How is Ether faring in the public chain competition?

When we compare the different L1 public chains in terms of development and tools for building Web3 applications, the first major aspect to note is how much money is available in many L1 blockchain ecosystems.

Ecosystem Resources

When we compare different L1 public chains in terms of development and tools for building Web3 applications, the first major aspect to keep in mind is how much funding is available in many L1 blockchain ecosystems. Most recently, Solana (via a private token offering) raised $314 million in funding led by a16z and Polychain. This funding comes on the heels of Dfinity’s announcement of its $223 million developer ecosystem initiative.

Web3 Foundation held 30% of the DOT at the time of Polkadot’s initial DOT token distribution, worth $7.5 billion at current prices. Over time, the distribution of tokens has been standardized, with about 1/3 of the tokens held by the main development team, with 10-20% going to investors, and the remainder divided between public offerings and ecosystem rewards.

This trend has clearly shifted from the original Bitcoin, where coins were distributed “fairly” to any miner (although initially there weren’t many miners other than Satoshi Nakamoto), to a token distribution similar to a startup distributing equity – although early ecosystem participants (such as developers or investors) would receive a A higher percentage of tokens are rewarded. Early 1COs (initial token offerings), such as Ether, EOS and Cardano, preferred to simply offer more than 80% of their tokens on a large scale.

As you can see from the chart below, the early ecosystem rewards for these L1 public chains were in many cases allocated to early developers and projects built on that platform. For example, the NEAR protocol token allocation includes 11.7% allocated to the early ecosystem and 17.2% allocated to community grants. This is similar to Polygon (an ethereum sidechain), which retains 35% of its tokens as a reward for ecosystem and participation staking (pledging).

Competition for developers
Capital is not a scarce resource to launch a blockchain ecosystem. Instead, L1 blockchain projects compete for developers through incentives and a vision of how the platform will become popular. The technical details of these L1 public chains are often overrated, while the business development aspect is more important. In order to attract developers to build on L1 chains other than Ether, these L1 chains typically have two technical arguments:

Improved scalability (transaction throughput).

Different governance and security models.

In terms of scalability, the easiest way to scale a blockchain is to increase the requirement to become a blockchain verifier (thus reducing the number of verifiers) to get an additional boost in transaction throughput. However, the drawback in this regard is the reduced decentralization of the network.

Another approach to scalability is through horizontal scaling, often called “sharding,” which is the division of the network into multiple partitions, and involves how to assign validators to different sharding chains, as well as establishing a consensus mechanism for the sharding chain and the global state. In the case of current sharding sharding systems, including Eth2.0 and NEAR protocols, all authenticators are disrupted and assigned to different sharding chains.

Avalanche and Polkadot provide more customizability by allowing each child network (called “parallel chains” in Polkadot and “subnetworks” in Avalanche) to have a custom set of verifiers, but these subnetworks are not the same as the parent chain (called “relay chains” in Polkadot and “master” in Avalanche). Avalanche) share security with the parent chain (called the “relay chain” in Polkadot and the “master network” in Avalanche). Cosmos, on the other hand, takes blockchain autonomy to the extreme, in that each interconnected chain in the Cosmos network (whether it is a “Hub” chain or a “Zone” chain) is responsible for managing only local security – there is no global security provided by the protocol. solana aims to take a vertical, single combinable approach to blockchain scaling that software and hardware architectural optimizations to the limit.

For developers, the sharded approach means that dApps are synchronous and composable within the same sharded chain, while cross-shard communication is asynchronous (slower). This poses a limitation for building a DEX aggregator like 1Inch to compare prices across trading venues and perform atomic exchanges at the best price.

One criticism of the sharding approach is that when scaling a decentralized data layer by sharding, the scalability benefits are limited. L2 extensions using Rollups, on the other hand, can achieve higher transaction throughput on top of the blockchain, but composability is again limited to a single Rollup chain and cross-Rollup communication is asynchronous.

On the other hand, maintaining composability between applications (while providing scalability) is the main value-add that Solana promotes. In addition, developers have more control over local governance and security by building with Polkadot’s Substrate or Cosmos SDKs, which is equivalent to choosing to build on an application-specific blockchain. For example, the dedicated blockchain “Gateway” developed by the Compound team based on Substrate allows COMP token holders to elect the validators of the “Gateway” chain through a governance vote on Ether. While a portion of the ethereum community is puzzled by this development by Compound, Polkadot supporters see it as a clear victory, as the “Gateway” chain is built on Polkadot’s blockchain development toolkit, Substrate.

It may be hard to understand why the application even left Ether (or was deployed outside of it). After all, Ether is the most secure and longest running smart contract platform, all other protocols/applications are on Ether, and Ether is arguably the most decentralized. A common reason for building applications on a chain other than Ether is that Ether has high transaction costs, but Compound founder Robert Leshner says that Gateway is “designed to be a cross-chain tool, not a scalability tool.”

The argument in favor of an application-specific blockchain like Compound’s “Gateway” is primarily its sovereign nature. Moreover, such blockchains could be a precursor to a shift in the balance of power between L1 chains and the protocols built on them.

Leading the blockchain ecosystem
So far, the ethereum ecosystem has been dominant in terms of developer activity. While GitHub data is imprecise, the number of repositories referencing the word “ethereum” (and the number of stars of the most popular repositories) is an order of magnitude higher than any other blockchain. See the chart below.

How is Ether faring in the public chain competition?

Data source: GitHub

TVL (total locked-in value) data shows that BSC (Coinan Smartchain) is by far the most used platform outside of Ether, with $14.7 billion in TVL for applications locked in the BSC network. Polygon, the sidechain of Ether, has recently seen its TVL grow at a rapid rate to $6.5 billion, and Solana is the second most used blockchain after Polygon, with a locked-in value of about $900 million. See chart below.

How is Ether faring in the public chain competition?

Above: Trends in TVL of applications on top of Ether (black line), BSC (red line) and Polygon (green line).

The following are the success stories of blockchain projects that have attracted developers and users.

Token distribution is key: BSC owes much of its success to Coinan being the largest cryptocurrency exchange.

The barrier to entry is kept as low as possible. both BSC and Polygon are EVM (Ethernet Virtual Machine) compatible, which allows for easy portability of smart contracts and integration with existing tools (MetaMask, Etherscan).

Users follow the incentives. For example, Solana-based projects such as Raydium have a low circulating supply and then distribute tokens to users through incentives to gain liquidity.

Often times, the crypto space is focused on technology, but the success of BSC shows that it is the distribution of coins that is key. At its peak, the value of the TVL lock in BSC was equivalent to 40% of the total value of the TVL in Ether DeFi. Coin On has helped users move to BSC and has attracted developers as well. The exchange FTX has a similarly close relationship with Solana, and FTX has announced that it is building Serum, a DEX (decentralized exchange) platform on top of Solana. Although Flow is currently relatively more centralized – about 60% of node types are controlled by Dapper Labs, Flow’s development team – the partnership allows applications on top of Flow to reach a broader audience.

Polygon’s close collaboration with the ethereum community has led to many leading ethereum projects being deployed on the Polygon chain. 356 projects and companies from 13 different verticals have recently been identified as expanding on Polygon’s ecosystem. In its two months of growth, Polygon has attracted the most development activity outside of Ether.

The NEAR protocol has also adopted a pro-Ethernet strategy with the recent launch of Aurora, which is built as a smart contract on the NEAR blockchain, is EVM compatible, helps Ether users, dApps easily migrate to the NEAR blockchain — and most notably uses ETH as Aurora’s internal base currency for paying transaction fees, which means the ability to add value to ETH holders.

Frankly, EVM compatibility also means it’s easier to replicate existing code and deploy a forked version to a new chain with simple modifications to start a protocol (and form a community of token holders around the protocol). But the success of BSC has already led to an outbreak of attacks on the platform due to an abundance of unqualified developers and a lack of auditors, with nearly $300 million stolen by hackers in 2021.

The existing user interface can also be more easily wired into the new environment. deFi aggregator Zapper is a front-end that integrates several DeFi features with xDai, Polygon, BSC and Fantom, and of course has the ability to quickly support Rollups. block browser is probably the most used tool by users and developers alike The block browser is probably the most commonly used tool by users and developers, and the user experience of Etherscan, Ether’s block browser, is far superior to any comparable tool for other L1 chains. The same guidance extends to data analytics (such as Dune Analytics or to track and display network activity.

Another way to lower the barriers to starting development on non-Ethernet blockchains is to introduce critical assets. This can be done through cross-chain bridges (all well-known L1 public chains now have some form of cross-chain bridge for bridging to ethereum) and by partnering with stablecoin providers. Stablecoins are very important to guide cryptocurrency market applications and leveraged transactions. Notably, Solana and Algorand have partnered with Circle to bring USDC into their ecosystem.

How is Ether faring in the public chain competition?

Above: USDC supply growth trends above Ether (black line), Solana (red line) and Algorand (green line).

Currently, blockchain development activity is heavily skewed towards Ether, but signs of success outside of Ether are starting to emerge. As the complexity of cross-chain bridges becomes increasingly hidden from users, and the infrastructure to serve users on other chains improves, Ether will compete with other chains in terms of existing applications and new developers.

How is Ether faring in the public chain competition?

Above: Growth of DeFi private funding on major L1 public chain platforms. Source: The Block Research

In 2021, Solana became the most funded ecosystem outside of ethereum. At the same time, the multi-chain structure approach is popular because it does not rely on a single ecosystem. However, it is important to note that development on Ether tends to be much faster due to the relatively more mature documentation, infrastructure, and other developer tools. There are many advantages to building with the current Ether stack – for example, the ability to replicate the governance framework using Compound in your own protocol, or replicate the very popular Synthetix staking contract. Other L1 public chains often require significant effort to bootstrap all these different components, which is why these popular Ethernet alternative public chains have chosen to skip this stage and replicate (compatible with) EVM directly.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Leave a Reply