DeFi’s potential means more institutional demand for next-generation tokens

It cannot be denied that the altcoin sector has flourished in recent years and has had a huge impact on the overall crypto market. In fact, a quick look at the data available on Google Trends shows us that searches for the term “Ethereum Killer” have skyrocketed in the past 90 days, signaling the growing interest of crypto chain investors in various altcoins .

In this regard, several cryptocurrencies – such as Cardano (ADA), Solana (SOL), Polkadots DOT, and Terra (LUNA) – have seen great success in the market recently. SOL, in particular, has attracted a lot of attention from investors, largely thanks to its recent rally that saw the cryptocurrency rise despite a wave in the market.

In this regard, several cryptocurrencies – such as Cardano (ADA), Solana (SOL), Polkadots DOT, and Terra (LUNA) – have seen great success in the market recently. SOL, in particular, has attracted a lot of attention from investors, largely thanks to its recent rally that saw the cryptocurrency rise despite a wave in the market.

In addition, there are several other networks that have shown promise. For example, Cardano was able to post considerable profits after the completion of the much advertised Alonzo hard fork and posted figures of + 70% and + 1,200% in the last 90 and 180 days.

Demand for next-generation tokens is growing

To better understand the overall impact of the above developments on the market, Cointelegraph reached out to Antoni Trenchev, managing partner and co-founder of the Nexo credit platform. In his view, given the rising institutional demand for coins like Solanas SOL and Terras LUNA, it is obvious that both assets could make the list of top 15 cryptocurrencies by total market capitalization. Trenchev told Cointelegraph:

“This is a reflection of how companies are digging deeper into crypto. In the first two months of 2021, large institutions like BlackRock, Square and MicroStrategy are just getting into Bitcoin. Now they have tasted the benefits and are trying to unlock the untapped potential of burgeoning blockchains and DeFi-Coins that could be more profitable. “

Trenchev stressed that such developments suggest that the crypto market may now be in the middle of an alternate season; The difference this time around, however, is that established coins like ETH and Bitcoin (BTC) are more stable than some of these newer assets. “Think about the current situation where the alternate season hits the interest of organizations and yes, I think we’ll see more and more trends like this in the future,” he said.

The stability these institutions offer was evident on September 16 when Solana experienced a massive outage during which, instead of falling into a panic-driven sell-off, SOL was reduced by less than 10%, largely without depreciation.

Solana’s race caught the attention of the market

Institutional traders flocked to Solana earlier this month as demand for Ether and Bitcoin (BTC) appeared to be increasing. In that regard, SOL-focused investment products accounted for a whopping 86.6% of total weekly inflows into the crypto investment market for the first week of September.

Specifically, SOL’s combined investment products have seen inflows of more than $ 49.4 million since September 6-10, according to data from digital asset management firm CoinShares, increasing in value since September 6-10 for the week and accounted for 86.6% of the total capital poured into the crypto investing sector.

Finally, other digital asset products also saw massive outflows for the fourth week in a row, with demand for various altcoins slightly exceeding that of products like BTC and then only seeing an inflow of at least $ 200,000. For example, it is noteworthy that Polkadot’s multi-asset, XRP, DOT, and Bitcoin Cash (BCH) products sold a massive $ 3.2 million, $ 0.1 million, 1.7 million in the first half of September US dollars and 600,000 US dollars respectively.

“Undiscovered” projects that arouse the interest of organizations

Kadan Stadelmann, technical director of end-to-end blockchain infrastructure solutions provider Komodo, told Cointelegraph that increased demand for unexplored projects is nothing new in the cryptocurrency market. What sets this period apart from previous cycles, however, is the sheer amount of capital that flows in from the institutions. He says:

“The risk is that this will lead to faster market cycles for certain cryptocurrencies that differ from general market movements. We’re seeing extreme FOMO and rising prices, followed by massive sell-offs and price drops. Especially at SOL there is a 20% discount this week. That’s not to say it won’t return to all-time highs anytime soon. Only those who are new to cryptocurrencies should know that volatility is a matter of course. “

Finally, Stadelmann believes, following Trenchev, that in the course of an increasingly decentralized future it will become more frequent to see the prices of various altcoins. “Hundreds of DeFi projects are flying under the radar. Many of these projects have solid technology and could gain momentum once the institutes realize their potential, ”he said.

The rise of the altcoins is defensible

One of the fundamental core reasons for the rise of many of the above altcoins is the lack of scalability of the Ethereum network. In this regard, despite all the recently advertised function updates, the platform can only process around 15 to 25 transactions per second in its current state – and that with extremely low throughput at the same time.

Not only that, although the recently completed London hard fork is set to help correct the soaring ether gas fees – after prices were in the range of $ 15-20 earlier this year in Q1, which is pretty high for the average Ethereum customer.

In addition, the minting of an unusable token (NFT) in the Ethereum network can cost up to 3 ETH during rush hour, which in many cases actually counts for a higher price than the actual NFT itself. On the other hand, like many other projects, Solana not only offers faster Transaction speeds, but also much lower gas prices, which allows for more economical issuance of NFTs.

As Ethereum prepares for the transition to a proof-of-stake framework, it is expected that after the final transition, the platform will be able to process up to 100,000 transactions per second. However, until that day, it looks like the growing list of platforms that support smart contracts may continue to eat up Ethereum’s massive market share.

Is Ethereum about to eclipse?

The recent overhaul of Ethereum, the all-important hard fork in London – which inadvertently included critical updates such as the Ethereum Improvement Proposal 1559 – was supposed to implement a new transaction pricing mechanism, causing the ecosystem to become essentially deflationary.

The data available shows that more than 336,000 ETH tokens have been burned, with a current burn rate of 4.9 ETH per second, or around 2.7 million ETH tokens per year, essentially bringing the project’s annual supply growth to 2.3 % while about 5.3 million tokens per year.

Additionally, Ethereum isn’t the only project using such a deflationary setup, as Solana is also known to burn 50% of transaction fees to regulate its native SOL token supply. Khalid Howladar, President of MRHB DeFi – a Sharia-compliant Decentralized Financial Platform (DeFi) – told Cointelegraph:

“While it is clear that Ethereum is the current smart contract backbone of the DeFi ecosystem, Solana is emerging as a solid competitor with more growth potential. Key factors such as cost and speed make Solana a solid challenger to Ethereum’s position in both programmable money (DeFi) and programmable vehicles (NFT) realms. “

Howladar believes organizations are just getting wet when it comes to DeFi and the next few months could be extremely interesting in terms of their engagement. “If DeFi platforms can somehow guarantee fundamentals like consumer protection through decentralized KYC and AML, they will take most of the market share from banks, especially if peer-to-peer economies prevail,” he said.

In the future, it will be interesting to see if Ethereum can maintain its current dominance, especially as the growing list of smart contract-enabled alternatives continues to attract attention.