Public Chains Market Performance
In 2022, the blockchain world officially went multi-chain. Even though, Ethernet is still the largest and most important platform in Smart Contract public chains, but a large number of applications are not suitable to run on Ethereum due to low performance and high cost.New public chains are taking up this spillover demand for Ethereum with their performance and cost advantages. We can see the price performance on MEXC of the top public chains below.
According to Footprint Analytics, there are now 120 public chains in total, compared with 11 at the beginning of last year, a ten-fold increase.
At the beginning of 2020, Ethereum held 96% market dominance, the hundreds of new DApps in DeFi, NFTs, GameFi, and SocialFi have made the network nearly unworkable on its own because of congestion and fees.
As Ethereum’s market share dropped to 62% by end of 2021, these new chains — both competing against and working with the Ether ecosystem—have become the big story going into 2022.
Whereas, in 2022, Ethereum’s market share got recovered from 62% to 72%, which proves the leading position of Ethereum.
Overview of Public Chain Development
There are 4 types of public chains:
- Layer 1 technology competes with Ethereum by modifying the public chain to improve performance. Layer1 consists of solutions that increase block size or data structure, sharding techniques and segregated witness to achieve increased transaction processing capacity.L1s include public chains like Solana, Avalanche ,Fantom,Cardano,Algorand, Near and Harmony.
The chart above shows the biggest gains of 6 Layer 1 chains in the bull market. The first place is Fantom (FTM) with 30024%, followed by Solana with a maximum gain of 26872%.
- First Tier with 100x Increase: Fantom 30024%, Solana 26872%
- Second Tier: Harmony , Avalanche ,Near and Avalanche, the largest increase is within 100 times.
The chart also shows the the maximum withdrawal of six Layer1 chains; most of them experienced the maximum withdrawal from February to May 2021, and stabilized and rebounded from June to August 2021, with an average withdrawal period of 69 days and an average withdrawal range of 59.9%.
- Sidechains are Ethereum expansions compatible with the Ethereum Virtual Machine (EVM), built mainly to deal with excess traffic on the network. BSC is one of the first ETH sidechains to go online.Polygon network is another top sidechian ,which went live in May 2021.
The chart above shows the biggest gains of BSC and Polygon in the bull market. Polygon(MATIC) led the gain with a maximum of 20836% ,BSC had a maximum gain of 4822%.
However, BNB’s maximum withdrawal was only 36.9% , making it the most resilient public chain in the bull market.
- Layer 2 solutions complement Ethereum by processing partial transactions (called rollups) off-chain. The most popular L2 projects include Arbitrum and Optimistic. Both Arbitrum and Optimistic were launched in late 2021.
- Cross-chians are created to solve the lack ofinteroperability between chains. This is where Polkadot and Cosmos comes in. Both protocols are attempting to build a meta-blockchain that hosts an open network of interoperable blockchains on top of it.
We can see from the chart above that Polkadot(DOT) had a better performance in the bull market with the highest yield of 1744%, whereas Cosmos(ATOM) merely had the gain of 939%.Compared with Layer 1 and Side-chains sectors, Cross chains obviously had worse perfromance. The reason behind this was the slow development and small ecosystem of them.
DeFi grew public chains
Currently, the number of DeFi projects on each public chain is approaching 1,300.
DeFi projects numbers on chains(Source:Footprint Analytics)
After DeFi Summer in June 2020, the demand for Ethereum interactions increased dramatically, leading to a surge in Ethereum Gas. Compound’s liquidity mining blew DeFi off, and in July, token mining named after food took the crypto world by storm with high returns completely igniting the entire crypto space, although the high returns did not last.DeFi was on the rise again in the fourth quarter. At the end of the year, not only a large number of new projects were launched, but the original leading projects were more frequently updated.
Each public chain ecosystem also has projects for DEXs, yield, lending, assets, staking, minting, and more. However, the bulk of their TVL at the moment consists of DEX, lending, and yield.
The blossom of DeFi made the growth of public chains.
NFT and GameFi became another trigger for the blossom of public chains
NFTs and GameFi also emerged as booming trends in 2021 and 2022, and some public chains have emerged specifically to focus on these.
NFT is the largest source of demand for public chains from the second half of 2020 to the first quarter of 2021.In the second quarter of 2021, NFT succeeds DeFi as the second application area that brings a large demand for transactions. With the participation of celebrities, NFT began to spread and go out of business, a large number of investors and projects emerged, and the transaction scale of NFT continued to expand. Ethereum, as the first public chain, has absolute advantages in capital, number of developers and ecological scale, and therefore has the most NFT projects. Meanwhile, other public chain NFT tracks are also developing rapidly. Solana , for example, even bucked the trend with an uptick in NFT volume during the market downturn in May 2021. It is now the second largest NFT ecosystem after Ethereum.
GameFi, which requires higher yields, playability and fluidity, also requires higher performance and lower transaction fees. Ethereum, BSC, Polygon and Fantom are the most popular chains in GameFi in terms of active games per month.
The blossom of NFT and GameFi made the continuous growth of public chains.
The blossom of each public chain
The following paragraphs will analyze the representive public chains from each classification, including Ethereum,Solana, Avalanche ,Fantom,Algorand, Near and Harmony from Layer 1; Arbitrum and Optimistic from Layer 2; BSC and Polygon from side chains; Polkadot and Cosmos from side-chains.
Ethereum
Ethereum ranks second in the crypto market in terms of market capitalization, with a long-term market capitalization of 17% – 22%, which is significant for the whole crypto market. The data in the Etherum Report for the first quarter of 2022 shows that there are 4,011 stable running DApps and more than 7,220 Smart Contracts in Ethereum.
Ethereum is the most advantageous public chain, with a high degree of decentralization and security, a large number of users and a large number of developers. Complete infrastructure (wallet, predictor, developer tools), rich application types, network effect has been formed, with soil for innovation, has been leading the trend of blockchain application:
- （2017-2018）At the end of 2015, Ethereum introduced the ERC20 standard, which eventually led directly to the bull market caused by the lCO launch in 2017. In 2017, the issuance of smart contracts expanded the boundaries of blockchain technology, and blockchain entered the mainstream as the underlying technology. This round of market, Ethereum market value ranked second laid the foundation, and drove the valuation of other smart contract platform and infrastructure sector; In Ethereum ecosystem, the number of DAPP has exploded, and the rising effect of NFT, GameFi and Fork coin shows obvious increase. ETH initially become the anchor target of the altcoin market.
- (2020 – 2021) In this cycle, the total market capitalization of cryptocurrencies reaches up to 3 trillion USD, and the trading volume of Ethernet network exceeds 3.6 trillion USD. Ethereum’s share of market value has risen to about 20% from 11% in early 2021. In this round of market, the rotation within Ethereum ecosysterm includes DeFi (DEX, AMM, liquidity mining, mortgage lending), NFT, Meme, GameFi, Metaverse, etc.
- (2021 – 2022) In the crypto market mini-cycle, NFT and DeFi remain its hype . The market reconstruction of the valuation logic of the public chain has promoted the rising market of the public chain.
In the above process, the projects in each cycle of the Ethereum ecosystem will undergo a shuffle in the bear market, and only 10%-20% of the projects survive and grow to become important blue chip projects and common infrastructure in the next cycle.
With the multi-chain trend, the share of total lock-in value (TVL) on the Ethereum network has diluted, with the landing of Layer 2 expansion solutions. As new public chains continue to divert developers, users, and applications from Ethereum, Ethereum itself has reduced GAS volatility and the rate of ETH accretion through EIP-1559 upgrades.
Solana
The Solana protocol mainnet Beta was launched in March 2020. As of today, there are nearly 2,700 projects on the Solana chain, covering 8 major areas such as DeFi, wallets, NFT, infrastructure, decentralized gaming, and 15 sub-sectors such as stablecoins, DEX, derivatives, etc.
Solana has developed a relatively complete NFT ecosystem, such as project tools and trading markets.It is worth mentioning that Opensea, which previously only supported Ethereum, started to support Solana in April last year.
Due to Solana’s relatively low network fee revenue, it may not be possible to support a cash flow-based valuation model unless dAPP and usage increases or fees increase. Like BNB chains, Solana networks are highly centralized.
With the expansion of the user scale, Solana network showed continuous instability, and there have been multiple crashes that stopped block production.From last year to this year, Solana had multiple crash incidences,the longest time had continued over 30 hours. In the continuous accidents, people began to suspect that Solana’s innovation mechanism did not really solve the “impossible triangle”, but only saved the “efficiency” at the expense of “safety”.
Compared with Web2, the security problem caused by centralization is a main concern in Web3.
Avalanche
Avalanche is undoubtedly one of the brightest public chains in 2021. Its TVL is the biggest gainer in 2021, and its TVL is ranked fourth among all public chains.The Avalanche Foundation launched Avalanche Rush on August 18, a $180 million liquidity mining incentive program, which will be used to incentivize four key areas of the Avalanche ecosystem (DeFi, enterprise applications, NFTs and culture applications), drove Avalanche’s first surge. Since then, the project’s incentive mechanism has been ramped up.
Avalanche supports the development of Ethereum dApps, which confirm several thousands of transactions.The transaction speed is much faster than other blockchain platforms in the market. This is due to a combination of the network’s components, the Virtual Machine, Ethereum’s RPC calls, and much more. This speed enables a much better experience for users overall.
With the TVL of Avalanche and tokens on the chain have grown enormously, it’s easy to lose sight of the underlying strengths, namely security. Ethereum’s Proof of Work has undergone a longer period of validation, while others with Proof of Stake are new and still need time to be verified.
Fantom
After Solana and Avalanche, Fantom has become a hit with DeFi enthusiasts.Over 200 projects built on the network, including those focussing on decentralized trading, lending, and digital collectibles, have contributed to the network’s growth.
While Ethereum is currently the most used blockchain for both DeFi and NFTs, Fantom has positioned itself as one of the most promising scalable Layer 1 platforms offering EVM compatibility. Fantom’s transaction speed isup to 300,000 transactions per second thanks to DAG technology.
Fantom Foundation has also announced its Incentive Program to develop DeFi projects on its network.Fantom network hosts some of the most popular blue chip DeFi protocols, including Ethereum natives like Curve Finance and SushiSwap.
While Fantom’s performance is good, there are not many new projects on Fantom. Any project ecosystem needs a constant flow of fresh new projects to keep growing.
Fantom has only 50, relatively few in Top’s mature public chains. Which results in Fantom’s relatively low global, leaderless, and trustless nature. It means that the decentralization is not high enough to attract DeFi protocols, which affects TVL. Fantom needs to add validators nodes.
Algorand
Algorand is the first publicly-licensed Pure PoS blockchain protocol that is currently the most likely to achieve scalability, security and true decentralization.Performance on the Algorand platform exceeds 1000 transactions per second (TPS) with a latency of fewer than 5 seconds, comparable to the throughput of major global payment networks without compromising security or decentralization.
Algorand has gathered some basic DeFi pieces for its ecosystem, such as AMM DEXs, Lending, Stablecoin, NFT. As a matter of fact, the Algorand DeFi ecosystem is not as developed as that of others, namely Solana or Avalanche.
It can be clearly seen that the DeFi ecosystem of Algorand is still primitive and in its early stages. Some fundamental layers like AMM DEX and Lending have been developed, but that is insufficient for DeFi to boom.
Near and Harmony
Given Ethereum’s scalability challenges, Harmony and Near protocol have both implemented sharding technology to reduce the settlement workload on the base layer. Harmony leverages Random State sharding with a shard size of 250 nodes, while Near protocol uses Nightshade sharding. The former approach not only enables scalability but guarantees security by preventing single shard attacks. Meanwhile, Near protocol’s Nightshade sharding primarily focuses on bundling all the transactions for all shards into one block for settlement.
Harmony’s DeFi projects are concentrated in the DEX category. Lending, yield and other areas are still relatively underdeveloped.
In addition to its scalability solution, Near protocol features a permissionless bridge supporting ERC-20 tokens and solidity smart contracts. Projects built on the Ethereum blockchain can easily integrate with the Near protocol blockchain and access other open web applications.
Arbitrum and Optimisim
Launched in 2021,both of Arbitrum and Optimisim are Ethereum’s Layer 2 networks,which have gained significant attention from crypto users and developers since their launch. According to Footprint Analytics, Arbitrum has contributed 53.41% of all Layer 2 TVL, totaling $2.3 billion as of July 24. Optimism ranks second to Layer 2 TVL, with a market share of 20.78%,totaling $906 million as of July 24.
Arbitrum has just 44 live projects, which are not particularly large. Among them, the DeFi category is dominated by DEX, lending and asset categories.
Arbitrum uses the Optimistic Rollup scaling solution, which enables high throughput and allows developers to deploy and operate smart contracts at low cost, while maintaining trust-free security.Arbitrum has its own virtual machine, Arbitrum Virtual Machine, which reduces its dependence on EVM.
The two biggest challenges that Arbitrum faces are :1. Long wait times for on-chain transactions due to potential fraud challenges; 2. Few ways that the security of funds can be compromised on Arbitrum . Besides, Arbitrum is not currently in a cryptocurrency launch and is still in its early stages and we expect it to continue to enrich its ecosystem and attract more developers and investors.
In Optimism, all transactions are processed through EVM. This explains why Optimism is currently working towards a new fraud proof verification model, to act as an EVM equivalent
Optimism’s ecosystem consists of over 20 dApps, mainly the Synthetix ecosystem.Looking at the types of DeFi projects in Optimism, there is a clear lack of variety with almost all TVL being occupied by DEX.
The reasons behind the slow development of Optimism include:
- Optimism is not 100% EVM compatible
Optimism wants to implement an on-chain smart contract via OVM (Optimistic Virtual Machine) that can accept and execute off-chain EVM-compatible instructions, thus ensuring that the OVM bytecode can be mapped to the EVM one by one. However, this mapping may only be about 20 bytecodes, which makes Optimism not 100% EVM-compatible and slightly more costly to develop.
- Optimism’s whitelisted launch mechanism
The main reason Optimism uses whitelisting is because it wants to create a new fraud prevention system, but it is not an easy task and requires a lot of time and experience.
- The current ‘anti-VC’ culture of the crypto community
Optimism’s growth has been backed by notable VCs, such as Paradigm and a16z. Compared with Arbiturm , the latter is considered to be more grassroots.
Binance Smart Chain
BSC 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 sharp increase in the price of BNB and its derivatives such as CAKE and XVS.
Following the 5.19 crypto market crash, BSC became the most active attack platform for hackers, and 6 attacks occurred in succession. Flash loan was the main attack method, and the amount of loss was generally large, and a significant short-term impact on token price. The euphoria generated by the record high quickly wore off as a series of negative catalysts hit the market, including the $200m Venus liquidation and the $45m PancakeBunny flash loan attack. The increase in exploits drained user confidence and caused token prices and TVL to plummet. From March 2021 to September 2021, the average TVL market share remains around 15%.
The advantage of BSC chain is that it has a large user base and the capital, technical and other support of Binance. The disadvantage is that the network is highly centralized and the ecosystem is heavily dependent on the Ethereum developer community.
Polygon
Polygon, which exploded in April-May 2021, is also EVM-compatible. Polygon is a side chain secondary network residing above the Ethereum blockchain network. Polygon launched a $150 million incentive program at the end of April 2021, in which a $40 million liquidity mining incentive plan was directly introduced to the leading of Ethereum DeFi protocol Aave, and TVL rose by a maximum of 68 times in 2 months.
Polygon is working on a variety of scaling solutions and is entirely focused on the Ethereum network. The platform’s combination of highspeed and low transaction costs is attracting an increasing number of developers. Because of these, Polygon has been steadily growing, with Aave, Curve, Sushiswap, and many other projects on Ethereum deploying on Polygon. But as an Ethereum sidechian, the problem is still the high centralization of nodes. How to bear the trillion or more capital is the main concern in Web3.
Whereas,Polygon network is less secure than Ethereum and too centralized. It opens the door for assets to become lost. For the sake of speed, there are fewer checks and balances in place. Besides, in December 2021, Polygon Network made a completely unannounced hardfork of the project without any news or warnings. A sudden and silent hard fork of the Polygon blockchain caused some concern since it is the largest cryptocurrency
Polkadot and Cosmos
Both Cosmos and Polkadot protocols are attempting to build a meta-blockchain that hosts an open network of interoperable blockchains on top of it.The key difference between Cosmos and Polkadot is that rather than one central hub, there are several in its design architecture.
Cosmos has three important components, namely Hub, Zone and IBC.
- Hub: Essentially an officially maintained relay chain, serving as a trust center for cross-chain messages
- Zone: Different types of Lisks participating in the Cosmos network
- IBC (Inter-Blockchain Communication Protocol): Inter-Blockchain Communication Protocol
The core products of Cosmos are Tendermint consensus mechanism, Cosmos SDK and cross-chain IBC protocol. As long as the project adopts one of the above three product categories, it can be classified as a Cosmos ecological project. At present, the prosperity and implementation of the Cosmos ecosystem is ranked directly below the Ethereum ecosystem. To date, Cosmos has over 260 Dapps.
The Cosmos ecosystem, unlike Ethereum, is not a single blockchain that facilitates state and transaction transfers, but rather a decentralized network of chains built using the shared Cosmos SDK toolkit. The Cosmos SDK allows new developers to choose from a selection of pre-built modules based on their specific needs when designing a new blockchain.
Interchain security is the Cosmos solution to shared security that uses IBC (Inter-Blockchain Communication). Another difference between Cosmos and Polkadot is independent security, the respective chains are maintained and verified, and the chains are freely connected. However, this way cannot guarantee security.
Cosmos’ ambition is to initiate shared security in the year 2022. To connect Zone with Hub , through shared validators. To improve the security of Zone and the security of the entire network by making Hub and Zone become communities of interest.
Polkadot attempts to address the issues of scalability, speed, and cost by allowing for more personalized blockchains, interoperability and upgrades between chains, and self-governance of chains.
Polkadot has three main network infrastructures:
- Relay Chain: Called Polkadot’s master chain, it’s responsible for network sharing security, consensus and cross-chain interoperability, which can be thought of as a plug outlet with 100 slots.
- Parachains: Processing data operations and transaction information, these can be thought of as different appliances connected to the plug outlet. These allow the blockchain to be expanded and solve the performance issues of the blockchain.
- Bridges: These allow parachains and parathreads to connect and communicate with external networks like Ethereum and Bitcoin.
Kusama is known as a canary network, or test network, before Polkadot went live. It is like an earlier, unaudited and unapproved version of Polkadot. It was introduced to test the Polkadot—approximating the real Polkadot environment—to ensure the security of the Polkadot network.
According to Polkaproject’s statistics, there are now more than 510 projects, in categories including infrastructure, wallets, stablecoins, DApps, and more.For projects,it may not friendly to develop on Polka’s network. Since the parachains must connect to the Relay Chain to reap the benefits of the network architecture, especially the sercuirty of Polka’s network, there needs to be a way to determine which parachains can connect, and in what order. That’s where parachain auctions come in.Projects that want to secure a parachain slot can participate in the auction by bidding KSM/DOT tokens in a decentralized candle auction.This will cost projects a lot of money, therefore, many projects can only wait and see.
The main logic behind price increase of DOT is to lock up for slot auction , whereas ATOM’s main logic behind increase is staking to get rewards. However, both Polkadot and Cosmos didn’t benefit from the bull market, due to the technical difficulty and slow landing of the common chain, and the need to build a separate bridge to connect to Ethereum.
Summary
With widespread adoption and an influx of new users, the blockchain has expanded to far more than just Bitcoin and Ethereum.In this round of bull markets, public chains benefited from the burst of DeFi and NFT applications as well as the lack of Ethereum processing power, and whoever can provide the performance support and financial support needed for new applications will grow quickly.
Different public chains aim to solve pressing Web3.0 problems, and their relatively low development cost makes it possible to have many public chains. However, this fragmentation also brings new challenges to developers and users, creating a need for interoperability solutions as well.
Note: This article was written by MEXC community. This article does not represent the opinion of MEXC, and does not constitute any investment advice.
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