Winner takes all? Market speculation and public chain war

A quick overview of the core ideas

Editor’s note: This article elaborates on the underlying speculative logic of the new public chain that has exploded rapidly in recent months, namely:

1. The time window created by Ethereum’s congestion;

2. The top public chain looks at the trillion-level valuation space in the long-term;

3. Compared with the past, the new public chain now has a richer means of competition;

4. Winner-takes-all may not be the end, even if it cannot surpass Ethereum, the top few in the industry will enjoy huge valuation growth;

5. This war will not end in the short term. Even if there is a bubble, it may be more difficult to be falsified quickly.

“This chain is not used at all. Compared with Ethereum, the valuation of this ghost chain is too outrageous.”

-A comment on Twitter

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

Editor’s note: Smart contract platform-the public chain we often say, such as Ethereum, BSC, Solana.

Today, the smart contract platform has once again become the center of speculation, but this time it is a little different. Unlike the wave of speculation on smart contract platforms in the previous cycle, smart contract platforms are no longer just a “world computer” idea. They are an active ecosystem composed of users, capital, and applications, which together drive trillions of dollars. Economic activity. Ethereum is in a leading position in this regard. It has now acquired more than 700 billion U.S. dollars in assets, has more than 2.5 trillion U.S. dollars in transactions per quarter, and runs thousands of decentralized applications. In return, the market value of Ethereum has reached a record high of US$450 billion in recent months.

But in this hurricane rush, Ethereum is not alone.

Since Ethereum is at a critical point in its expansion roadmap, its performance has struggled in the face of increasing user demand, which has opened a window of opportunity for other public chains. Relying on the promise of scalability, the opponents of those smart contract platforms have begun to take active actions to attract users to their own chains through the optimization of user experience and various incentive policies. As the gas cost of Ethereum continues to soar, the activity on the chain of these competitors has increased significantly. Unsurprisingly, as the dominance of Ethereum has been challenged and questioned, speculators have bought the tokens of these competing platforms.

Winner takes all? Market speculation and public chain war

Trends in the market value of public chain platforms

However, as many people have pointed out, price movements do not always represent value. Even if the activity of Ethereum’s competitors increases significantly, they are still only a small part of Ethereum. So small that you start to wonder: Are the valuations of these public chains reasonable? Why is the market value of some competitors’ tokens in the double-digit percentage of Ethereum, but their relative active percentage is only in the single digits?

Editor’s note: The active behavior (original activity) mentioned here refers more to the amount of funds and activity volume applied on the chain, rather than active indicators such as active addresses and transfers. Otherwise, the number of active addresses and transfers of BSC is much higher than that of Ethereum , and the number of transfers of Polygon is also higher than that of Ethereum.

Winner takes all? Market speculation and public chain war

TVL trend of public chain

Exploration of the valuation of speculation and smart contract platforms

Valuation Science

First of all, there is currently no consistent valuation model for smart contract platforms. The native tokens of these platforms have multiple inherent properties that make them different from any assets that existed before. In many respects, they are similar to currencies because they are the main value store and transaction medium in their economic ecology. In other respects, they are like equity because investors have requirements for the fees they earn from processing transactions. In other respects, they are like commodities because they are necessary resources for the operation and calculation of smart contracts on the chain. This combination of internal attributes allows them to surpass the value of the three types of traditional assets, and provides a variety of internal driving forces for their valuation to rise. But this also makes them extremely difficult to value, especially considering that these projects are still in the early stages and facing an uncertain future.

Nevertheless, investors are still trying to use a comprehensive quantitative and qualitative approach to absolute and relative valuation of these assets. They agree on one thing: no matter which smart contract platform ultimately wins, it will be worth a lot of money (trillions of dollars).

Winner takes all? Market speculation and public chain war

The intrinsic value triangle of public chain tokens

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

Fundamentals usually involve quantitative factors (KPIs): such as lock-in total value, transfer amount and fees; qualitative factors include: competitive advantage, developer interest, and community level. The evaluation of these fundamental elements is based on the past history on the one hand, and on the other hand, on the basis of looking forward, to make predictions about potential. 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 looking forward, and the future value that an asset will create is the core driving force for its valuation.

Editor’s note: KPIs is the abbreviation of Key Performance Indication, which is the core evaluation standard for the performance of a system or person.

Investment willingness also involves both quantitative and qualitative dimensions. It determines how much investors are currently willing to pay for the fundamentals of the future “X” years. This is more like an art than a science, and is affected by the price of the reference asset (relative valuation), macroeconomic conditions, market sentiment, narrative, memes (huge influence), etc.

So how should these be applied to the investment of smart contract platforms?

Remember the sentence I quoted about the evaluation of the smart contract platform at the beginning?

“This chain is not used at all. Compared with Ethereum, the valuation of this ghost chain is too outrageous.” A comment on Twitter said.

Well, this sentence is wrong because, as we said earlier, the market looks forward rather than backward. Speculators do not base their valuations on the current fundamentals of Ethereum’s competitors. They base their valuations on the fundamentals they may have in the future.

If Ethereum is used as a reference, the fundamentals will 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 ran hundreds of applications with active users (if the users were real). 18 months later, supported by the birth of breakthrough applications, the growth driven by incentives, and the support of one of the strongest bull markets in the history of the 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 it even grow faster? This is what smart contract speculators are betting on.

Midfield battle

With the mainnet launch of all major smart contract platforms, 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. There is no need to elaborate on the competing intentions between platforms, and the competition for users, developers, and funds is in full swing.

In view of Ethereum’s many years of leading edge and the often-flaunted developer network effect, it is not easy to compete for attention from Ethereum, but competitors are implementing various innovative strategies to achieve this goal. Some examples include the introduction of a large number of liquidity mining incentives to incentivize users to try their platform and try to replicate the success of Ethereum’s 2020 “DeFi Summer”. In other cases, public chain projects provide subsidies to developers to help their applications attract liquidity. In other respects, it is reaching out to developer communities outside the crypto world, hosting hackathons, and providing donations for builders. In all these examples, public chains are aggressively pursuing growth. The window of opportunity is still open, although Ethereum has also launched a combined solution for its expansion.

Ask again, why is all this important?

Uncertainty brings opportunities, and opportunities bring speculation. As the smart contract war begins to enter the next stage, competitors are taking risks to compete for market share from Ethereum, the future of the industry, and the trillion-dollar market value. In this case, the valuation of the smart contract field appears to be It’s not too strange how wild it is. And this situation may not disappear soon.

Winner takes all?

Winner takes all? Market speculation and public chain war

We have been living in a multi-chain world for some time, and Bitcoin and Ethereum are the two dominant forces in this industry. With the emergence of various blockchains throughout the industry, is there still room for a third force? Maybe there is a fourth or fifth one? In other words, is it possible for Ethereum to defeat all other public chains, and even replace Bitcoin, taking away its position as the core value store of the industry? The answer depends on the ultimate degree of specialization of the blockchain and the extent to which the dominant public chain ultimately covers the blockchain scene.

This answer will have a major impact on how the trillion-dollar cake will eventually be distributed among the leading public chains. The crypto economy composed of a few dominant public chains is no different from today’s world where we have 5 technology companies (Apple, Amazon, Microsoft, Google, Facebook) with a market value of more than $1 trillion. Perhaps this model is also applicable to blockchains, because on the one hand, they are continuing to become easier to combine with each other, and on the other hand, they have designed many functions that are not available on other chains. We may eventually find that the value created by the combination of these public chains is greater than the value created by them alone. If this is indeed the future direction, then there are amazing opportunities among Ethereum’s competitors, which provides a more sufficient reason for the industry to attract so much speculation: a competitor may not only replace Ethereum as First place, and there may be enough space for more than one public chain to reach the top.

Ethereum : Valuation Magnet

In the remaining time of this bull market, the valuation of Ethereum may continue to be the valuation magnet of competitors-a constantly changing reference market value, that is, the value of becoming the industry’s first smart contract platform. Competitors will continue to price Ethereum based on their absolute and relative growth prospects. Similarly, 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 maintain its leading position while 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 public chain to attract institutional participation at the application level. It may be the first project to rely on the integration of exchanges and brokers to reach C-end users on a large scale. In all these areas, Ethereum will continue to stay ahead of its competitors with its large and diverse developer community, tried-and-tested protocols, and vibrant user community.

But its competitors will also go hand in hand. As long as the market is still growing, as long as the trillion-dollar opportunity still exists, speculation will continue to be active in the core area of ​​smart contracts.


Editor’s note: This article elaborates on the underlying speculative logic of the new public chain that has exploded rapidly in recent months, namely:

1. The time window created by Ethereum’s congestion;

2. The trillion-level valuation space of the head public chain;

3. Compared with the past, the new public chain now has a richer means of competition;

4. Winner-take-all may not be the end, even if it cannot surpass Ethereum, the top few in the industry will enjoy huge valuations;

5. This war will not end in the short term. Even if there is a bubble, it may be more difficult to be falsified quickly.

The benefits and risks of this speculative wave are huge, but whether it has surpassed the ability circle of most value investors and what posture should we participate in? This is a question we have been thinking about.

What do you think?


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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