Fusaka's upgrade to Ethereum, scheduled to go live in early December, promises to usher the world's second most valuable blockchain into an era of institutional adoption. For too long, Ethereum has been too slow and too expensive to attract meaningful Wall Street business. That could change as Fusaka implements significant improvements to the network's data validation and compression methods, increasing speed and capacity by a factor of 10.
However, it will not be easy for Ethereum to maintain its lead among developers as the preferred chain to build on. Continuous evolution is essential for Ethereum to maintain its existing dominance as an on-chain financial platform.
Ethereum remains the preferred platform among institutions for asset tokenization, DeFi apps, and stablecoin creation based on the strengths derived from its maturity. But they face the threat of eroding their advantage if they don't move with the market. Like a shark, if Ethereum stops moving, it dies.
Strength: Ethereum uptime
However, Solana has never completely overtaken Ethereum. The main reason may be that Solana as a blockchain system has gone dark seven times in the past five years. As Fundstart Capital Chief Investment Officer Thomas Lee said in August, Ethereum has never crashed in its 10 years. Uptime is highly valued by financial institutions. It's not sexy, but it's one of the core characteristics that makes on-chain infrastructure attractive to market participants.
Strength: Maturity of the Ethereum ecosystem
Another less attractive quality agency demands is the availability and maturity of developer tools and talent. While Solana attracted more new developers than any other chain last year, Ethereum's Solidity has the largest developer community by a wide margin, with a16z's State of Crypto report recently confirming its lead.
Risk: Scaling Ethereum
An ongoing issue that is negatively impacting Ethereum is the pace at which it is expanding, an glacial pace. Fusaka will be a major upgrade, but it will not bring Ethereum and its rollup layer to the same transactions per second as Solana. In a world where a new GPT seems to be announced every two months, Ethereum is well behind its inventor Vitalik Buterin's goal of matching the transaction size on the Visa payments network in 2017, and is currently far behind Visa's average of 24,000 tps. In contrast, Ethereum's Layer 2 (L2) blockchain can process between 1,000 and 10,000 transactions per second.
Risk: Leading companies and innovators leaving Ethereum payments
New blockchains are increasingly supported by publicly traded companies, such as Circle's Arc and Stripe's Tempo. Both Arc and Tempo are layer 1 (L1) blockchains, similar to Ethereum. Instead of building their chains on top of Ethereum as L2 like Coinbase’s Base, Circle and Stripe decided to build their own payment layer, albeit compatible with the Solidity programming language and Ethereum virtual machine.
The other L1 is Hyperliquid, which is purpose-built as a decentralized exchange for perpetual futures trading. This may seem niche, but Hyperliquid, along with Perp DEX Aster, captured 32% of all blockchain revenue in September, dethroning Solana, according to VanEck's analysis. Just as Solana once came to steal Ethereum's thunder, HyperLiquid appears to be doing the same. And while the Oct. 10 cryptocurrency flash crash shook HyperLiquid and angered many traders as winning positions were used to fund losses, the company still survived as designed. All of this must have caught the attention of Ethereum developers, right?
Ethereum’s path to serving the institutional market
There is a lot of room for chains like Solana and Hyperliquid to take advantage of Ethereum’s shortcomings. A real race for developer mindshare is underway as options from well-funded entrants like Circle and Stripe put pressure on Ethereum. As innovation spreads across multiple blockchain ecosystems, liquidity follows, forming deep trading pools along with innovative new protocols. Will Ethereum lose its intrigue?
To avoid that, a lot of education needs to happen about Ethereum before it is fully accepted by mainstream corporate finance professionals and the general public. Ethereum’s human capital could be the final deciding factor for financial institutions choosing their preferred platform for tokenization, trading, and yield. While Ethereum's core contributors and ecosystem leaders have historically been an idealistic bunch, successfully pulling off major upgrades like merges, Fusaka is now looking to take the network to the next level. For the health and future of the network, core contributors need to promote people who can lead multi-year relationships.
At least for now, Ethereum remains the top priority in terms of where the institutional infrastructure for cryptocurrencies is being built. Its slow pace of expansion and constant threat from emerging competitors has made it vulnerable, but Solana and others keep it in check. If other companies commit to institutional roadmaps faster or better, Ethereum risks losing its edge, no matter how much ETH price rises.
