Ethereum is like the best and worst parts of New York: Grayscale


Digital asset manager Grayscale has released a report on smart contract platforms comparing the Ethereum (ETH) blockchain to the best and worst parts of New York City.

The report examines the grandfather smart contract network Ethereum in comparison to newer competing blockchains such as Solana (SOL), Avalanche (AVAX), Polkadot (DOT), Cardano (ADA) and Stellar (XLM). The report follows the company launching a crypto fund dedicated to smart contract platforms other than Ethereum.

In a section titled Digital Cities, Grayscale analyzed Ethereum, Avalanche, and Solana. The firm compared Ethereum to the Big Apple, noting that both share similarities with issues stemming from their stature:

“Ethereum is like New York City: it’s huge, it’s expensive, and it’s congested in certain areas. However, it also boasts the richest application ecosystem, with over 500 apps valued at over $100 billion — more than 10x larger than any competing network.”

“Users and developers take comfort in the fact that, given the size of its community and the amount of capital locked up in the network’s smart contracts, Ethereum is likely to continue to be the center of gravity for application innovation and liquidity. An L2 solution like Polygon is like a skyscraper in NYC: it scales by building upwards,” the report added.

The firm went on to say that moving users to competing blockchains is like moving to a cheaper city due to Ethereum’s high gas fees and network congestion, which has historically been driven by overwhelming demand for decentralized finance (DeFi) services and non-fungible tokens (NFTs) were caused 2 years.

“As Ethereum fees started to exceed $10 per transaction, smart contract platforms like Stellar, Algorand, Solana, and Avalanche saw strong growth in daily on-chain transaction counts,” the report reads.

Grayscale described Solana as similar to Los Angeles, noting that it is a “structurally self-contained network that is faster and focused on different use cases” such as:

“Solana’s architecture relies on a different consensus mechanism that prioritizes speed and lower fees, but at the cost of greater centralization—instead of scaling through L2 chains, Solana executes transactions over a fast L1 chain. As of March 15, 2022, approximately 2300 transactions per second were executed,” the report said.

Avalanche has been compared to Chicago in that its economy is similar to NYC but has a smaller network, “transactions are cheaper and less congested, and development is more centralized.”

“Game-specific subnets like Crabada and partnerships with companies like Deloitte should provide more differentiation compared to apps on other chains and help Avalanche develop a unique identity,” Grayscale wrote.

Related: Grayscale is gearing up for a lawsuit with the SEC over Bitcoin ETF

Regardless of the comparisons, Grayscale emphasized bullish use cases for smart contract platforms, with the company noting in particular DeFi and the burgeoning Metaverse sector:

“The combined market opportunity for DeFi and Metaverse applications is likely larger than the $2 trillion market cap of the entire digital asset market today, in our view.”

“Smart contract platforms are the operational layer that DeFi and Metaverse applications are built on and leverage for transactions, ultimately driving value on the base chain as users collect native tokens for fees,” the report added.