A number of protocols have emerged to serve the demands of decentralized finance and to solve the scalability issues that have hampered Ethereum. The latter issue has been a constant focal point in the crypto community as high gas prices have left DeFi users with limited possibilities. For example, approving or swapping a token on a decentralized exchange like Uniswap can be north of $50 during times of congestion. For the average retail user, these costs make DeFi inaccessible. This has led to a more detailed discussion around Ethereum alternatives for both daily use and institutional requirements.
Based on their technical capabilities, the following solutions stand the best chance of chipping away at Ethereum’s market share and ushering in a new era for DeFi.
Radix
Radix is unique in that it is the only sharded platform that is atomically composable. Atomic composability is a key feature that will be required for DeFi applications to interact with each other as the ecosystem grows to a global scale. Radix also stands out on its own in terms of transaction speeds, their last consensus algorithm dubbed ‘Tempo’ demonstrated 1.4 million TPS (transactions per second), while the current ‘Cerberus’ algorithm is theoretically infinitely scalable. As such Radix is being viewed by many insiders as a future-proof platform with the ability to take DeFi to a global level. As such, it’s one of the precious few platforms capable of meeting the throughput requirements of DeFi applications over time with continued interoperability, security, and decentralization.
Radix achieves this via a formally proven novel pre-sharded data structure and consensus mechanism called Cerberus, which removes the barriers between shards. Rather than split dApps between a static set of shards, Cerberus uses an unlimited set, with dApps represented dynamically across shards, resulting in limitless parallelism. No matter the demand load, built-in financial incentives add more nodes to spread the load and increase throughput accordingly, without resulting in bottlenecks and demonstrating the potential for over 1 million TPS with 1-2 second transaction finality even at this level.
Polkadot
Polkadot is receiving a lot of attention and adoption, given its strong connections and marketing activity. Focusing on the technical aspects, Polkadot is a sharded multichain network, coordinated by its central Relay Chain. Polkadot can process transactions on several chains in parallel, known as ‘parachains,’ significantly improving scalability, eliminating the bottlenecks of legacy networks, and delivering up to 1,500 TPS per parachain. At around 100 parachains, that is good enough for now – but built-in scaling limits have already limited the blockchain sector and linear scalability is preferred to built-in scaling limits. A main drawback of Polkadot is the absence of atomic composability between parachains, which means that dApps on different parachains aren’t able to interoperate seamlessly. This could turn into a significant problem when it comes to DeFi adoption as DeFi requires multiple dApps interoperating quickly, cheaply, and seamlessly.
Decentralization is limited with a maximum of 1,000 validator nodes on the Relay Chain and only a small number per parachain. The hefty 12-60 seconds finality time between parachains hampers high-speed use cases like DeFi too, and a monetary system of infinite inflation dilutes DOT holders not participating in staking. Overall, Polkadot is currently riding a wave of enthusiasm, we will observe how the platform will perform once put to the test.
Elrond
Elrond’s partnerships and marketing strength are impressive. Technically, Elrond is a blockchain platform built for Internet-scale. Elrond’s approach to increased throughput is called ‘Adaptive State Sharding,’ combining all sharding types into a solution that improves communication inside the shards, increasing performance through parallel processing. Elrond produces a six-second block time and 15k TPS. With four shards currently, and the ability to grow them with the network, it could conceivably scale beyond 100k TPS.
The composability to combine multiple functions from multiple dApps is vital for DeFi services. Just like the other proposed sharding solutions for scalability, however, Elrond’s approach breaks atomic composability across shards and its meta chain is a bottleneck for cross-shard communication. As a result, Elrond cross-shard transactions will not be quicker than a single blockchain, limiting DeFi use and suitability for mass adoption.
Algorand
Algorand is described as the world’s first open, permissionless “pure Proof-of-Stake” blockchain protocol – without the possibility of forks. In contrast to other scaling solutions, it doesn’t use sharding, reducing the number of attack vectors, maximizing security, and delivering 1,000 TPS by offloading more expensive smart contracts to layer 2.
Algorand presents a significant improvement on legacy blockchain speeds such as Ethereum. However, being an uncharted platform limits it’s scaling ability, and real-world adoption requires far higher TPS levels than the ones mentioned above. Unfortunately, by trading off expensive smart contracts from layer 1, lengthy block times, and without a robust language for full smart contract functionality, Algorand’s product/market fit for DeFi is not ideal.
Avalanche
Avalanche is an open-source platform created to launch decentralized applications. It achieves scalability by integrating many independent blockchains, each validated by a custom set of nodes called Subnets. Avalanche currently offers 4,500 TPS per Subnet, supported by its randomized consensus concept. Validators continuously randomly select other validators to see if they have voted to accept or reject transactions until they build up enough data that the probability of being wrong is near impossible. As a result, Avalanche consensus can deliver sub-three-second transaction finality time.
While the concept is undoubtedly interesting, there is no academic proof of safety guarantees – and questions remain regarding its ultimate security. The high throughput Subnets also require high-end hardware, likely damaging decentralization with the corresponding storage requirements. Communication between subnets is currently unsolved, which is a significant drawdown given DeFI’s requirements for seamless communication between dApps across the entire platform.
As the layer-1 battle intensifies, expect the above protocols to start chipping away at Ethereum’s DeFi dominance by addressing scalability, atomic composability, and security, while onboarding the next wave of crypto users.