Dencun Upgrade Expected to Further Erode Ethereum’s Dominance, Boost Layer-2 Solutions, According to Flipside

Dencun Upgrade Expected to Further Erode Ethereum’s Dominance, Boost Layer-2 Solutions, According to Flipside

Analysts at Flipside suggest that Ethereum’s dominance in smart contract deployments is waning, with layer-2 networks gaining traction, a trend expected to accelerate with the upcoming Dencun upgrade.

Recent research from Flipside reveals a decline in Ethereum’s prominence as the primary platform for deploying smart contracts. Instead, layer-2 networks like Polygon and BNB Chain (formerly Binance Smart Chain) have taken the lead in contract deployments, with nearly 640 million smart contracts deployed since January 2022.

Optimism, a layer-2 solution built on Ethereum’s architecture, has notably accounted for two-thirds of total Ethereum Virtual Machine (EVM) smart contract deployments in 2024, according to Flipside analysts. They anticipate the Dencun upgrade to exacerbate this trend, as layer-2 solutions become increasingly accessible and efficient.

Analysts highlight a significant increase in contract deployers across observed chains, rising to 34.7% in 2024 from 11.2% in both 2022 and 2023. They note that not only developers but also smart contracts themselves can deploy contracts, with platforms like UniswapV2Factory enabling permissionless creation of liquidity pools.

However, Flipside observes a decline in deployers related to non-fungible tokens (NFTs), dropping from 18.6% to 8.2% over the same period. This shift suggests a potential prioritization of decentralized finance over NFTs in the next bull run, contrasting with the dominance of NFTs in the previous cycle.

In a separate report, Galaxy Digital, led by Michael Novogratz, highlights 2024 as a pivotal year for Ethereum, with increasing competition from other layer-1 blockchains like Solana. Ethereum’s modular architecture, particularly various rollup types, introduces new challenges and technological risks, according to Galaxy Digital analysts. They identify Solana as Ethereum’s primary competitor, given its monolithic architecture and versatility as a general-purpose blockchain.

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