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

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

Markets rise on the back of the Fed hike

Macro conditions may still look bleak, but that hasn’t stopped the crypto market from rallying today.

Ethereum-related tokens are the big winners in recent market returns, defying another week of bad market news where the Federal Reserve announced its fourth 75 basis point interest rate hike for the year.

Although the market was briefly shaken off the back of Wednesday’s hawkish update from the US Federal Reserve, Loopring, Polygon, Lido DAO and other tokens posted double-digit gains today.

By far the strongest performer among crypto’s main assets is Loopring, whose LRC token has gained 49.5% on the day. Loopring is a Layer 2 solution that leverages ZK-Rollups, technology that Ethereum creator Vitalik Buterin and others have singled out as key to helping crypto’s best smart contract network scale. Alongside other ZK-Rollup solutions such as StarkNet and zkSync, Loopring is believed to be one of the hottest 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 past 24 hours. Lido DAO, another Ethereum stake that has grown in popularity over the past year thanks to its liquid staking offering, has also rallied, with LDO up 17% today.

Curves CRV and Aaves AAVE, two of the most popular Ethereum DeFi tokens on the market, have also gained double digits in the last 24 hours.

As is often the case with market pullbacks like this, Ethereum is lagging behind many assets with lower market caps. ETH has jumped 6.6% to around $1,650, helping the global cryptocurrency market capitalize by 4.8%.

The future outlook for the Ethereum ecosystem

As crypto approaches one year since its November 2021 market peak, investors and traders alike have been on the lookout for narratives and tokens that could lead to the next bullish market cycle.

Although it can be difficult to predict which way the market will move, a popular strategy for determining future winners is to identify bear market trends. Cosmos and the Cosmos-based network Osmosis, for example, have shown strength in adverse market conditions in recent months, giving so-called “Cosmonauts” hope for an upcoming 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 enjoy a surge as interest returns to the market. Other lesser-known projects such as GMX have also reached heights in utility and token performance despite the enduring crypto winter.

Ethereum has also been highlighted as a potential leader for 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 “alternative Layer 1” boom in 2021—IIt is arguably the second most likely crypto asset to survive the coming months and further market turmoil alongside Bitcoin. In addition, Ethereum underwent a major technological upgrade in the form of the “merger” in September. As the merger cut ETH issuance by about 90%, but ETH still trades nearly 70% down from its peaks, Ethereum’s most ardent believers have argued that the event is not yet “priced in” due to the bearish market climate.

As with the previous crypto bull cycle, if ETH is to rally, 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 a narrative that Layer 2 tokens may have high upside potential in the next bull market, which could bode well for assets like Optimism’s OP and Loopring’s LRC. zkSync is set to share further details about its upcoming token this month, StarkNet has confirmed its own token, and Arbitrum is also expected to launch one.

Other Ethereum-related tokens such as Polygon and Lido DAO may also benefit from an ETH surge in the future. Polygon has secured many notable partnerships this year, including a recent tie-up with Starbucks and Meta this week announced support for Polygon NFTs on Instagram. The Lido DAO has received significant attention since the Ethereum merger, but the project will have to overcome concerns that it centralizes Ethereum.

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

The global cryptocurrency market cap is currently $1.1 trillion. That’s about 63% down from 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.