This 1 Metric Shows Ethereum Soaring Over Solana and Cardano. But Is It a Buy?

Ethereum's (CRYPTO: ETH) price decline of 48% during the past 12 months leaves it badly lagging behind both Solana (CRYPTO: SOL), which gained 32%, and Cardano (CRYPTO: ADA), which lost just 7% of its value. But there's one important metric about developers on the chain that seems to suggest that better times might be ahead -- or at least that some of Ethereum's biggest strengths are still in play despite its poor price performance recently.

Let's take a deeper look at that metric, understand what it means, and place it into the context of what else has been going on with these coins so that you'll know how to plan your investments.

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To have an ecosystem, developers need to be working

For coins like Ethereum, Solana, and Cardano, the size and vigor of their blockchain ecosystems are key considerations for investors. After all, there's not much point in buying the main coin of a chain that's intended for use as a decentralized finance (DeFi) hub if there aren't actually any DeFi applications or projects hosted there. The same goes for other types of crypto projects, like non-fungible token (NFT) marketplaces, among many others.

But on-chain applications don't just appear out of thin air. They're created by software developers, and that process takes time.

It also typically leaves traces behind that imply work has been done, such as the number of updates to a code repository. Therefore, analyzing the number of those traces occurring across all the projects hosted on a blockchain is one way to get a sense of where the most developers are working, and on which chain they're generating value by virtue of their labor.

According to the crypto-analysis tool provider Santiment, during the last 12 months, there were a total of 2.1 million developer activity events logged. Solana only had about 463,600 events logged, whereas Cardano has nearly 391,600. That means Ethereum was a dramatically more popular place for developers to work on projects than either of the other two chains.

The payoff for that additional activity is likely to be a solidification of the status quo, in which Ethereum's ecosystem is far larger than Cardano's or Solana's in practically every segment. Such a situation bodes well for the chain's future because it means that it's the single biggest home of a scarce, valuable, and fickle resource: developers interested in building blockchain apps.

Over the long term, having a larger army of developers means that the chain will have more shots on goal when it comes to creating successful and valuable applications that draw in outside capital to invest and spend, which would increase demand for the coin significantly in the process.

This trend will take a while to affect prices, but if it continues, it will

But the current state of play for developers working on projects on the chain is not the only consideration for investors here.

Ethereum's developer-activity events logged by Santiment were only up by about 2% during the past 12 months. Cardano's are up by 15%, and Solana's are up by close to 18%. The other chains seem to be increasing their share of developer activity much more rapidly.

What's more, during the past six months, Ethereum's activity level actually dropped 8% whereas Solana's rose 13% and Cardano's was little changed with a decline of about 1%. This is likely a result of Ethereum's abysmal price performance, but it could also reflect a growing frustration with the chain's real issues, like its high gas (user) fees and lagging transaction times.

Regardless of the cause, the risk here is real. Fewer developers mean fewer new applications launching, and a smaller chance that the chain is the favored place to do business in newly emerging segments for blockchain projects like artificial intelligence (AI).

So Ethereum's larger volume of developer activity today is not a reason to buy it because the trend is going the wrong way. Solana is its biggest competitor and is clearly seeing more developer activity over time.

Even Cardano is largely retaining its developer activity better than Ethereum right now, which is surprising because it's a much smaller chain, and despite being faster and cheaper to use than Ethereum, it's still much slower and costlier than Solana.

Keep an eye on these trends. It may be that a new update to Ethereum will attract more developers to build on its chain once again. It may also be the case that talent and effort are flowing out for good. If that's the case, it's a deeply bearish sign for Ethereum's future.

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Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.