The battle for smart contract platforms: Ethereum cannot enjoy this trillion-dollar “big pie”

Sometimes people forget that the market is forward-looking. But before we delve into the valuation of smart contract platforms, let’s understand some background knowledge.

Today, smart contract platforms are once again the center of speculation, but this time is different. Unlike the previous cycle, smart contract platforms are no longer just the idea of ​​the world’s computers. They are an active ecosystem composed of users, capital, and applications, which together promote trillions of dollars in economic activities. Ethereum is in a leading position in this regard, and has now acquired more than 700 billion US dollars in assets, more than 2.5 trillion US dollars in transactions per quarter, and hosted thousands of applications. In recent months, the market value of Ethereum has reached an all-time high of US$450 billion, so this growth has paid off handsomely.

But in this surge, Ethereum is not alone.

As Ethereum is at a critical stage in its expansion roadmap and striving to support the growing user demand, the window of opportunity has opened. With the current promise of scalability, smart contract platform competitors have actively promoted attracting users to their own chains to provide UX improvements and incentives. As the price of Ethereum gas continues to soar, the activity of these products on these chains has increased significantly in the past few months. Unsurprisingly, as Ethereum’s dominance has been questioned, speculators have poured into the corresponding tokens on these platforms.

The battle for smart contract platforms: Ethereum cannot enjoy this trillion-dollar "big pie"

However, as many people have pointed out, price movements do not always represent value, and even if the activities of Ethereum’s competitors increase significantly, it is still only a small part of Ethereum’s activities. So small that you start to ask if these valuations are reasonable? Why is the value of some competitors in the double-digit percentage of Ethereum, but other competitors only have single-digit values?

The battle for smart contract platforms: Ethereum cannot enjoy this trillion-dollar "big pie"

This involves the exploration of the valuation of speculation and smart contract platforms.

Valuation 101

First, there is no agreed framework for the valuation of smart contract platforms. The native assets of these platforms provide a unique combination of attributes that makes them different from any assets that existed before. In many ways, they are like currencies because they are the main store of value and transaction currency in their economy. In many ways, they are like equity because they have requirements for processing fees earned on exchanges. In many ways, they are like commodities because they provide access to computing. This combination provides them with the properties of all three asset superclasses and provides them with multiple properties that drive value. This also makes them extremely difficult to value, especially considering that these projects are still in the early stages and face an uncertain future.

Investors are still trying their best to make absolute and relative valuations of these assets, applying various vague quantitative and qualitative measures. However, one thing they all agree on is that no matter which smart contract platform ultimately wins, it will be worth a lot of money (several trillions of dollars).

The battle for smart contract platforms: Ethereum cannot enjoy this trillion-dollar "big pie"

At the most basic level, investors evaluate assets based on two things: fundamentals and willingness to pay.

Fundamentals usually involve quantitative factors (KPI), such as lock-in total value, transaction volume, and transaction fees, in addition to qualitative factors such as competitiveness, developer interest, and community. These fundamentals are all based on backward evaluation to understand historical performance, and on the basis of forward looking to understand potential future performance. Historical performance provides a sense of where things come from, while future performance provides a sense of where things may go. The market is always forward-looking, and the future value that assets will create is the driving force for valuation.

Willingness to pay also involves quantitative and qualitative factors. It determines how much investors are now willing to pay for the fundamentals of the next “X” years. This is more like an art than a science, and is affected by comparability (relative valuation), macroeconomic conditions, market sentiment, narrative, memes (serious), etc.

So how does this apply to smart contract platforms?

Remember the main quote about the smart contract platform?

“No one is using it. Compared to ETH , the value of this ghost chain cannot be so high.”-Overheared on Twitter

Well, the reason this sentence is wrong is because, as we now know, the market looks forward rather than backward. In this snapshot, speculators are not evaluating Ethereum’s competitors in a timely manner based on their fundamentals. They are evaluating their fundamentals because they may be shaken in the future.

If Ethereum is some kind of guidance, then the fundamentals may change very quickly. 18 months ago, Ethereum settled less than $1 billion in transactions per day, stored less than $20 billion in assets, and only hosted hundreds of applications with any activity (if any). 18 months later, supported by breakthrough applications, incentive-driven growth, and one of the strongest bull markets in the history of the industry, the ecosystem has grown by nearly two orders of magnitude. Can Ethereum’s competitors replicate this growth in the next 18 months? Can they even grow faster? This is the bet of smart contract speculators.

Start and end

The battle for smart contract platforms: Ethereum cannot enjoy this trillion-dollar "big pie"

As all major smart contract platforms enter the main network and the application ecosystem begins to develop on each platform, and bridges for asset transfer between them are established, the smart contract war has entered a new stage. It is no longer necessary to theorize the competitiveness of one platform relative to another; the competition for users, developers, and funds is in full swing.

Given Ethereum’s many years of leading edge and the often-flaunted developer network effect, it is not easy to win interest in Ethereum, but competitors are implementing various innovative strategies to achieve this goal. In some cases, this includes introducing a large number of liquidity mining incentives to incentivize users to try their platform and replicate the success of Ethereum’s DeFi Summer in 2020. In other cases, developers incentivize teams to attract liquidity for their applications. In other respects, it is reaching out to developer communities outside of encryption, hosting hackathons, and providing grant funds to builders. In all cases, it is actively pursuing growth, while the window of opportunity is open, and Ethereum has launched its extended solution suite.

So why is all this important?

Uncertainty brings opportunities, and opportunities bring speculation. As the smart contract war begins to enter the next stage, competitors gain share from Ethereum, and the future of the industry and potential trillions of dollars in risks, it is not surprising that speculation in the smart contract field is rampant. And speculation may not disappear anytime soon.

Winner takes all?

The battle for smart contract platforms: Ethereum cannot enjoy this trillion-dollar "big pie"

We have been living in a multi-chain world for some time, and Bitcoin and Ethereum are the two leading forces in this industry. With the emergence of various blockchains throughout the industry, is there still room for a third dominant force? Maybe there is a fourth or fifth one? On the contrary, Ethereum may not only be enough to defeat all other smart contract platforms, but also replace Bitcoin as the industry’s leading store of value? The answer ultimately depends on the ultimate degree of specialization of the blockchain and ultimately becoming a dominant smart contract platform that provides services for most of the use cases of the blockchain.

This answer has a major impact on how the trillion-dollar cake will eventually be shared among the leading blockchains. The crypto economy with a few dominant blockchains is no different from our world today with 5 technology companies (Apple, Amazon, Microsoft, Google, Facebook) with a market capitalization of more than $1 trillion. Perhaps this model is also applicable to blockchains, as they are continuing to become more integrated with each other, and many provide features that are not available on other chains due to design trade-offs. We may eventually find that the value created by these chains together is greater than the value created by them individually. If this is indeed the direction we are heading, then there are incredible opportunities among Ethereum’s competitors, which provides more reasons for the industry to attract so much speculation. Not only is it possible for a competitor to replace Ethereum as the first place, but there may also be room for more than one person to reach the top of the list.

Ethereum is like a magnet

In the remaining time of this bull market, the valuation of Ethereum may continue to be a magnet for competing smart contract platforms-a constantly changing target pricing becomes the value of the industry’s first smart contract platform. Competitors will continue to set their prices relative to Ethereum based on their absolute and relative growth prospects. Likewise, as the market continues to heat up and popularity rises, investors may continue to be willing to pay more for this growth.

Ethereum may continue to be the dominant platform, and everyone else is catching up. It may continue to be the home base for all grassroots innovations. Continue to be the birthplace of DeFi and NFT. It may be the first to attract institutional participation at the application level. It may be the first company to achieve mass retail adoption through the integration of exchanges and brokers. In all these areas, Ethereum will continue to have an advantage over its competitors with its large and diverse developer community, tried-and-tested protocols, and vibrant community.

But its competitors will continue to advance in parallel. As long as this pie is growing and there are trillions of dollars in risk, speculation will continue to be the core of the smart contract field.



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.

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