Sharding and the Future of Blockchain Scalability: Investment Potential in Layer 1 Protocols for Mass Adoption

Blockchain's journey from niche experimentation to mainstream adoption hinges on one critical factor: scalability. As decentralized applications (dApps), decentralized finance (DeFi), and real-world asset (RWA) tokenization gain traction, Layer 1 (L1) protocols are racing to solve the scalability trilemma-balancing security, decentralization, and throughput. Sharding, a technique that partitions blockchains into parallel-processing shards, has emerged as a transformative solution. This article evaluates the investment potential of sharding-based L1 protocols, focusing on their technical advancements, financial performance, and market projections.

The Sharding Revolution: Technical Foundations and Market Leaders

Sharding enables blockchains to process transactions in parallel, drastically increasing throughput while maintaining security. For instance, Shardeum employs a three-dimensional sharding approach (State, Network, and Transactions) and Dynamic State Sharding, which adjusts shard sizes in real-time to handle surges in demand, as described in Top 5 Sharding Blockchain Networks. This innovation allows Shardeum to target 1 million transactions per second (TPS) while maintaining predictable fees-a critical advantage for enterprise and DeFi use cases, according to Shardeum Secures $18.7M Seed Round.

Ethereum 2.0 is another major player, leveraging "danksharding" to enhance data availability and reduce gas costs. Post-Dencun upgrade, Ethereum's Layer 2 (L2) networks saw TVL surge to $51.5 billion in 2024, driven by 99% lower median fees, according to the Layer 1 report for 2024. Meanwhile, Near Protocol's Nightshade sharding, combined with its Doomslug consensus, achieved 11,500 TPS and sub-second finality, making it a compelling alternative to Ethereum, as noted in that analysis. Zilliqa, an early sharding adopter, continues to optimize its network-layer sharding for enterprise applications, while Elrond (MultiversX) uses Adaptive State Sharding to dynamically adjust shard counts based on demand, according to the same alexablockchain piece.

Financial Performance and Funding Trends

Investor confidence in sharding-based L1s is reflected in their fundraising activity and TVL growth. Shardeum raised $23.6 million across two seed rounds in 2022–2023, with a recent $18.7 million seed round in May 2025 earmarked for infrastructure scaling (see the Shardeum announcement cited above). Near Protocol secured $350 million in 2022, led by Tiger Global, and has attracted 87 institutional investors, per the NEAR 2025 profile. Ethereum 2.0-related projects, including Kraken and RedotPay, collectively raised $150 million in 2025 for institutional adoption, as noted in that same profile.

TVL metrics further underscore these protocols' traction. Ethereum's TVL reached $91.6 billion in Q2 2025, driven by DeFi growth and RWA adoption, according to the Ethereum TVL analysis. Near's TVL, including its Aurora EVM chain, hit $1.1 billion, while Zilliqa's TVL remains constrained by limited EVM DEX adoption, as discussed in the earlier alexablockchain analysis. Elrond (MultiversX) reported a TVL of $44.9 million, with its Andromeda Upgrade in 2025 poised to enhance scalability and attract developers, according to the State of MultiversX Q1 2025.

Market Projections and Investment Rationale

The 2025 market landscape suggests sharding-based L1s are well-positioned for growth. Ethereum's dominance in TVL and DeFi liquidity is expected to persist, supported by institutional stablecoin inflows and ETF momentum, as highlighted in the Ethereum TVL analysis. Meanwhile, Shardeum's dynamic sharding and EVM compatibility could disrupt the L1 space, particularly if its token launch in late 2023 drives adoption (see the Shardeum seed announcement cited above). Near and Elrond are also gaining ground, with Near's TVL growing 412% in 2024 and Elrond's Andromeda Upgrade targeting 10,000 TPS, per the NEAR profile and the State of MultiversX report.

Emerging protocols like Berachain and Monad are further reshaping the landscape, with Berachain securing $180 million in funding for its proof-of-liquidity model, as detailed in Five Layer-1 Platforms to Watch. These developments highlight a shift toward modular architectures and interoperability, which could redefine scalability benchmarks.

Risks and Considerations

While sharding-based L1s offer compelling value propositions, challenges remain. Cross-shard communication complexities, regulatory uncertainty, and competition from DAG-based architectures (e.g., IOTA) pose risks, as noted in the Layer 1 report for 2024. Additionally, protocols like Zilliqa and Elrond must demonstrate sustained developer adoption to justify their valuations.

Conclusion: A Scalable Future for Blockchain

Sharding-based L1 protocols are pivotal to blockchain's mass adoption, addressing scalability bottlenecks while maintaining security and decentralization. Ethereum 2.0, Shardeum, and Near lead the charge, supported by robust TVL growth and institutional backing. For investors, prioritizing protocols with proven sharding implementations, strong TVL traction, and clear upgrade roadmaps-such as Ethereum's danksharding or Elrond's Andromeda-offers exposure to the next phase of blockchain innovation. As the market evolves, sharding will remain a cornerstone of decentralized infrastructure, enabling applications from global payments to enterprise-grade RWA platforms.