Ethereum beats rival crypto networks with trade-offs, Pantera Capital's Krug says

An explosion in the growth of crypto networks vying to take market share from Ethereum is unlikely to threaten the dominance of the world’s most used blockchain, according to Joey Krug, co-chief investment officer at digital-asset investment firm Pantera Capital. “If you roll the clock forward 10 to 20 years, a very sizable percent, maybe even north of 50%, of the world’s financial transactions in some way, shape or form will touch Ethereum,” Krug said in an interview. Ether, the native currency of Ethereum’s platform, sits among Pantera Capital Management LP’s top three positions across funds, according to Krug. The token is the second largest by market value after Bitcoin. Pantera is one of the earliest digital-asset investment firms and ranks in the top five of crypto-focused funds with $5.8 billion in assets. 

Critics of Ethereum say it has expensive fees and slow transaction speeds as traffic crowds the network. Add-ons, known as layer-2 networks, have emerged as fixes but can be complex to use, or have other disadvantages. 

So-called “ETH-killers” have gained traction with developers who use blockchain technology to build so-called decentralized finance, or DeFi applications. The namesake coins of some networks rose in returns along with use, including Solana and Polkadot. Those coins surged about 7,000% and 150% respectively over the last year even with the recent downturn in many token prices, according to data tracker CoinGecko.

Ether had a breakthrough year itself in 2021, hitting a record high while soaring almost 400%. That came on top of a gain of almost 500% the prior year, and has rekindled speculation that it could one day surpass Bitcoin, which currently has about double the market value of Ether. 

Krug, an early DeFi developer, believes competitors will eventually rely on Ethereum as a base, assuming that the blockchain successfully switches to proof-of-stake: a method of validating transactions that is promoted as being more efficient and environmentally-friendly than the current proof-of-work system.   

“There’s too many trade-offs other chains are making that Ethereum is not making on the decentralization side that are pretty important,” Krug said, noting security concerns. “I don’t know if they’re best suited to be the new global financial settlement layer.”

Pantera is headed by Dan Morehead, a veteran Bitcoin investor, who was an executive at Julian Robertson’s Tiger Management earlier in his career.

Grayscale Investments’ David Grider, head of research, says “all boats can be lifted” in the sector. Several competitors performed strongly in the second half of 2021, Grider said. Grayscale Investments LLC offers clients a Solana investment fund. It is also exploring products related to other rivals. 

“I don’t think it’s this winner-take-all type of market,” Grider says. “Ethereum has this lead-of-a-network effect. It has this large community, but other ones have emerged that fill different market voids.