gas prices, allowing for more cost-effective NFT issuance.

    Is Ethereum on the verge of being overshadowed by other cryptocurrencies?

    The all-important London hard fork, which also included important updates like the Ethereum Improvement Proposal 1559, was supposed to implement a new transaction pricing mechanism for the network, resulting in the ecosystem becoming deflationary in nature.

    According to available data, over 336,000 ETH tokens have already been burned, with the current burn rate sitting at 4.9 ETH per second, or roughly 2.7 million ETH tokens per year, bringing the project’s annual supply growth rate to 2.3 percent and its issuance to around 5.3 million tokens per year.

    Furthermore, Ethereum isn’t the only project to employ a deflationary strategy; Solana, for example, is known to burn 50% of its transaction fees to control the supply of its native SOL token. ULTCOIN365 spoke with Khalid Howladar, chairman of MRHB DeFi, a Shariah-compliant decentralized finance (DeFi) platform:

    “While it’s clear that Ethereum is the current smart contract backbone of the DeFi ecosystem, Solana is emerging as a solid competitor with potentially more upside to come. Key factors such as cost and speed mean that Solana has become a solid challenger to Ethereum’s position both within the realm of programmable money (DeFi) and programmable media (NFTs).”

    Institutions, according to Howladar, are only just getting their feet wet when it comes to DeFi, so the next few months could be very interesting in terms of how they get more involved. “If DeFi platforms can somehow ensure basic things like consumer protection using decentralized KYC and AML, they will take significant market share away from banks, especially as peer-to-peer economic systems take hold,” he predicted.

    It will be interesting to see if Ethereum can maintain its current market dominance in the future, especially as a growing number of smart contract-enabled alternatives gain mainstream market traction.

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