Ethereum tokens are soaring. What’s next for the ecosystem?

Many Ethereum-related tokens outperform ETH in the latest market rally.

Market Rises After Fed Hike

Macro conditions may still look bleak, but that is not stopping the crypto market from rising today.

Ethereum-related tokens are the big winners in the latest market bounce, braving another week of bad market news as the Federal Reserve announced its fourth 75 basis point rate hike of the year.

While the market was briefly shaken by Wednesday’s aggressive update from the US Federal Reserve, Loopring, Polygon, Lido DAO and other tokens posted double-digit gains today.

By far the strongest player among crypto’s main assets is Loopring, whose LRC token has that 49.5% won on the day. Loopring is a Layer 2 solution that uses ZK-Rollups, technology that Ethereum creator Vitalik Buterin and others have touted as key to helping crypto’s best smart contract network scale. Among other ZK-Rollup solutions such as StarkNet and zkSync, Loopring is believed to be one of the top contenders to help Ethereum achieve its ambition of mass crypto adoption.

Polygon, which launched as an Ethereum scaling solution but has since spawned a sprawling ecosystem of its own, has seen its MATIC token jump 21.6% in the last 24 hours. Lido DAO, another Ethereum staple that has grown in popularity over the past year thanks to its liquid staking offerings, has also risen, with LDO Up 17% Today.

Curve’s CRV and Aave’s AAVE, two of the most popular Ethereum DeFi tokens on the market, have also gained double digits in the past 24 hours.

As is often the case with market swings like this one, Ethereum is trailing many assets with lower market caps. ETH has jump 6.6% to around $1,650, boosting the global cryptocurrency market cap by 4.8%.

The future outlook for the Ethereum ecosystem

As crypto approaches a year since the market peaked in November 2021, investors and traders alike have been looking for stories and tokens that could lead to the next bullish market cycle.

While it can be difficult to predict which way the market will go, a popular strategy for determining future winners is to identify outperformers in the bear market. For example, Cosmos and the Cosmos-based network Osmosis have shown their strength during adverse market conditions over the past few months, giving the so-called “Cosmonauts” hope for an impending rally when the market turns. Cosmos revamped its ATOM token in September and is focusing on cross-chain interoperability, leading many to believe it could rise as rates return to the market. Other lesser-known projects such as GMX have also achieved high peaks in utility and token performance despite the ongoing crypto winter.

Ethereum has also been highlighted as a potential leader of the next market cycle. While Ethereum’s ETH is unlikely to outperform the bull market’s strongest outliers due to its $199 billion market capization—it underperformed many assets, such as the leaders of the 2021 ‘alternative Layer 1’ boom—iIt is perhaps the second most likely crypto asset to survive the coming months and any further market turmoil next to Bitcoin. In addition, Ethereum underwent a major technological upgrade in September in the form of “the Merge”. While the merge reduced ETH issuance by about 90%, but ETH is still trading nearly 70% lower than its highs, Ethereum’s most ardent believers have argued that the event is not yet “priced in” due to the bearish market environment.

As with the previous crypto bull cycle, if ETH is to recover, many other prominent tokens in the Ethereum ecosystem are likely to benefit and even outperform it. Rapid developments in the Layer 2 space have fueled the narrative that Layer 2 tokens could have high upside potential in the next bull market, which could bode well for assets like Optimism’s OP and Loopring’s LRC. zkSync will share more details about its upcoming token this month, StarkNet has confirmed its own token, and Arbitrum is widely expected to launch one.

Other Ethereum-related tokens such as Polygon and Lido DAO could also benefit from an ETH spike in the future. Polygon has made many noteworthy partnerships this year, including a recent collaboration with Starbucksand Meta this week announced support for Polygon NFTs on Instagram. Lido DAO has received a lot of attention since the Ethereum merger, but the project will have to address concerns that it will centralize Ethereum.

Ethereum fans have also been wondering when DeFi will take a break after 18 months of sluggish price action since the space underwent a significant correction in May 2021. While many DeFi tokens are trading significantly lower than their highs, Ethereum is home to crypto’s strongest DeFi ecosystem. Should the technology attract new users in the future, projects like Aave, Curve, and Uniswap could benefit.

The global cryptocurrency market cap is currently $1.1 trillion. It is about 63% lower than the $3 trillion peak recorded in November 2021.

Disclosure: At the time of writing, the author of this piece owned ETH, MATIC, LRC, CRV, AAVE, ATOM, and several other cryptocurrencies.