DeFi can't escape Ethereum
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DeFi can't escape Ethereum
If the Ethereum network were compared to a road, right now it would resemble Beijing's Third Ring Road during rush hour on a weekday—completely congested.
Navigating Web3 tides with focused insightsHigh transaction fees, network congestion, and disgruntled developers... DeFi, the current darling of Ethereum, seems to be constantly discouraging both developers and users.
Despite these complaints, DeFi still cannot脱离 Ethereum.
According to defiprime data, out of 242 DeFi projects, 197 are deployed on Ethereum, while EOS and Bitcoin have only 22 and 23 respectively.
Why haven't other public chains grown popular DeFi applications like Compound or Uniswap? Why haven't they formed a DeFi ecosystem?
TechFlow identifies three key reasons:
As the leading public blockchain, Ethereum holds a significant advantage in terms of asset variety and total asset volume.
Other public chains have not prioritized DeFi as much as Ethereum has. By jumping on the trend now, they've lost their first-mover advantage.
Once DeFi scales up and adopts decentralized governance, the cost of migrating from Ethereum to other blockchains becomes incalculable.
After DeFi ignited the crypto market, major public chains entered an arms race for DeFi dominance. Capital, technology, talent—flowing endlessly into this space. In the end, who will challenge Ethereum and claim the Iron Throne of DeFi?
Ethereum Struggles Under the Load
If we compare the Ethereum network to a road, it would resemble Beijing’s Third Ring Road during rush hour—completely congested.
"The current level of congestion on Ethereum is even worse than during the ICO bubble," said Ethereum researcher Haseeb Qureshi.
His statement holds true. During the peak of the 2018 ICO boom, the average daily single transaction fee reached a high of $5.40. On August 13th at 5 PM, this figure surpassed that previous high, reaching $7.40—nearly 15 times higher than the $0.50 seen just a month earlier.
This means users must pay an average of over 50 RMB per transaction to transfer funds on the Ethereum network. To complete a transaction within one minute, the gas fee could reach as high as $20.
By internet standards, the prosperity of DeFi on Ethereum almost defies human nature. High fees and poor user experience are progressively driving away retail investors and external traffic.
Yet despite these barriers, a wave of gold rush participants continues to flood into DeFi, driven by dreams of instant wealth. The liquidity mining model and automated market maker (AMM) systems have created one myth after another.
Since launching liquidity mining on July 17th, YFI surged from $34.53 to a peak of $12,821—briefly surpassing BTC—with a gain of 371x.
Yam Finance (YAM) launched its token distribution plan, attracting $200 million in funding within six hours.
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As of August 18th, the total market cap of DeFi tokens reached $1.15 billion, DEX trading volume exceeded $404 million, and the total value locked (TVL) in DeFi surpassed $6.2 billion.
On the other hand, transaction fees remain extremely high. Uniswap, Ethereum's most popular decentralized exchange (DEX), generated over $7 million in fees in the past month alone.
The explosive growth of DeFi has raised concerns among Ethereum developers.
"High gas fees pose a serious threat to on-chain governance systems, especially those poorly optimized," tweeted Ethereum developer Philippe Castonguay. "If people have to pay $200 in transaction fees to vote, most users won’t participate. This leads to whales becoming richer, as only they can stake, trade, and vote."
Vitalik Buterin also expressed caution, stating that while DeFi is promising, many underestimate the risks of smart contracts. DeFi yields are far higher than traditional banking rates, which implies significantly greater risk and a much higher probability of collapse.
Nevertheless, high fees, network congestion, and frustrated developers cannot stop DeFi from thriving on Ethereum.
DEFI PULSE data shows that 37 out of the top 38 DeFi applications by locked value are built on Ethereum. In modern internet parlance, Ethereum has completely "dominated the leaderboard" for DeFi apps.
Why must it be Ethereum? Are there no other viable public chains? After all, under the stimulus of the DeFi boom, ETH has risen 75% in just one month. Don't communities and developers on other chains feel envious or tempted when seeing such surging valuations and market caps?
The Public Chains’ DeFi Dreams
At 11 PM Beijing time on August 18th, after a one-hour delay, JustSwap—the Tron version of Uniswap, dubbed the “100x coin factory”—finally launched.
Shortly after launch, many investors reported buying fake tokens on JustSwap, with some joking: "Even when buying shitcoins, I ended up with counterfeit ones."
Ten hours post-launch, JustSwap’s trading volume exceeded $5 million, much of which was driven by fake tokens.
JustSwap on Tron still cannot compare to the real Uniswap. According to Debank data, as of 7 PM on the 19th, Uniswap’s 24-hour trading volume was $200 million—nearly 40 times that of JustSwap.
Over a month ago, Tron founder Justin Sun announced three strategic moves into DeFi: launching JustSwap (Tron’s Uniswap), initiating USDJ-JST staking mining, and entering the blockchain oracle market.
Tron reflects the broader aspirations of public chains aiming to enter the DeFi arena.
"New DeFi tokens are trending to replace today’s mainstream cryptocurrencies," said one investor. Indeed, LINK, known for its DeFi oracle capabilities, quadrupled in value over two months, overtaking established coins like LTC and BCH to rank fifth in market cap.
Compared to the constant emergence of 100x and 1000x DeFi tokens, mainstream coins have stagnated, and their communities appear lifeless. Many investors suggest using DeFi to revitalize their prices.
On August 15th, EOS founder BM (Daniel Larimer) tweeted: "I created the first DeFi platform in 2014. DeFi was essential to drive innovation in DPOS, TAPOS, and high-performance databases and ledger structures. EOS was designed for DeFi."
BM further replied to a user: "EOS is better suited for building complex, high-performance DeFi applications. Ethereum’s DeFi requires cumbersome workarounds to compensate for transaction latency, gas attacks, chain reorganizations, and lack of ordered databases."
Perhaps spurred by BM’s statements, EOS’s price surged, rising 25% in two days.
Block.one CEO Brendan Blumer tweeted: "EOS will unlock its 'DeFi skills'." Responding to skeptics, he added: "Market hype is cyclical. The mainnet already hosts more innovative applications than other ecosystems—this is just the beginning."
Not just EOS—ETC Core founder James Wo tweeted: "When it comes to DeFi, ETC may be one of the most suitable protocols. We’ll prove it."
Meanwhile, even Bitcoin is joining the DeFi race. DG Lab, considered the most powerful company in the Bitcoin world, raised $93 million last year. Recently, DG Lab announced its entry into DeFi, aiming to run smart contracts on the Lightning Network.
According to incomplete statistics, half of the top 20 cryptocurrencies by market cap either want to or are already entering the DeFi market.
But essentially, large-scale DeFi remains concentrated on Ethereum. All other chains combined likely still cannot rival Ethereum’s DeFi ecosystem.
Why hasn’t DeFi flourished on public chains outside Ethereum? Is it like oranges grown south of the Huai River—if DeFi leaves Ethereum’s soil, can it no longer thrive?
Why Does DeFi Favor Ethereum?
Almost every public chain wants to embrace DeFi, but DeFi has become a behemoth too large to embrace. The total market cap of DeFi tokens has reached $1.15 billion, exceeding the market cap of every public chain except Ethereum itself.
The vast majority of DeFi projects are built on ERC-20, such as Compound, Uniswap, and Balancer.
According to defiprime data, out of 242 DeFi projects, 197 are deployed on Ethereum, while EOS and Bitcoin have only 22 and 23 respectively.
What causes this situation?
"Network effects are the primary reason," said Pan Chao, Head of MakerDAO China, speaking to TechFlow. Development resources and partners are concentrated on Ethereum, but most importantly, U.S. dollar stablecoins are issued on Ethereum.
During the craziest phase of the 2017 ICO boom, most fundraising tokens were generated using the ERC-20 standard, resulting in massive asset accumulation on the Ethereum network. Without cross-chain complexity, token swaps only require ETH as gas, enabling projects like Aave to emerge. In short, the ICO boom laid the broad foundation for DeFi’s explosion, attracting countless developers.
The security and convenience of intra-chain asset swaps offset slow transaction speeds, giving rise to a series of DEXs.
Moreover, stablecoins based on Ethereum dominate the market. USDT, PAX, BUSD, and others are all built on the ERC-20 standard. Data from Ethereum explorers show the total market cap of stablecoins on Ethereum has long exceeded $10 billion.
"The limited diversity of assets on EOS is one of the key obstacles to building a DeFi ecosystem. While ETH is Ethereum’s core asset, its blockchain hosts a vast number of ERC-20 assets, which are crucial components of Ethereum’s DeFi ecosystem," said an OKLink executive.
Currently, Ethereum has issued 284,494 ERC-20 tokens and 6,303 ERC-721 tokens, compared to 5,497 on EOS and 7,746 on Tron.
Additionally, other public chains previously did not prioritize DeFi.
William, Chief Researcher at OKEx Research, told TechFlow: "It's not that DeFi failed to develop on other chains—it's that before this year’s DeFi boom, other chains simply didn’t prioritize it. Now they’re rushing in. Ethereum has been focusing on DeFi since last year, and its ecosystem is already mature, while others are only starting."
This may be the main reason other chains lost their early advantage. Although EOS focused on DeFi early and developed many applications in 2019—like Newdex, which once ranked first among all DEXs—it was quickly overtaken this year as massive capital flooded into Ethereum-based DEXs due to the wealth effect of "liquidity mining."
After Compound introduced its "liquidity mining" model, EOS launched its own project, DeFis Network (DFS), claiming to integrate Uniswap, Synthetix, Compound, and MakerDAO.
However, DFS suffered from flawed mechanisms, turning into a farming playground for scientists and speculators, forcing rule changes three times in one day.
Currently, EOS-based DeFi apps like PIZZA-USDE, EOSDT, Vigor, Chintai, Defibox, and Defix Network struggle to achieve scale.
EOS may not be as "born for DeFi" as BM claims. Beyond losing its first-mover advantage, EOS is unfriendly to new users: creating a wallet costs money, unlike Ethereum’s free wallets.
Sun Yuchen only announced Tron’s three DeFi strategies last month: launching JustSwap (Tron’s Uniswap), USDJ-JST staking mining, and entering the blockchain oracle market. Whether his "late but arriving" move can catch the DeFi wave remains to be seen.
Another notable project is MOV, the DEX on Bytom. Bytom founder Chang Jia stated that MOV is Bytom’s DeFi protocol suite and currently ranks 5th in active users among all DEXs.
Finally, once DeFi grows large and becomes a decentralized community, migration costs become astronomical.
Other chains can lure developers with big incentives—as seen in the past DApp wars where Tron and EOS poached Ethereum developers—but they can’t buy community trust or loyalty.
As Ethereum’s DeFi ecosystem grows larger and governance shifts to the community, migration may no longer be a decision any single team can make.
For investors, after experiencing the ICO crash and the "Black Thursday" contract event, trust in centrally operated crypto projects remains fragile. Yet most public chains outside Ethereum have followed centralized development paths—such as Tron and JustSwap under Justin Sun.
In any case, the DeFi battle among public chains has begun, and Ethereum remains king of the DeFi world.
Now, various public chains are gearing up for the DeFi arms race. Besides EOS, Tron, and Bytom, Qtum has also joined. On August 17th, Qtum announced a $1 million DeFi Developer Support Program to encourage developers to build DeFi applications on the Qtum blockchain.
Over the past two years, these public chains have failed to deliver the killer applications everyone expected. The DeFi boom is pushing them toward one of the few real-world use cases in the crypto space.
Which public chain will emerge victorious in the DeFi arena? Looking back, a public chain needs at least four conditions to build a successful DeFi ecosystem:
Accumulation of diverse assets
Stable performance and low transaction fees (at least better than Ethereum)
Decentralization and trust from developers and users
Wealth effect (just like ICOs, the get-rich-quick allure attracts investors)
Although the DeFi market has rapidly expanded over the past two months, it still faces challenges including asset bubbles, security vulnerabilities, difficulty breaking into mainstream adoption, and regulatory uncertainty.
Until these issues are resolved, the DeFi world will continue to endure Ethereum’s congestion and high fees, moving forward regardless.
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