The decentralized finance (DeFi) ecosystem has experienced significant growth over the years, with Ethereum typically serving as the backbone for most projects.

The competition in DeFi has soared as more applications are entering the field. Additionally, more blockchain networks are emerging to create quicker and cheaper alternatives to the Ethereum chain. This has resulted in many crypto projects, like dYdX and SushiSwap, abandoning Ethereum over other blockchain networks having additional advantages.

On February 10, 2023, the popular Ethereum-based decentralized exchange (DEX), SushiSwap, announced its departure from Ethereum, followed by its acquisition of Vortex Protocol for an undisclosed amount. Instead, the DEX plans to run entirely on Cosmos.

🔎 The Cosmos, often referred to as the Internet of Blockchains, is a set of technologies and tools that assist different blockchains in communicating and sharing data. One of its most significant perks includes helping developers build their own custom blockchains in just a few weeks or months, other than years.

Following shortly behind the decentralized finance (DeFi) exchange dYdX also saw the appeal of Cosmos, revealing its departure from Ethereum on March 27, 2023 shortly afterward.

“We reached a point where Ethereum couldn’t process the transactions fast enough,” dYdX’s marketing lead Nathan Cha told Decrypt at this year’s Paris Blockchain Week, adding that the project will work on their custom blockchain:

“We came to the conclusion that Cosmos was the better option because we can customize the blockchain to our needs. Now we can handle transactions at a faster pace.”

By moving to Cosmos, the two platforms can have their own native blockchains, therefore, more control of their platform’s security, features, and governance. Better still, they can enable their projects to tailor their offering for specific needs and users quickly.

SushiSwap plans to run on Cosmos entirely by the end of September, whereas dYdX will launch a public testnet by the end of July.

This is not the first time Ethereum was abandoned because of its slow speed. Another notable Web3 project that has left Ethereum in the past is the blue-chip NFT project, CryptoKitties. Although the NFT project experienced tremendous growth on Ethereum, such popularity caused significant network congestion, leading to angry collectors. This led the project’s team, Dapper Labs, to develop Flow, a more efficient and scalable network for high-performance apps and games for digital assets on-chain.

The leading DeFi lending platform, Aave, was also initially built on Ethereum. However, it expanded its service to Polygon to benefit from lower gas fees and faster transactions — among many others.

The steep gas fees are also among the problems of Ethereum. During periods of network congestion, the number of blockchain transactions soars, leading to increased competition as users fight for limited block space. This drives transaction costs upwards, making the process extremely costly and, sometimes, not worth the crypto it’s asking for. For example, the gas fees for Yuga Labs’ Otherdeed NFTs soared to more than 2 ETH last year, according to Etherscan. Collectors spent more than $179 million on gas fees alone.

Such factors significantly limit the network’s user base and hinder overall adoption. As a result, Web3 projects are transitioning to more user-friendly blockchains for cheaper, faster transactions.

Despite the issues raised about Ethereum, the blockchain network has been much loved in the past, and for good reasons: it was the first of its kind to introduce smart contracts for decentralized apps (dApps) and widely adopt token standards ERC-20 and ERC-721. Throughout its existence, the network has garnered significant interest and attention from the crypto community.

Ethereum also adds security through longevity — the longer a blockchain goes without being exploited, the more secure it is accepted to be. Ethereum has been running since 2015, facing many bumps and hurdles. Nevertheless, it continuously tackles all attacks thrown at it, increasing security confidence over time.

Here it is important to remember the blockchain trilemma: security, decentralization and scalability do not come together. Ethereum was designed to handle global money infrastructure worth trillions of dollars and, probably, it is right if sending funny collectible cards and issuing consumer loans is handled by a less security-intensive network.

Security is definitely a priority for Ethereum. However, the focus on security does not mean the Ethereum community is not concerned about other aspects. The brain behind Ethereum, Vitalik Buterin, is more than aware of the issues accompanying his blockchain network. As a result, he has been working hard to override such issues by upgrading the chain to Ethereum 2.0. Vitalik recently stated that the fee for ETH transactions should be under $0.05. Another bonus is that Ethereum attempts to address privacy, which is also one of the demanded features by blockchain users.

Until Ethereum 2.0 rolls out solutions for scalability, like rollups and sharding, the speed and gas fees will continue to be an issue as more dApps rise. We expect that most of the smaller applications will eventually leave Ethereum and move to the networks better positioned for their business models. With this hypothesis in mind, we continue to Observe.