Ethereum: Drowning In Its Own Success
Ethereum’s rapid growth, driven by DeFi, exposed critical scalability limits. The current network can only handle 15–40 transactions per second, so during peak demand users saw gas fees skyrocket. For example, in February 2021 the mean transaction fee briefly hit about $38, reflecting the congestion. Under its original proof-of-work (PoW) design, Ethereum’s throughput and energy use are fundamentally constrained. Ethereum became “plagued by the network’s inability to scale, incurring high fees and slow transactions” during the DeFi boom. These dynamics led to many delayed or failed transactions on Uniswap and other protocols.
Transition to Ethereum 2.0 and Proof-of-Stake
To fix these issues, Ethereum began a multi-year upgrade to Ethereum 2.0, transitioning from PoW to proof-of-stake (PoS). The Beacon Chain (Phase 0 of Eth2) launched in December 2020, staking new ETH and introducing PoS, but the full roll-out (shard chains, the Merge) was still far off in mid-2021. Progress has repeatedly lagged behind optimistic timelines, the planned migration to Ethereum 2.0 has been in the works for years and timelines have consistently been delayed. The community is eagerly awaiting Phase 1 (sharding) and the eventual Merge, but concrete dates are still unclear. As of now, only the first phase is complete.
Competing Blockchains (“Ethereum Killers”)
Ethereum’s bottlenecks spurred new “Ethereum killer” blockchains - alternative Layer-1 platforms promising higher throughput or novel features. Notable examples include Avalanche (a PoS chain with high throughput), Binance Smart Chain (BSC) (an Ethereum-compatible chain with cheaper fees), Solana (a high-speed PoS chain), Cardano (academic PoS chain), Polkadot (sharded multi-chain), Harmony and others. These chains attracted developers and capital: for instance, Avalanche and BSC began siphoning some DeFi activity and even bridged funds from Ethereum. Historically, many early “Ethereum killers” (EOS, TRON, Cardano, etc.) raised large funds in 2018-19, and in 2021 this trend continued with altcoins like Solana and Fantom gaining massive returns. While many networks compete, only a few major chains are likely to win out long-term.
Layer-2 Scaling Solutions
Rather than leave Ethereum, many teams built Layer-2 networks to scale on top of Ethereum. These solutions batch or move transactions off the main chain, dramatically reducing load and fees. The most prominent example today is Polygon (Matic) (a PoS sidechain), with Optimism and Arbitrum in the works (both optimistic-rollup chains). Sidechains like Polygon (which already had large DeFi TVL) also absorbed transactions. These layer-2 networks quickly became popular: many leading DeFi protocols deployed on Polygon to cut gas costs.
Future of DeFi
At this point, it's hard to tell how the future of DeFi will evolve. The world doesn't need 50 Ethereum killers, and most-likely most of those projects will not see mass adoption. Same can be said about Layer 2 networks, they're solving a temporary problem. However, the optimization algorithms they're building will likely find their way into Ethereum itself with time. After all, if the technology is sane, it only makes sense to adopt it, and it's faster to buy a working ecosystem to integrate with rather than build one from scratch. Regardless of which networks come out ahead, there is no doubt that the protocols Ethereum pioneered and Solidity itself will become the defacto standard of the crypto industry. The irony is that just like Bitcoin, Ethereum, which was originally designed for transactions, is slowly becoming store of value instead as it's failing in its original use case but doing amazingly well in terms of security.