New Public Chain Wars: The Path to Breakthrough Comes from Top-Down

Abstract

1. The expansion of new public chains is a top-down path: from upper-layer applications to underlying technologies, and from the prosperity of ecological applications to the explosion of public chain use cases.
2. Changes in market capitalization proportions reflect the divergence between Bitcoin's native narrative and the numerous new public chain narratives, as well as the voting of new funds from groups and institutions on fundamentalism and new consensus.
3. When the ecosystem reaches a scale, the expansion path that allows the ecosystem to output to the outside world becomes the final proposition. User retention and developer friendliness are the lifeblood of continuous updates in the ecosystem, and the resulting endogenous protocol innovation and differentiation of public chains will become the driving force for the long-term development of the ecosystem.
4. The enthusiasm for new public chains is an evolution of the existing blockchain architecture rather than a denial of the native system, just as productivity innovation, transparency of production relations, and fully competitive freedom are the original driving forces for the development of the crypto world.

Introduction

Let’s imagine a city: wide roads, complete facilities, yet empty. This is the picture of the awkward phase of early public chain development, whether due to excessive focus on the "impossible triangle" game or a fascination with the arms race of TPS, neglecting the support for developing ecological applications, inevitably leading to the construction of a well-equipped but uninhabited empty city.

John Carmack, the father of FPS and a technical genius, once admitted: technology is always born for products, and only then will it consider whether it can be used for other purposes. The focus of research and development should be on actual products, rather than technical architecture or concepts. Considering the universality of technology and long-term planning too early rarely brings real value and may hinder later development.

Number of protocols on various public chains, data source: Footprint Analytics

Bringing John Carmack's thoughts into the blockchain industry, we can still find: the evolution of the DeFi paradigm drives the value discovery of Ethereum smart contracts and the burning of EIP-1559, the activity of GameFi transmits the prosperity of data on Binance Smart Chain, and the once-popular CryptoKitties led to Ethereum's paralysis, guiding the Dapper Labs team to build Flow, while the leading blockchain game Axie, after achieving a hit, also issued the Ronin public chain based on its own ecosystem…

Thus, it can be deduced that the expansion of new public chains is a top-down path: from upper-layer applications to underlying technologies, and from the prosperity of ecological applications to the explosion of public chain use cases.

TVL of various public chains as of November 19, data source: Footprint Analytics

This article will explore the breakthrough path of new public chains, divided into the following three sections:

• Ethereum Layer 2 scaling solutions and representative EVM-compatible public chains, taking Avalanche, Fantom, and Polygon as examples;
• New multi-chain ecosystem representatives, taking Solana and Terra as examples;
• Distinctive new public chains, taking Arweave, Mina, and Shimmer as examples.

Through solutions and data arguments, we will deduce the value potential of new public chains. At the same time, we will sort out the development logic of new public chains from applications to underlying layers, explaining how to better utilize the mutual empowerment of ecology and technology.

History of EVM Expansion

Among all public chains, Ethereum, which accounts for 65% of the total TVL, has a leading advantage in the industry. The Ethereum ecosystem includes a complete smart contract architecture, a large developer community, and continuously pioneering concepts and application innovations.

TVL share of various public chains as of November 19, data source: Footprint Analytics

In the context of network congestion, limited block sizes, and excessive Gas fees, solving trust issues with Layer 1 and performance issues with Layer 2 seems to be the best solution for the current Ethereum ecosystem. On November 21, Ethereum founder Vitalik also expressed gratitude in the Arbitrum community for its contributions to the core development of Ethereum Layer 2.

Therefore, many new public chains choose to connect through Ethereum sidechains or EVM-compatible forms, leveraging Ethereum's existing ecological advantages through quick module calls and developer-friendly environments.

• Avalanche

Avalanche ecosystem map, data source: @avalancheavax

The Avalanche protocol released its white paper in 2018 and received $6 million in funding from institutions such as a16z and Polychain. After completing $12 million in private and public financing in 2020, it launched its mainnet in September and has recently gained industry attention again due to its outstanding market performance.

Avalanche is a smart contract platform based on the PoS mechanism and compatible with EVM, using a unique random sampling and metastable consensus protocol that only requires a majority comparison among N nodes without needing full network verification, thus achieving high-performance transactions and settlements in seconds.

Structure design of Avalanche

In terms of structural design, Avalanche innovatively adopts a three-chain architecture, achieving horizontal scalability and liberating network performance through the functional division of three chains: the Exchange-X chain is responsible for asset creation and trading; the Platform-P chain is the metadata chain, responsible for platform governance, node settings, and subnet creation, currently having 1,178 validators/nodes; the C chain is responsible for EVM-compatible smart contract functionality.

Avalanche has a total supply of 720 million tokens, with a current circulation of over 377 million tokens. On November 21, AVAX was priced at $138, with a 30-day increase of 124%, and a circulating market cap of $30 billion, ranking 10th among mainstream digital assets. In terms of TVL, there is currently about $12.9 billion in on-chain funds, and as the price of AVAX rises, the TVL continues to climb, with daily transaction numbers reaching around 170,000.

Top projects and TVL situation on Avalanche, data source: Footprint Analytics

Avalanche's TVL saw a significant leap since the announcement of the "Avalanche Rush" plan on August 18, which initiated a liquidity mining incentive program with a total value of $180 million. Before the announcement of this plan, the TVL on Avalanche was only $265 million. A month after the plan was announced, the TVL reached $3 billion, achieving more than tenfold growth within 30 days.

At the same time, the opening of the Ethereum cross-chain bridge Avalanche Bridge (AB), the successive layout of mainstream DeFi protocols such as Aave, Curve, and SushiSwap on Avalanche, and the continuous rise in AVAX prices have all provided ample momentum for the growth of TVL. Currently, there are 72 protocols running on Avalanche, with 6 of the top 10 TVL protocols being exclusive to the Avalanche ecosystem, including representative projects like Trade Joe (DEX), Benqi (lending), and Wonderland (Stake).

• Fantom

Fantom ecosystem map, data source: @FantomFDN

Fantom was founded in January 2018 by Korean developer Byung Ik Ahn and is a smart contract platform based on DAG (Directed Acyclic Graph), characterized by the more nodes added, the higher the network scalability and efficiency. A milestone in Fantom's development was its compatibility with the Ethereum Virtual Machine (EVM) at the end of 2019, allowing developers to quickly port Ethereum-based dApps to Fantom's Opera mainnet thanks to its modular configuration.

Fantom's TVL changes and mainstream project proportions, data source: Footprint Analytics

Fantom has a total supply of 3.175 billion tokens, with a current circulation of 2.54 billion tokens. On November 21, it was priced at $2.04, with a 30-day decrease of 8.4%, and a circulating market cap of over $5.1 billion, ranking 41st among mainstream digital assets. Currently, 71 protocols on Fantom have brought it a TVL of $4.8 billion, with Anyswap, Geist Finance, and Spookyswap as the top three protocols contributing $230 million, $100 million, and $54 million in TVL, respectively. Fantom's TVL has seen a 70-fold increase over six months, and besides its own DAG architecture and EVM compatibility, there are two unique reasons for the rise of the Fantom ecosystem:

Andre Cronje - founder of yearn.finance, chief DeFi architect of Fantom

First, Fantom is better known for its "chief DeFi architect" Andre Cronje, who, as the founder of yearn.finance, endorsed Fantom and led "AC series" projects to successively integrate into Fantom, such as Keep3r, Cream, Sushiswap, Yearn, etc. The celebrity effect has brought considerable traffic and capital tilt to the development of the Fantom ecosystem.

Second, the Fantom Foundation announced on August 30 that it would invest 370 million FTM to incentivize ecological development, with nearly $260 million allocated to reward ecological applications with locked TVL exceeding $200 million. It is evident that after the announcement of this plan, both Fantom's market cap and TVL began to break through comprehensively.

• *Polygon

Polygon ecosystem map, data source: @0xPolygon

In 2017, three blockchain developers from India co-founded Matic, using off-chain computations of sidechains to provide scalability solutions for Ethereum, and announced its rebranding to Polygon on February 10 this year. Polygon is EVM-compatible, supports Ethereum developers to migrate quickly, and uses Plasma off-chain scaling and PoS mechanisms to ensure asset security, often referred to as the "Indian version" of Ethereum.

Polygon's technical structure developed around Ethereum

Polygon's mainnet went live in May 2020, with a total supply of 10 billion tokens and a current circulation of over 6.8 billion tokens. On November 21, it was priced at $1.61, with a 30-day increase of 7.4%, and a circulating market cap of $11 billion, ranking 20th among mainstream digital assets. Polygon has 114 million unique addresses, a 40-fold increase compared to its size six months ago. In terms of TVL, there is currently about $4.6 billion in on-chain funds, but it has shown a continuous decline over the past three months.

Top 16 projects by TVL on Polygon and their proportions, data source: Footprint Analytics

At the same time, most of the top ten projects by TVL are mainstream DeFi asset protocols, with only three being exclusive to Polygon. The continuous emergence of competing new public chains and the lack of independent star projects for differentiated competition pose challenges for the long-term stable development of the Polygon ecosystem.

Network Effects of New Ecosystems

A new public chain battle is half a history of EVM expansion. The large ecosystem of Ethereum and the Matthew effect are pressures for the development of other emerging public chains, but the congested network and high interaction costs of Ethereum also provide them with opportunities for breakthroughs.

Metcalfe's Law is a law about the value of networks, stating that the more users a network has, the greater the value of the entire network. The wind rises at the edge of the green, and the multi-chain ecosystems represented by Solana, Avalanche, and Terra are building their own network effects. This differentiation of multi-chains is also the driving force for the continuous innovation and advancement of the industry as a whole.

• Solana

Solana ecosystem project map, data source: @SolanaProject

Solana was established in 2017, and founder Anatoly Yakovenko, a former Qualcomm engineer, chose to launch the Solana mainnet at the market bottom after the stock market crash in March 2020: "It was an interesting time because it was below everyone's expectations." After announcing a $314 million funding round led by a16z and Polychain in June this year, Solana's ecosystem has made further leaps, with nearly 500 projects built on Solana, covering DeFi, Web3 applications, games, and NFTs.

Solana aims to create a decentralized, high-performance, and scalable public chain: its core technological innovation is the use of the PoH historical proof mechanism, which eliminates the need for node broadcasting for timestamps through a decentralized time clock, controlling the average block time to 500 milliseconds; the network has 1,207 validating nodes; its high scalability also keeps transaction costs for developers and users below $0.01, with over 40 billion transfers completed.

Solana has a total supply of 500 million tokens, with a current circulation of over 300 million tokens. On November 21, SOL was priced at $213, with a 30-day increase of 13%, and a circulating market cap of $64 billion, ranking 5th among mainstream digital assets. In terms of TVL, there is currently about $15 billion in on-chain funds, and it continues to rise.

Top 10 projects by TVL on Solana and their proportions, data source: Footprint Analytics

Compared to other new public chain ecosystems, Solana's uniqueness and differentiation are evident, having formed its own system within the ecosystem, with Serum and Raydium (DEX), Saber (AMM), and Marinade (Stake) as representatives. All top ten projects by on-chain TVL are exclusive to the Solana ecosystem. The endorsement and resource support from FTX are important driving forces for Solana's development, with FTX's investment institution Alameda Research and the Solana Foundation being the main investors in Solana ecosystem projects. At the same time, SBF's personal influence and the continuous hosting of hackathons by Solana have attracted a large number of excellent developers, continuously injecting fresh blood into the ecosystem.

• Terra

Terra ecosystem project map, data source: @Terrians_

Terra was launched in 2018 and received $32 million in investments from institutions such as Binance and Polychain in August of the same year. Terra is developed based on the Cosmos SDK framework and aims to provide a set of price-stable and widely adopted algorithmic stablecoin systems. Terra has two main endogenous assets: Luna, which is responsible for governance and staking, and TerraUSD (UST), which is an algorithmic stablecoin pegged to the US dollar, along with other pegged currencies. Each UST worth one dollar requires the burning of an equivalent amount of Luna, achieving a dynamic balance through an arbitrage mechanism to keep UST pegged to the dollar.

The use cases for the stablecoin UST are divided into on-chain and off-chain: Off-chain, Terra connects the crypto world with offline payments through the mobile payment application Chai, which is regulated by the South Korean government. Currently, Chai has a total of 2.5 million users, accounting for 5% of South Korea's total population, with a daily transaction volume of 68 million Korean won. Similar applications include Kash, MemePay, PayWithTerra, and BuzLink. On-chain, the continuously developing protocol applications in the Terra ecosystem, such as Anchor (lending), Mirror (synthetic stocks), and Terra (DEX), all rely on UST as the native stablecoin. The rising demand for the stablecoin UST will directly increase the consumption of Luna, and as the market cap of UST grows, the price of Luna will also rise.

Top 10 projects by TVL on Terra and their proportions, data source: Footprint Analytics

Luna has a total supply of 870 million tokens, with a current circulation of over 390 million tokens. On November 22, Luna was priced at $42.3, with a 30-day increase of 5.9%, and a circulating market cap of $17.3 billion, ranking 14th among mainstream digital assets. In terms of TVL, there is currently about $10 billion in on-chain funds, and it continues to rise. At the same time, the stablecoin TerraUSD (UST) issued by Terra currently has a market cap of over $7.1 billion, ranking 5th in the stablecoin sector.

On July 7, Terra officially announced the launch of a $150 million ecological fund to support projects built on the Terra ecosystem. Currently, among the top ten projects by TVL in the Terra ecosystem, eight are exclusive to the Terra ecosystem, including the synthetic stock protocol Mirror and the high-yield lending protocol Anchor, which are expanding the application scenarios of UST. Payment applications like Chai are gradually constructing a moat for the UST ecosystem, and the adoption of UST across different chains is also extending the Terra ecosystem outward.

Born for Applications

In addition to the already scaled Ethereum Layer 2 and new multi-chain ecosystems, the massive TVL and nearly a hundred protocols are their characteristics. Additionally, there are some ecosystems still under construction but with distinct functional applications in new public chains, playing a role in the crypto world in their respective application fields.

• Mina: Privacy and Lightweight

Mina aims to become a lightweight blockchain, using Zk-Snarks zero-knowledge proof technology as the underlying layer, keeping the node size at 22 KB, while other blockchains often have sizes around 20 GB. This lightweight design does not require complex computer hardware, allowing anyone to easily run a node and maintain network security.

Mina has a total supply of 870 million tokens, with a current circulation of over 300 million tokens. On November 22, Mina was priced at $4.4, with a 30-day increase of 5.5%, and a circulating market cap of $1.3 billion, ranking 105th among mainstream digital assets.

The lightweight node design allows Mina to maximize decentralization. It can also serve as an application plugin, collaborating with other public chains on privacy applications through bridges or middleware. It is expected that after the developer toolkit SDK is launched next year, developers will be allowed to deploy Snapps and start building the Mina ecosystem.

Currently, Mina has announced collaborations with the Ethereum Foundation, Polygon, and Teller Finance on privacy protection applications, and Mina Foundation member Tess Rinearson is leading the crypto technology team formed by Twitter.

• Arweave: Permanent Storage

Arweave ecosystem project map, data source: @joselitommutuc

Arweave was launched in 2017, with its mainnet going live in June 2018, and in 2019 and 2020, it successively received $5 million and $8.3 million in funding led by a16z. The core feature of Arweave is decentralized permanent storage, charging users a one-time prepayment fee for permanent storage based on the declining storage costs over the years, using a simple proof of random access (SPoRA) to incentivize nodes to permanently store data.

AR has a total supply of 66 million tokens, with a current circulation of over 50 million tokens. On November 22, AR was priced at $60.8, with a 30-day increase of 11%, and a circulating market cap of $3 billion, ranking 63rd among mainstream digital assets.

Amid the prosperity of the NFT industry, Web 2.0 storage providers are vulnerable, and there are cases of NFTs disappearing from the network. Therefore, many popular NFT projects choose Arweave as their storage layer, aiming for permanent storage. The market anticipates that Arweave will become the foundational storage layer for the future metaverse, and the high demand for storage has directly contributed to the exponential growth of Arweave's protocol revenue and market price.

• Shimmer: IoT + Web 3.0

On November 17, the IoT public chain IOTA announced the launch of the Shimmer test network to help IOTA advance complete decentralization and shard utility optimization. Users can stake IOTA to help launch a new token economy and earn rewards from the newly launched Shimmer network and applications.

IOTA is based on a public distributed ledger using DAG, and its Tangle architecture is designed for smart cities, enabling small payments and machine-to-machine value transfers on the IoT, providing infrastructure for urban IoT through transaction-free services.

As the official incentivized test chain of IOTA, Shimmer will help developers flexibly build dApps through EVM compatibility and composable smart contracts on Layer 2, exploring the development path for future programmable IoT and Web 3.0 public chains based on IOTA's existing ecosystem and IoT technology foundation.

Conclusion

Comparison of mainstream public chain performance, data source: @rareliquid

Summarizing the development paradigms of multiple new public chains, in addition to illustrating the top-down development path from upper-layer applications to underlying technologies and the prosperity of ecological applications boosting the explosion of public chain use cases, we also draw the following conclusions:

• Changes in Bitcoin's market capitalization proportions reflect the divergence between fundamentalism and new public chain narratives: As Bitcoin emerged from its early wilderness, its market capitalization proportion has decreased from the initial 100% to the current 42%. The reason lies in the expansion of the ecological landscape of the crypto world by new public chains and their protocols, as well as the competition for technological advantages and ecological value. The changes in market capitalization proportions reflect the divergence between Bitcoin's native narrative and new public chain narratives, as well as the voting of new funds from groups and institutions on fundamentalism and new consensus.

• The internal circulation of new public chain ecosystems is gradually improving, and the trend of asset decoupling is becoming apparent: The decoupling of new public chains and various conceptual sectors from Bitcoin's assets has become increasingly evident. The maturity and independence of the ecosystem allow them to break through the strong correlation with Bitcoin's price fluctuations. However, the enthusiasm for new public chains is an evolution of the existing blockchain architecture rather than a denial of the native system, just as productivity innovation, transparency of production relations, and fully competitive freedom are the original driving forces for the development of the crypto world.

• Methodological deductions for the overall enhancement of new public chain ecosystems: First, institutional endorsements and celebrity effects in the crypto world will bring industry attention and resource tilt to early public chain ecosystems; then, high ecological incentive policies will drive the rapid initiation of overall TVL in public chain ecosystems, often yielding TVL retention and market cap increases several times higher than the reward amounts, which will also test the public chains' ability to retain and activate assets; when the ecosystem reaches a scale, the final proposition is to expand the ecosystem and protocols outward (to other public chains or the real world), with user retention and developer friendliness being the lifeblood of continuous updates in the ecosystem. The resulting endogenous protocol innovation and differentiation of public chains will become the driving force for the long-term development of the ecosystem.

【References】

John Carmack's keynote speech at the Connect conference.

Data sources: Defillama, Footprint, Coingecko.