The battle for smart contract platforms has entered a new stage. How do you view the competition faced by Ethereum?

“No one is using this chain. Compared to Ethereum , this ghostly chain should not be valued that high.”-A sentence I heard by chance on Twitter.

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

Today, the smart contract platform has once again become the center of speculation, but this time there has been a turning point. Different from the previous cycle, smart contract platforms are no longer just the ideas of the world’s computers. They are an active ecosystem composed of users, capital, and applications, which together drive trillions of dollars in economic activities .

Ethereum has led this trend . At present, the Ethereum network protects more than 700 billion U.S. dollars in assets, with quarterly transactions exceeding 2.5 trillion U.S. dollars and hosting thousands of applications. In recent months, the market value of Ethereum once reached $450 billion, a record high.

But in this surge, Ethereum is not the only one .

As Ethereum is currently at a critical stage in its expansion roadmap and striving to support the ever-increasing user needs, the window of opportunity has opened. Through its promise of scalability, other competing smart contract platforms have actively promoted attracting users to their own chains, providing improved user experience and incentives.

In the past few months, as the price of Ethereum Gas has continued to soar, these competitive smart contract platforms have ushered in a significant increase in on-chain activity . Unsurprisingly, as Ethereum’s dominance has been challenged, speculators have poured into the corresponding tokens of these competing platforms.

The battle for smart contract platforms has entered a new stage. How do you view the competition faced by Ethereum?

Above: Since January 2020, the market value of major smart contract platforms has changed. Source: Messari

However, as many people have pointed out, price movements are not always an indicator of value. Even if the on-chain activity of these competitors of Ethereum has increased significantly, it is still only a small part of the activity on Ethereum : small enough You may ask, are the valuations of these competitive chains really reasonable? Why does the market value of some competing chains have reached the double-digit percentage of Ethereum’s market value, but the amount of activity on their chains only accounts for the single-digit percentage of Ethereum?

The battle for smart contract platforms has entered a new stage. How do you view the competition faced by Ethereum?

Above: Since June 2020, the growth of total value (TVL) locked in major smart contract platforms. In terms of the total value of TLV, Ethereum still dominates, and other chains still have a big gap with Ethereum . Source: Messari

Explore the valuation of speculation and smart contract platforms to understand why.

Valuation 101

First of all, people have not yet reached an agreement on the valuation framework of the smart contract platform. The native assets of these smart contract platforms provide a unique combination of attributes, which 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 own economy; In many ways, they are also like equity , because by staking these assets and processing transactions in these chains, you can get the expense income denominated in these original assets; in many ways, they are also like commodities , because you can get them by holding them. Access to calculations on the chain.

This combination of attributes gives these native assets the attributes of all three asset superclasses and drives the value of these native assets . But it also makes their valuation extremely difficult , especially considering that these projects are still in such an early stage, face an uncertain future.

Nonetheless, investors still try to value these assets to the maximum extent with absolute and relative values, using a combination of quantitative and qualitative measurement methods. One thing they all agree on is that no matter which smart contract platform ultimately wins, it will be worth a lot (several trillions of dollars) .

The battle for smart contract platforms has entered a new stage. How do you view the competition faced by Ethereum?

At the most basic level, investors’ valuation of assets is based on two factors: fundamentals and willingness to pay .

Fundamentals usually include quantitative factors (KPIs), such as total lock-up value (TVL), transaction volume, and transaction fees, as well as qualitative factors , such as competitiveness, developer interests, and community. The evaluation of these fundamentals is not only based on reviewing the historical situation (thereby understanding its historical performance), but also on the basis of looking ahead (thereby understanding its potential future performance). Historical performance allows us to know the source, and future performance allows us to peek into the future. The market always looks forward, and the future value that an asset will create is the driving force for its valuation .

The willingness to pay also involves quantitative and qualitative factors. The willingness to pay determines how much investors are now willing to pay for the fundamentals of the next X years. In terms of willingness to pay, this is more like an art than a science. It is affected by factors such as direct data comparison (relative valuation) of different assets, macroeconomic conditions, market sentiment, narratives, and memes.

So, how does this apply to smart contract platforms?

Remember the introduction about the smart contract platform at the beginning of this article?

“No one is using this chain. Compared to Ethereum, this ghostly chain should not be valued so high.”-A sentence I heard by chance on Twitter.

This sentence is wrong because, as we already know, the market looks forward rather than backward . Speculators are not valuing these competitors of Ethereum based on current fundamentals, but on their possible fundamentals in the future .

If Ethereum can provide us with any guidance, the fundamentals may change soon . 18 months ago, Ethereum’s daily settlement of transactions was less than US$1 billion, the assets stored on the chain were less than US$20 billion, and there were only hundreds of applications under custody. Driven by incentives and supported by the strongest bull market in the history of the crypto industry, the Ethereum ecosystem has grown by nearly two orders of magnitude.

Can Ethereum’s competitors replicate this growth in the next 18 months? Can they grow faster? This is the bet that smart contract speculators are making.

A new stage in the battle of smart contract platforms

As all major smart contract platforms have entered the main network and launched, the application ecosystem is beginning to develop on these platforms, and the bridges (the so-called “cross-chain bridges”) for transferring assets between them have been launched, smart contract platforms The battle has entered a new stage . We no longer need to theoretically analyze the competitiveness (pros and cons) of one platform relative to another; the competition between these platforms for users, developers, and funds is in full swing.

Considering that Ethereum has many years of leading advantages and the often mentioned developer network effect, it is not easy to win user interest from Ethereum, but Ethereum’s competitors are implementing various creative strategies to do this.

In some cases, these incentives include the introduction of a large number of liquidity mining incentives to incentivize users to try their platform and replicate the success of Ethereum’s summer 2020 DeFi; in other cases, it is the application developer team Provide incentives to attract users to provide liquidity ; in addition, it also includes establishing contacts with developer communities outside of the encryption field, holding hackathons, and providing grant funds for developers . As the current window of opportunity has opened and Ethereum is launching a complete set of expansion solutions, all platforms are actively seeking growth.

So why is all this important?

Uncertainty brings opportunities, and opportunities bring speculation . As the battle of smart contract platforms begins to enter the next stage, competitors are trying to get a share from Ethereum. In addition, the future of this industry and the potential market value of trillions of dollars are facing a critical moment, and speculative activities in the field of smart contracts have changed. It’s not surprising that it has flooded, and it may not disappear anytime soon.

Winner takes all?

The battle for smart contract platforms has entered a new stage. How do you view the competition faced by Ethereum?

We have been in a multi-chain world for some time, and Bitcoin and Ethereum are still the two dominant forces in this industry. With the emergence of various blockchains in all walks of life, will there be a third dominant force? Maybe there is a fourth or fifth force? Or maybe Ethereum is not only enough to defeat all other smart contract platforms, but will also replace Bitcoin as the main store of value in the crypto industry?

The answer depends on the ultimate degree of specialization of the blockchain and the extent to which it will eventually form a dominant smart contract platform to provide services for most of the use cases of the blockchain.

This answer will have a major impact on how the leading blockchain platforms will eventually share the trillion-dollar cake. An encrypted economy composed of a few dominant blockchains will not be different from the world we live in today . You must know that there are already 5 technology companies (Apple, Amazon, Amazon, Microsoft, Google, Facebook). Perhaps this model is also applicable to blockchains, considering that they are becoming easier to combine with each other, and many blockchains provide functions that other blockchains cannot provide due to design trade-offs. We may eventually find that these blockchains together create more value than they each create .

If this is indeed the direction we are heading, then there are a lot of opportunities among Ethereum’s competitors, which also provides more reasons for attracting so much speculation in the field. Not only is it possible that a certain competitor will defeat Ethereum, but it is also possible that multiple smart contract platforms jointly occupy the top spot.

Ethereum is like a magnet

In the remaining time of this bull market, the valuation of Ethereum may continue to be a “magnet” that attracts other competing smart contract platforms. They set Ethereum as a goal to assess the value of the industry’s first smart contract platform. These competitive platforms will continue to be priced relative to Ethereum based on their absolute and relative growth prospects. Similarly, as the market continues to heat up and market sentiment rises, investors may continue to be willing to invest more for this growth.

Ethereum may continue to be the dominant platform, with all other competing platforms catching up . It may continue to be the home of all grassroots innovations, and continue to be the home of DeFi and NFTs; it may become the first smart contract platform to attract institutional participation at the application level, or it may be the first through exchanges and brokerage businesses. Integration to achieve mass adoption platform. 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. Moreover, as long as the cake in the field of smart contracts is still growing, and smart contract platforms have the potential to grow to trillions of dollars, speculation will remain at the core of the field of smart contracts.

Written by: Ryan Watkins, Messari analyst


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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