Alternative Blockchains from a Risk Perspective
Alternative blockchains like Solana offer technical innovations but fail on core requirements: insufficient market depth, network outages, volatile governance, and immature ecosystems. For significant capital, Bitcoin and Ethereum remain the only valid options.
1. Introduction
Supporting multiple blockchains is a frequent topic of discussion. Analytics tools are expected to cover the entire ecosystem.
Market data tells a different story. As of January 2026, over 95% of capital locked in DeFi protocols (Total Value Locked) is on Ethereum and its Layer-2 solutions. Alternative Layer-1 blockchains like Solana, Avalanche, or Cardano share the remainder.
This analysis examines alternative blockchains from a risk management perspective. The central question: Do networks like Solana meet the requirements for financial infrastructure?
2. Technical Solutions for Theoretical Problems
2.1. Scalability
Many crypto networks optimize for bottlenecks that pose no practical hurdles. The most prominent example: scalability at any cost.
Solana advertises ~65,000 transactions per second (TPS). In practice, the average is ~1,000 TPS for actual user transactions. Ethereum L1 handles ~25 TPS. With Layer-2 solutions, the ecosystem exceeds 24,000 TPS.
| Criterion | Relevance for Smaller Volumes | Relevance for Larger Volumes |
|---|---|---|
| Transaction Speed | High | Low |
| Transaction Costs (Gas) | High | Low |
| Market Depth (Liquidity) | Low | Critical |
| Network Uptime | Medium | Critical |
| Regulatory Clarity | Low | Critical |
For larger allocations, priorities shift. Transaction costs of $0.01 or $5 are negligible at larger volumes. What matters is whether the market is liquid enough to move positions without significant price impact (slippage).
2.2. The Custody Problem
Secure custody of digital assets is another bottleneck. The "Be your own bank" principle fails due to operational realities.
Storing private keys is complex and error-prone. Regulated investors are legally required to use qualified custodians.
Alternative blockchains exacerbate this problem:
- Fewer standardized wallet solutions
- Limited custody offerings (Coinbase Custody, Fireblocks, etc. prioritize ETH/BTC)
- Higher operational risk due to fragmentation
Without established custody infrastructure, market access for regulated investors remains restricted.
3. Risks of Alternative Chains
The technical selling points of alternative blockchains (speed, low fees, high throughput) address secondary concerns.
3.1. Liquidity Risks
The central problem: insufficient market depth (Liquidity Depth).
In normal market conditions, this is invisible. In stress phases, it becomes critical. The ability to liquidate a position quickly and without significant price impact is the foundation of professional risk management.
Ethereum has proven its resilience multiple times:
- March 2020 ("Black Thursday"): ETH fell ~50% in one day. Major DeFi protocols (Maker, Compound) remained functional.
- May 2021: Crash of ~40%. Markets absorbed the volumes.
- November 2022 (FTX Collapse): Despite extreme panic, on-chain markets stayed liquid.
Alternative chains have a structural problem: Their unique selling points are insufficient to permanently bind capital. Often, it is mercenary capital, attracted by temporary incentives (airdrops, high APYs). When these incentives end, liquidity drains.
Example: Solana DeFi TVL:
| Period | Solana TVL | Ethereum TVL | Solana Share |
|---|---|---|---|
| November 2021 (Peak) | ~$12B | ~$110B | ~10% |
| January 2023 (Post-FTX) | ~$0.2B | ~$30B | ~0.6% |
| January 2026 | ~$8B | ~$85B | ~9% |
The volatility of capital locked on Solana demonstrates the ecosystem's fragility.
3.2. The Lindy Effect
In risk management, the Lindy Effect is a valid indicator: The expected remaining lifespan of a technology increases with its prior existence.
| Network | Launch | Age | Severe Outages | Status |
|---|---|---|---|---|
| Bitcoin | 2009 | 17 years | 0 (since 2013) | Battle Tested |
| Ethereum | 2015 | 11 years | 0 total outages | Battle Tested |
| Solana | 2020 | 6 years | >10 documented | Experimental |
| Avalanche | 2020 | 6 years | Multiple | Experimental |
Bitcoin and Ethereum have survived diverse market cycles, technical attacks, and critical bugs.
Alternative Layer-1 blockchains must still prove this maturity. Networks that require regular restarts or become unstable under load do not qualify as base infrastructure for financial applications.
3.3. Decentralization as Risk Mitigation
Decentralization serves as protection against:
- Censorship and transaction blocking
- Regulatory intervention in individual jurisdictions
- Technical failure (Single Point of Failure)
Centralized structures are not inherently negative, as long as the controlling entity operates transparently and is regulated. The problem with alternative blockchains: They often offer neither the security of established financial institutions nor Bitcoin's censorship resistance.
Case Study: Solana:
Solana operates a network with high hardware requirements for validators. This leads to concentration among few operators. In February 2023, the top 33 validators controlled over 33% of the stake.
Documented network outages:
- September 2021: 17-hour total outage
- January 2022: Multiple hours of outage
- February 2023: 20-hour outage
- February 2024: 5-hour outage
Periods during which assets are technically non-transferable represent significant risk.
3.4. Governance and Upgrade Risks
Many alternative networks can implement protocol changes rapidly through small validator or developer groups. Technically, this is efficient. From a risk perspective, it is problematic.
Change Risks:
- Any unplanned hard fork can break smart contracts
- Parameter updates can shift liquidation thresholds
- Tokenomics can be modified retroactively
Bitcoin and Ethereum act more conservatively. An Ethereum upgrade goes through years of discussion, multiple testnet phases, and broad community voting. This slowness creates planning certainty.
3.5. Smart Contract and Ecosystem Risks
Risks also emerge in the application ecosystem. Alternative chains exhibit structural weaknesses:
| Risk Factor | Ethereum | Alternative Chains |
|---|---|---|
| Smart Contract Standards | ERC-20, ERC-721, ERC-1155 (established) | Fragmented |
| Developer Community | ~4,000+ active core devs | Often <500 |
| Audit Incentives | High (high TVL = high bounties) | Low |
| Documented Exploits | Many, lessons learned | Many, often repeated |
The result: a higher frequency of exploits and hacks relative to managed capital.
4. The Yield Illusion
A common argument for alternative chains: "The yields are higher." This is true short-term. However, it ignores risk adjustment.
Higher yields signal higher risk. A staking APY of 15% on Solana versus 4% on Ethereum is not a better offer. It is a risk premium for:
- Network instability
- Lower liquidity
- Governance uncertainty
- Smart contract risks
The question before any allocation: What is this yield compensating for?
A 15% yield with high volatility and failure risk can be less attractive than 4% on a stable base (risk-adjusted return).
5. Outlook
Alternative blockchains are not inherently uninteresting. They are currently immature. The following developments could change the assessment:
- Proven Stability: Two to three years without severe outages under real load.
- Custody Integration: Connection to established custodians (Coinbase Custody, Fidelity, etc.).
- Regulatory Clarity: Explicit classification by SEC, BaFin, or FINMA.
- Liquidity Depth: Sustained significant TVL without incentive dependency.
- Ecosystem Maturity: Standardized, multiply-audited smart contract libraries.
Solana and other Layer-1 chains are showing progress. From a risk perspective, they are currently experiments.
6. Conclusion
From a risk perspective, the following criteria are decisive for allocation:
- Liquidity: Efficient exits even in stress phases
- Stability: Proven technical reliability (uptime >99.9%)
- Predictability: Stable governance, low change risks
- Maturity: Established ecosystem with security standards
Currently, primarily Bitcoin and Ethereum meet these requirements. Alternative blockchains offer technological innovations but represent an addition of uncompensated risks from a risk perspective.
Higher theoretical yields on alternative chains must be weighed against increased failure and illiquidity risk.
