The great success of Ethereum has made the smart contract public chain a holy grail for capital. At present, Ethereum is still the largest and most important platform in the smart contract public chain, but due to low performance and high fees, a large number of applications are not suitable for running on Ethereum.
The new public chain undertakes these Ethereum spillover needs with its performance and cost advantages. Especially in the bull market in 2021, a large number of applications have emerged, and new public chain ecosystems have exploded one after another, from BSC to Polygon to Solana, and Avalanche, Fantom, and Terra ecosystems have also grown significantly. Just as Vitalik Buterin’s statement on Twitter that “the future will be multi-chain”, the growth paradigm of this bull market public chain may have some inspiration for the future “multi-chain” pattern.
1. Public chain market performance in the big bull market from 2020 to 2022
The public chain is the infrastructure and the most important part of the crypto market. The public chains discussed in this article include: smart contract platforms and cross-chain platforms, a total of 21. In addition to Ethereum, other selected samples and classifications are as follows. The standard for sample selection is the top 100 in market value, which have established their own ecology and have a certain degree of attention.
21 public chain samples studied in this paper
For subsequent analysis, we also did data cleaning and preprocessing.
1.1 The formulation of the public chain price index
The prices of the 21 public chains vary widely and fluctuate. In order to make it easier for everyone to observe the overall performance of the track, we have made a public chain index (Chain_Index) with a weighted algorithm. The specific algorithm of the public chain index (Chain_Index) is as follows:
The price of the public chain index on the day = the closing price of the underlying asset on the day * the weight coefficient of the underlying asset on the day
The weight coefficient of the current day’s target = the average daily transaction value of the underlying asset in the past 30 days / the average daily transaction value of the target asset in the sample in the past 30 days
In order to observe the overall situation of the public chain track more conveniently, we have made a chart of the price of the public chain index and changed the coordinate axis to a logarithmic coordinate axis.
LUCIDA public chain price index
1.2 The public chain track has a better excess return and return risk ratio in the bull market
In this round of bull market, the maximum increase of the public chain index was 3013%, the lowest point appeared on March 16, 2020, that is, after the 312 plunge, and the highest point appeared on May 11, 2021. The maximum drawdown of the public chain index was 36.4%, which occurred from February 18, 2021 to February 28, 2021. The maximum bear market decline of the public chain index (as of June 20, 2022, the date of data acquisition) is 72.5%.
If we compare the performance of Bitcoin in the same period with the largest increase, the largest drawdown, and the largest decline in the bear market, we will find that the public chain track has a better return to risk ratio than Bitcoin as a whole. Moreover, up to now, the public chain track has not shown oversold conditions in the bear market, so the defensiveness of the public chain in the bear market is not worse than that of Bitcoin. (But assuming the bear market continues, the possibility of the public chain making up for the fall is not ruled out).
Comparison of public chain index and bitcoin
1.3 The trend of the largest increase of each public chain is seriously differentiated: there are thousands of times increase, and there are also high points that are listed on the market
Next, LUCIDA will do a separate data analysis on these 21 public chains.
Histogram of the largest increase in the bull market of 21 public chains
The biggest increase in the bull market of 21 public chains
Look at the income section first.
The picture above shows the largest increase of 21 public chains in the context of the bull market. The first place is Fantom (FTM), which has reached 144,198%, followed by Solana, with the largest increase of 50,152%.
LUCIDA also found that the distribution of the largest increase in the public chain track is very scattered:
100-fold increase in the first tier: Fantom 144198%, Solana 50151%, Polygon 35434%, Harmony 22862%, Cardano 12287%
The second tier: Represented by Binance, Avalanche, and Ethereum, the maximum increase is within 100 times.
The third echelon: represented by Internet Computer and Moonbeam, the listing is the high point.
Therefore, LUCIDA believes that investing in public chains needs to be carefully selected, otherwise it is likely to be deeply trapped.
1.4 The maximum drawdown of each public chain is 60%, which lasts for 2 months. BNB is the most resistant public chain
After talking about the distribution of returns, let’s look at the risk part.
The green graph below shows the time distribution of the largest increase in the 21 public chains; most of the public chains began to rise from March to August 2020, and peaked from September to December 2021, with an average rise period of 467 sky.
The red graph below is the time distribution of the maximum drawdown of 21 public chains; most of the public chains experienced the largest drawdown from February to May 2021, and stabilized and rebounded from June to August 2021, with an average drawdown The period is 69 days and the average retracement is 59.9%.
It is worth mentioning that the maximum retracement of BNB was only 36.9%, and it only lasted 9 days to recover the decline, making it the most resilient public chain in the bull market.
2. The development pattern of the bull market public chain track from 2020 to 2022
After talking about the overall performance of the track, LUCIDA will sort out the layout of the track. In the public chain track, Ethereum is the undisputed leader, maintaining a share of more than 50%. However, if we dismantle the public chain track based on the proportion of TVL and market value, we will find some interesting things.
Starting from February 2021, Ethereum’s TVL ratio will suddenly decrease, and the BNB chain will suddenly rise. Driven by the BNB chain, public chains such as Polygon, Solana, Tron, and Avalanche are squeezing Ethereum’s dominance.
Stacked chart of TVL ratio of major public chains
In terms of market value statistics, starting from February 2021, the proportion of Ethereum’s market value has dropped significantly.
Stacked chart of market capitalization ratio of major public chains
Note: The above data is from DefiLiama, the platform does not provide TVL data of Internet Computer, IOTA, Polkadot, and TVL data only starts from August 2020, which will slightly affect the quantitative calculation of TVL proportion, but it should not affect the text. Qualitative analysis.
3. The logic of the bull market public chain outbreak in 2021
3.1 DeFi creates overcrowding in Ethereum
After the DeFi Summer in June 2020, the demand for Ethereum interaction increased significantly, resulting in a surge in Ethereum Gas. The liquidity mining launched by Compound detonated DeFi. In July, Token mining, named after food, swept the entire encryption field. High yield completely ignited the passion of the entire crypto world. The fourth quarter rose again. At the end of the year, not only a large number of new projects were launched, but the original head projects were more frequently updated.
With the DeFi boom, Ethereum’s daily gas fee increased from $447,000 to $49.55 million, an increase of more than 100 times (June 2020-February 2021), of which the highest proportion and fastest-growing transactions came from DeFi.
Gas cost ratio
3.2 BSC is the first opportunity to seize the public chain track
Ethereum Gas remains high, the DeFi wealth-making effect is in full swing, and the huge demand has given new public chains an opportunity to catch up. The first to seize this opportunity is BSC (later renamed BNB Chain), which was officially launched in September 2020. After the release, Binance announced the establishment of a $100 million seed fund to support DeFi projects and developers on the BNB chain, and further support the ecological collaboration between CeFi and DeFi. On February 2, 2021, BNB chain, which has been online for 5 months, ushered in a milestone moment – 1 million independent addresses. On February 9, the number of transfers on the BNB chain exceeded 1.6 million, exceeding the 1.32 million transfers on the Ethereum chain.
By being compatible with EVM, the BNB chain undertakes the needs of Ethereum spillover, and by using BNB Token to participate in the project innovation, it empowers the BNB chain ecosystem. In February 2021, the outbreak of the DeFi ecology of the BNB chain and the BNB market formed a mutually reinforcing echo.
3.3 Polygon, Fantom, Harmony, Avalanche and other public chains use incentive mechanisms to promote development
Polygon, which broke out in April and May, is also compatible with EVM. Unlike the BNB chain that uses BNB Token to empower, Polygon launched a $150 million incentive fund at the end of April, of which $40 million of the liquidity mining incentive plan was directly introduced into ether. Aave, the leading DeFi protocol, has seen a 68-fold increase in TVL in 2 months.
Ecological incentives have become the standard for subsequent public chain development ecology. In September and October 2021, Fantom, Harmony, Avalanche ($180 million), Celo and NEAR have launched incentive programs. Some public chains choose to be compatible with EVM, such as the BNB chain, Polygon mentioned above, and Fantom. Compatible with EVM can better drain the Ethereum ecosystem.
3.4 Solana’s strategy of “light technology and heavy ecology” to achieve overtaking on corners
Solana is the first echelon of public chain Token growth. Its rise benefits from the strategy of light technology and heavy ecology. Compared with well-known PoS public chains such as Avalanche and Algorand, Solana has chosen a more centralized technical solution, which greatly reduces the difficulty of technical implementation and can be launched quickly to meet the needs. In order to make the ecology prosperous, the Solana team and its investors have adopted a series of incentives to motivate users to experience their platform, such as introducing liquidity mining, providing subsidies for developers, hosting hackathons, providing donation funds, and more.
As shown in the figure below, the Solana chain has attracted many developers. In 2021, the number and growth rate of developers in the Solana ecosystem will be at the forefront.
3.5 NFT detonates public chain demand again
From the second half of 2020 to the first quarter of 2021, NFTs are the largest source of public chain demand.
In the second quarter of 2021, NFTs will take over DeFi as the second application area that will bring a lot of transaction demand. With the addition of stars from all walks of life, NFT began to spread and go out of the circle, a large number of investors and projects emerged, and the transaction scale of NFT continued to expand. As the first public chain, Ethereum has absolute advantages in terms of capital, number of developers, and ecological scale, so it has the most NFT projects.At the same time, the NFT tracks of other public chains are also developing rapidly. For example, the Solana chain, its NFT transaction volume even rose against the trend when the market was down in May 2021. It is currently the second largest NFT ecosystem after Ethereum.
3.6 Specific reasons for the logic of the public chain wheel
Therefore, it can be said that this round of bull market public chain outbreak is brought about by the prosperity of the application layer and the lack of scalability of Ethereum. The logic of the public chain wheel can be summed up for the following reasons:
– The DeFi boom has caused excessive gas fees and congestion in Ethereum. This situation will continue until 2021. The rotating prosperity of NFT and GameFi will continue to put forward requirements for the scalability of the public chain.
– The huge demand for various applications during the bull market enables the public chain with fast technology implementation and abundant capital to take the lead, attracting various applications to join the ecosystem.
– Different public chains have different resource endowments. Even if the general formula of “compatible EVM/cross-chain bridge + ecological incentives” is also used, the specific strategies are different. The BNB chain and Solana are empowered with platform coins, and Polygon has introduced the Ethereum head DeFi protocol.
– EVM compatible to enjoy Ethereum achievements faster, including Fork protocol and developers. 3.7 The technical difficulties and slow landing of Cosmos and Polkadot are one of the reasons that affect the increase
The counter-examples here are Cosmos and Polkadot. They did not enjoy much of the benefits brought by this bull market. First, the public chain is technically difficult and slow to implement, and then the compatibility with Ethereum is not good enough, and another cross-chain bridge needs to be established. Go and connect with Ethereum.
LUCIDA believes that this can also explain why Cosmos and Polkadot only ranked 12th and 15th in the previous statistics of “1.3 The largest increase in each public chain”.
4. The moat of the public chain
After a round of bull market baptism, the new public chain has attracted developers and users, and has also established its own infrastructure and application ecology. As V God said, the future will be a multi-chain structure, so what kind of moat has each public chain built after this bull market.
Ethereum ranks second in terms of market value in the encryption market, with a long-term market value of 17% – 22%, which is of great significance to the entire encryption market. The data in the “Ethereum Ecology Report for the First Quarter of 2022” shows that the number of DApps running stably in Ethereum is 4,011, and there are more than 7,220 smart contracts.
Ethereum is the public chain with the highest moat, with a high degree of network decentralization and security, a large number of users and a large number of developers. Complete infrastructure (wallets, oracles, developer tools), rich application types, network effects have formed, and innovative soil has been leading the trend of blockchain applications:
(2017-2018) At the end of 2015, Ethereum proposed the ERC20 standard, which eventually directly brought about the bull market caused by the 2017 lCO issuance. In 2017, the issuance of smart contracts expanded the boundaries of blockchain technology, and blockchain entered the mainstream as the underlying technology. In this round of market value, Ethereum ranked second in market value, laying the foundation, and driving the valuation of other smart contract platforms and infrastructure sectors; within the ETH ecosystem, the number of DAPPs exploded, and the NFT, chain games, and forked currency sectors have a significant rising effect. ETH initially became the anchor target for the altcoin market.
(2020-2021) In this cycle, the total market capitalization of cryptocurrencies will be as high as $3 trillion, and the transaction volume of the Ethereum network will exceed $3.6 trillion. Ethereum’s share of market capitalization has risen from 11% in early 2021 to around 20%. In this round of market, the rotation of sectors in the Ethereum ecosystem includes DeFi (DEX, AMM, liquidity mining, mortgage lending), NFT, Meme, GameFi, Metaverse, etc.
(2021 – 2022Q1) In the small cycle of the encryption market, in addition to the continuation of NFT and DeFi hotspots, the market’s reconstruction of the public chain’s valuation logic has pushed up the public chain’s rising market.
In the above process, the projects that appear in each cycle of the Ethereum ecosystem will undergo reshuffle in the bear market. Only 10%-20% of the projects survive and grow, becoming important blue-chip projects and common infrastructure in the next cycle.
Despite the multi-chain trend, the share of total locked value (TVL) on the Ethereum network has been diluted, and the second-layer expansion plan has been implemented. Under the circumstance that the new public chain is constantly diverting the developers, users and applications of Ethereum, Ethereum itself has reduced the GAS fluctuation and the additional issuance speed of ETH through the EIP-1559 upgrade. The agreement kicked off the stage.
4.2 Binance Smart Chain
BSC was officially launched in September 2020. Shortly after BSC’s TVL crossed the $15 billion mark in Q2 2021, its TVL more than doubled to $35 billion in ten days due to a surge in the price of BNB and its derivatives such as CAKE and XVS .
5.19 After the slump in the crypto market, BSC became the most active attack platform for hackers. Six consecutive attacks occurred. Flash loans were the main attack method. The euphoria of hitting all-time highs quickly faded as a series of negative catalysts hit the market, including the $200 million Venus liquidation event and the $45 million PancakeBunny flash loan attack. The increase in exploits drained user confidence and caused token prices and TVL to plummet. From March to September 2021, the average TVL market share will remain around 15%.
The advantage of the BNB chain is that it has a huge user base, as well as Binance’s financial, technical, human and other resource support. The disadvantage is that the network is highly centralized, and the ecology relies heavily on the Ethereum developer community.
The Solana Protocol mainnet beta was launched in March 2020. Up to now, there are nearly 2,700 projects on the Solana chain, covering 8 major fields such as DeFi, wallets, NFTs, infrastructure, and decentralized games, as well as 15 sub-fields such as stablecoins, DEX, and derivatives.
Solana has developed a relatively complete NFT ecological foundation, such as project tools and trading markets. Magic Eden is a Solana-based NFT marketplace. It chose non-EVM Solana for construction in the early stage of development, just because of its high-performance advantages, and concentrated on the vertical field of games. The current transaction volume accounts for more than 97% of the entire Solana ecosystem. It is worth noting that Opensea only supported Ethereum before, and started to support Solana in April this year, but most of the transactions of its head project Okay Bears are still completed in Magic Eden.
Since Solana’s network fee income is relatively low, unless dAPPs and usage increase or fees increase, a cash flow-based valuation model may not be supported. Similar to the BNB chain, the Solana network is also very centralized. As the scale of users expands, the Solana network has continued to be unstable, and there have been multiple downtimes that stopped block production. From last year to this year, Solana has been down for a long time for many times in a row. In the constant accidents, everyone began to suspect that Solana’s innovative mechanism did not really solve the “impossible triangle”, but only preserved “efficiency” at the expense of “Safety”.
The market performance of public chain Token is both explosive and has good risk resistance, which is a very important sector in asset allocation. Judging from the outbreak of the public chain in this bull market, although Ethereum has a first-mover advantage, the public chain structure has not yet been determined. Whether it is through ecological incentives, better connection to Ethereum, or the introduction of blockbuster-level applications, public chains can quickly occupy market share. The expected performance of the public chain market, which is expected to be overdrawn early before the official launch of the public chain or the ecological outbreak, is slightly worse. It can be seen that the public chain is a field driven by demand.
This round of bull market public chains benefited from the explosion of DeFi, NFT applications and the insufficient processing capacity of Ethereum. Whoever can provide the performance support and financial support required by new applications can develop rapidly. This logic is expected to be slightly different in the next cycle. The reason is that after market precipitation, high-quality applications that pass through the bulls and bears will occupy more markets, and the corresponding public chains where these applications are located will benefit from it.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/sort-out-the-market-performance-and-development-pattern-of-the-bull-market-public-chain-track-from-2020-to-2022/
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