Interpreting the current status and trends of the development of Ethernet-associated public chains

Ethernet-associated public chains are popular in the market because of low fees, but the micro-innovations they have cannot represent the progress of public chains.

Ether-associated public chains are popular in the market because of their low fees, but the micro-innovations they have do not represent the progress of public chains. …bitcoin,ethereum,exchange,publicchain,tron,defi,dex,layer 2,evm,coinan smartchain bitcoin ethereum exchange publicchain tron defi dex layer 2 evm coinan smartchain

Written by Chen Cui, working at HashKey Capital Research

Reviewed by Zou Chuanwei, Chief Economist of Wanxiang Blockchain

As a platform that carries users and applications, the value of public chains is also reflected in users and applications. Similar to the e-commerce platform of the Internet, it provides communication and trading platform for merchants and users, and reflects business value in this way. As the number of applications and users increases, the value of public chain platform will also rise. Since applications have to be attached to public chains, public chains play the role of underlying infrastructure in the blockchain industry, and are also one of the most competitive directions in the industry. As the frontrunner of public chains, Ether is far better than other public chains in terms of application innovation and market value, and Ether is also a competitive target for other public chains.

People have made many predictions about the competition pattern of public chains, including homogeneous competition and dislocation competition among public chains. In the past judgment, imitating Ether in function will not make a breakthrough in the industry, because Ether has already formed an ecological barrier with other public chains in terms of developers and users. If the positioning is the same as Ether, it is difficult to pry the applications in Ether in terms of competition. However, the current situation is different from what was envisioned. The associated public chains of Ether, that is, public chains similar to Ether in terms of function and positioning, have suddenly gained a large amount of traffic and users, and thus have driven the boom of the public chain field again. In this article, we mainly focus on the development status and future trend of the public chains associated with Ether, and analyze their development status.

The development history of public chains and the rise of Ethernet-associated public chains
Development history and competitiveness of public chains
Public chains have a network effect, that is, the more users there are, the higher the value of the network, which in turn attracts more users, and more users will bring higher value to the network. The public chain can attract both application developers and users, and a bilateral network effect will be formed between applications and users. Users will be attracted by the application and join the public chain, and the application will be deployed to the public chain because of the number of users, and eventually the public chain will receive the double value brought by the application and the users.

If you consider public chains as the underlying distributed system, Bitcoin is also a public chain, just without the functionality of smart contracts. Public chains in the blockchain are completely open source and very easy to imitate and copy, so there have been many imitators and competing coins since the inception of Bitcoin, but only Litecoin and Dogcoin are actually still active in the limelight, with contemporaries such as Ixcoin, Tenebrix, Fairbrix and Peercoin having all disappeared. This stems from their unique positioning and community building, with Litecoin positioning itself as a low-cost alternative to Bitcoin and Dogcoin positioning itself as a reward for spending, rather than setting its goal to replace Bitcoin nor is it an uninnovative project.

The subsequent Bitcoin competitor Ether was a huge success thanks to a revolution in technology. For the first time, smart contracts were introduced to the blockchain system, extending the programmability of the blockchain. The emergence of Ether opened up the competition of smart contract-based public chains, and the first-mover advantage that Ether has has been the first to attract many application developers and users, and Ether has an advantage in the cultivation of developers’ habits. For other public chains, past experience tells us that to compete with Ether, it is not enough to rely on imitation alone, but needs all-round innovation.

People are used to public chains using innovation as the highlight of their marketing campaign, which can attract more users’ attention and developers hope to create the next generation of great public chains. For example, once people were bullish on EOS, thinking it was strong enough to be the strongest competitor to Ether, especially because it has a strong community and has come out of a differentiated path from Ether. But the fact is not ideal, the community nodes are too centralized and the resource leasing creates a threshold for users. The homogeneity of gambling applications also caused the low reputation of EOS, and EOS finally did not stand on the same level with Ether. In addition, other public chains with major changes to Ether have failed to make a big splash in the market, not to mention those that only made minor changes.

The rise of Ether-affiliated public chains
While the market is waiting for a more innovative public chain that better meets the needs of users and developers, Ethernet-affiliated public chains have suddenly emerged. These are public chains that are very similar to Ethernet in terms of execution environment and application design. These public chains have only minor innovations, and even applications on Ether can migrate their code directly to the new public chains for use. Although they are very much like an extension of Ether, especially the recently popular Layer 2, they are completely different in nature. These public chains have their own independent eco-applications with independent verifiers to ensure security. Assets transferred from Ether to it cannot be transferred back in a decentralized way with full assurance of smooth transfer, which is the biggest difference from Layer 2. These public chains also compete with Ether as a goal to develop their own native assets on their chains. In the past, such public chains would not have entered the public eye, but today the paradox of the Ether DeFi ecosystem boom and Ether congestion has spawned the rise of Ether-associated public chains.

This stems from a few points of paving. First, DeFi’s business model has been proven on Ether, where people can implement peer-to-peer financial applications on the chain, such as DEX, lending, and stablecoins. And the liquidity mining and other mining methods associated with these applications are seen as benefits, and users can profit from participating in DeFi. Secondly, users are already educated in Ether about how to pledge mining, how to mint coins, etc., so DeFi applications for other public chains save user education costs. Users can use other public chains directly and there is no learning cost. Last but not least, the high processing fee on Ether makes it difficult for ordinary users to use it. This is when the DeFi app suddenly appeared with very low fees and the same functionality, and it managed to attract the attention of users.

USDT on Tron developed for the same reason. USDT was originally released on Ether and Bitcoin, but due to the high fees, Tron’s no-fee version of USDT was launched and quickly took over the market share of USDT. The popularity of ethereum-affiliated public chains in the market stems from solving the current pain points of ethereum, coupled with the heat and community user support of DeFi. Under this trend, many public chains are laying out DeFi on their applications and developing virtual machines compatible with Ether EVM. In the short term, this approach will attract users’ attention, but it is worth discussing whether these Ethernet-associated public chains will always exist and their future development.

The source of users on Ethernet-affiliated public chains
Where do the users on the ethereum-affiliated public chains come from, are they competing for them from the ethereum ecosystem or are they attracting new users? This question is related to the development of public chains. The following chart shows the difference in the number of active addresses and daily transfers between Ether and BSC, the most famous associated public chain, from the second half of 2020.

Interpreting the current status and trends of the development of Ethernet-associated public chains

Number of active addresses and daily transfers in Ether

Interpreting the current status and trends of the development of Ethernet-associated public chains

The number of active addresses and daily transfers of BSC

As you can see, both the number of active addresses and the number of daily transfers did not fluctuate much before Ether raised the block Gas Limit on April 22, due to the fact that Ether’s block utilization was almost full. Relatively speaking BSC has been rising rapidly in the last six months or so, especially in the last two months or so when it started to rise exponentially. Recently, BSC has caught up or surpassed Ether in terms of active addresses and daily transfers, and the number of daily transfers is even 5 times higher than Ether. Therefore, BSC, an ethereum-affiliated public chain, is not competing with ethereum for users, but the performance limitation of ethereum makes it unable to meet the needs of most users for DeFi, thus leaving the opportunity for ethereum-affiliated public chains to realize these needs, and finally promoting the rise of ethereum-affiliated public chains.

The current situation of Ethernet-affiliated public chains
Reasons for the homogenization of public chains
The above discussed the process and reasons for the rise of ethereum-associated public chains, but why did the past judgment fail, why didn’t the mismatched competing public chains get so much heat from today’s homogenized public chains, and why did the public chains that were competitors eventually move towards consistency? The answer to this question stems from the exploration of public chains in the early stage. Two of the most popular applications in the blockchain industry, DeFi and NFT, both originated from Ether. In particular, DeFi, a decentralized application with financial attributes, is well suited for deployment on public chains and meets the needs of C-end users. The mining incentive in DeFi is also very attractive to users, so it is favored by all public chains, and project owners can IDO in DeFi and use the DEX platform to issue tokens, making DeFi more popular. has gained more popularity.

In addition, Ether’s first-mover advantage has allowed it to build a huge developer community, which is unmatched by anyone else. Good developers will gather in Ether and try different ideas, giving birth to innovative applications. Homogenization of the development environment with Ether is also the way other public chains have to choose in order to compete with Ether and vie for talent.

At present, the public chains associated with Ether can be divided into two kinds. The first one is the old public chain which originally existed and was exploring on-chain DApp applications, but in the recent boom, it has turned to DeFi as the main application scene. The second is the recently emerged imitators of Ether, which directly use DeFi or NFT as the main function.

Older public chains that have shifted their positioning
In the early days, or before the DeFi concept caught on in 2019, public chains on the market were not primarily targeting DeFi. Examples of such chains are Cardano, Tron, Neo and Near, and the following table shows their attempts at DeFi in the ecosystem and their current status.

For these public chains, the current state is that although some DeFi is running, most users are not very loyal to the public chains and projects. This leads to the fact that users participating in DeFi mining will “dig and sell”, which ultimately will not be very helpful to the ecological expansion. If the subsidy of liquidity mining in DeFi can’t help project promotion and development, users keep digging and selling will lead to project imbalance.

Emerging ethereum-associated public chains
A number of nascent public chains have emerged that are designed and positioned to be associated with DeFi and use it as their primary eco-application. Examples include BSC, Solana, and Heco, whose native public chain tokens are seeing eye-catching prices amidst the DeFi boom. There are two main reasons why these nascent public chains are getting more attention than those old transformed DeFi public chains. Firstly, they are able to close deals quickly with low fees compared to Ether. Second, these public chains bring in a large number of users through various channels. For example, Solana is highly sought after by Sam, the founder of FTX, who is also a giant whale involved in DeFi, a public chain recommended by veteran DeFi players, and BSC is a public chain launched by the Coinan exchange, and exchange users are also attracted to it. The BNB circulating on BSC in particular comes with its own functions and value, and the public chain ecology of BSC is the icing on the cake.

Solana is still in its infancy, but it has already attracted many development teams, BSC is the leading ethereum-associated public chain, and its DeFi application has formed a rich ecosystem, attracting a large number of users and creating a gathering effect among DeFi developers. The BSC ecosystem has its own fan base, most of whom are firm holders of BNB and advocates of the Coinan platform.

Sidechain and Ether-associated public chain
Sidechains and Ether-affiliated public chains have similar characteristics, they both have independent verifiers, and their on-chain applications and user groups are also similar to Ether. The biggest difference between them is their positioning. Side chains are mainly used to expand the capacity of Ether, represented by Polygon and xDai, especially xDai will be planned to be integrated into Ether 2.0 as a fragmented chain in the future. The goal of public chains is to compete with Ether for Ether users. In fact, the boundary between side chains and public chains is not very clear, as side chains can develop into independent public chains, and public chains can also develop into side chains, depending on the team’s positioning.

Both side chains and public chains face cross-chain problems, and their cross-chain mechanisms are very similar. Generally for sidechains, the mechanism will be designed at the beginning of creation, and the verifier or other roles will ensure the security of cross-chain assets. For public chain platforms, it will be left to third-party projects such as Polkadot to implement cross-chain. But the status quo is that assets in Ether are more popular and public chains want Ether to circulate on their own chains, so public chain operators will take the initiative to make cross-chain transfers.

The future development of Ether-associated public chains
From a functional perspective
Regarding the future development of Ethernet-associated public chains, it can be judged from its functional perspective. The current public chain applications are mainly DeFi, whose application distribution and innovation ability are related to the future of public chains. If the applications on a public chain are all imitating the Ethernet DeFi project, it is difficult to form its own ecological community on the public chain, and those who undertake it are those users who fail to meet their needs on Ethernet. If Ethernet Layer 2 or Ethernet 2.0 comes online, or if the DeFi project in the associated public chain has difficulty in maintaining the “wool-gathering” mining rewards, the users attracted will be lost rapidly.

The innovation in DeFi comes from DeFi project owners and developers, and the more developers a public chain has, the more innovative and competitive it is. Therefore, Ethernet-affiliated public chains have to be close to Ethernet in terms of operating environment to save the learning cost and threshold for developers. Of course, if public chains innovate in the development environment will form their own moat effect, which is conducive to the formation of competitive advantages. For example, Polkadot often holds Substrate training camps, and it has indeed formed its own unique developer community, but it needs time to test the innovation practice of on-chain applications in the future.

From users’ perspective
The proportion of users’ origin of Ether-associated public chains can judge the development prospect of public chains. If users are attracted to Ether entirely because of its congestion, or the financial rewards on the chain, they will leave even after the congestion is solved or the rewards are reduced. Such users are unstable, and even constant wool-gathering will damage the development of public chains. If the public chain has its own native users, it will be more conducive to ecological development.

Compared with ethereum, the centralization of ethereum-associated public chain is deeply criticized, for example, the number of nodes is small and not open, and the DeFi project team on the chain is deeply connected with the public chain. And the security is weaker than that of Ether Layer 2. But as long as the user demand exists, that is, the user does not have the demand for complete decentralization like Ether, this kind of Ether-associated public chain can always exist. In other words, if Etherlink-associated public chains can attract users enough in one aspect, then neither lack of innovation nor centralization will be a problem that hinders the development of public chains.

Thinking and Summary
In the development of public chains in the past, nascent public chains have always undergone upgrades. Examples include Bitcoin to Litecoin and Dogcoin, which created a gap in positioning with Bitcoin, and Bitcoin to Ether, which innovated in smart contracts. For the next upgrade of the blockchain, everyone is banking on a more innovative technological revolution that can achieve efficiency and security gains with the current level of decentralization. However, the reality is different from the imagination, some public chains similar to Ether in both execution environment and on-chain applications have appeared and are also welcomed by the market, and the micro-innovations they have cannot represent the progress of public chains.

The reason behind is that the hotness of Ethernet in DeFi and NFT applications has attracted many users, the block utilization of Ethernet is close to full, and the high transaction fees have turned away ordinary users. Therefore, with the overflow of user demand, the emergence of a solution with low fees is in line with user expectations. The performance of Ethernet limits the number of Ethernet transactions and inhibits the growth of users, so this part of the users who belong to Ethernet is absorbed by the Ethernet-affiliated public links.

Ether-affiliated public chains with their own traffic will be more popular in the market, because users’ needs exist and are met, so innovation and centralization will not be a problem. In addition to the emerging ethereum-associated public chains, other old public chains turned into “ethereum-associated public chains” are not very popular in the market, because the past development failed to accumulate native users for its ecology, and the DeFi application is also controlled by the public chain team, and the wool-gathering activities of mining users on it have damaged the value of the public chain.

Side chains, as a kind of scaling solution on Ether, are essentially Ether-associated public chains, but a secure side chain can be regarded as one with the main chain and will not compete for users of the main chain. Other public chains ultimately aim to compete with the main Ethernet chain, but it is possible to switch between side chains and public chains. For the future development of Etherlink-associated public chains, it will be benign if there is innovation in the DeFi project, forming a development team belonging to the ecology, or forming a moat effect for developers. Or attract users in unique aspects, such as exchange public chains with their own traffic, then the centralization issue as well as the innovation aspect may not be too important.

Posted by:CoinYuppie,Reprinted with attribution to:
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