Data Contradicts Narrative: Ethereum Still Dominates Layer 1 Sector

Ethereum, referred to as the world computer, consistently ranks first among blockchain networks.

According to data compiled by CoinMarketCap, Ethereum dominates the smart contract sector, holding 62% of the market capitalization at $695 billion, the highest value recorded in 2024. Additionally, the network is the leader in revenue, accounting for 70% of Layer 1 revenue, and has doubled the total DeFi value locked (TVL) since the beginning of the year.

BNB Chain lags behind Ethereum in the smart contract space with $85 billion, followed by Solana with $59 billion. The ranking is the same for DeFi TVL, with BNB Chain accounting for $5 billion in Q2 and Solana at $4 billion.

However, these numbers contradict the common narrative that Ethereum is losing its dominant position in the industry and allowing other ecosystems like Solana to take some of its market share.

What gives?

“Most of the Twitter narrative around cryptocurrencies is driven by venture capitalists, and venture capitalists can’t charge 2% carry fees and 20% performance fees for holding ETH, but they can for SOL,” said the pseudonymous Millie, a member of Synthetix’s Spartan Council.

Milli told The Defiant that on Ethereum, activity is mostly DeFi-related, while Solana activity is entirely seasonal and driven by the speculative nature of memecoins. “The Solana blockchain is filled with memecoin warfare, which any serious analyst would be very skeptical of,” Milli said.

Solana wins in some indicators

Analysts point out that in some areas of the market, Ethereum is losing value while Solana is gaining.

Mert Mumtaz, CEO of Helius Labs, told The Defiant that Solana has surpassed Ethereum in terms of economic activity “several times over,” pointing out that MEV + priority fees are higher, as are validation revenues.

His views are supported by Blockworks research, which shows that Solana is enjoying its most profitable months in terms of block space. It is also closing the gap with Ethereum when it comes to trading volumes on decentralized exchanges (DEXs).

When pressed about concerns that the activity might be fueled by an unsustainable trend like memecoin, Mumtaz dismissed them. “The pattern of high volume, low-fee activity combined with high transaction volume has already been empirically proven,” he said. “It doesn’t matter what the source is.”

‘Extremely Shocked’ by Ethereum’s Loss of Dominance

Millie said she would be extremely shocked if Ethereum lost its dominance in smart contracts, revenue, and DeFi TVL. However, the network does not have the same grip on all three metrics.

“L1 revenue is difficult because it’s unclear how long this memecoin activity will last,” Milli told The Defiant. However, in the case of smart contracts and TVL, she believes the “chances are slim” because the network has been optimized for on-chain readability, auditability, and openness.

That last feature is important, she explained. Closed-source protocols pose less risk than open-source networks, but that culture, Millie said, also becomes a huge barrier to attracting TVL.

Even Mumtaz is skeptical whether Solana will overtake Ethereum in terms of DeFi TVL.

According to DefiLlama, Ethereum’s TVL is $58 billion, while Solana has $4.5 billion. In the middle, Tron lands in second place with $7.7 billion, and BNB Chain is in third place with $4.8 billion.

One interesting thing is Ethereum’s continued dominance of the L1 sector, despite the influx of users into L2 in recent months. Millie believes the apparent disparity is due to whale activity.

She said that Layer 2 “is still too permission-intensive for most ETH whales” because it does not yet provide adequate censorship resistance.

She also explained that the low gas fees are also a symptom of L2s taking over most of the activity while whales continue to trade on the underlying chain, especially in terms of lending and borrowing.

“Whale movements like lending and borrowing are not computationally intensive and are not really time-sensitive,” Millie said. “Furthermore, when volatility is low, DEX volumes are also low, which in turn drives most of the gas fees.”