Andrey Didovskiy
Over 100 subscribers
- Industry is still tiny relative to its potential impact on the world economy
- Too early to assume that winner has been chosen
- L1s can produce sustained, long-term performance
Just like nations have their own unique laws/regimes/currencies by which their economies work and citizens abide, Layer 1 blockchains are sovereign digital ecosystems with their own hard-coded consensus rules, validator sets, and units of value for transactions.
From the interoperability of layer 0’s,
to the economic security of 1’s,
to the scalability of layer 2’s,
and even obnoxious fluff of layer 3’s and 4’s.
The crypto industry is full of layers.
Even though the variety and value proposition of a multi-layer crypto architecture hold the potential promise of solving some fundamental UX and operational hurdles, there is one layer that tends to attract the most controversy.
Layer 1.
The general sentiment/attitude of natives within the crypto industry about new layer 1’s is predominantly negative.
Most of the digital populace has defaulted into thinking that Ethereum/EVM or Solana/SVM will be the final version of a smart contract environment and that competing with them is futile/unnecessary.
This is understandable, given that the crypto industry as we have it today exists in great part due to these layer 1s, and it would be haram to fight against an OG. Besides, wouldn’t any sane person also defend and promote their bags?
In the early 1980s' IBM owned 80% of the computer market and made up roughly 6.4% of the S&P 500. If we fast-forward to today, we see IBM's computer division being sold off and companies like Microsoft and Apple orders of magnitude ahead.
In 2009, BlackBerry owned 56% of the cell phone market. Fast forward to the invention and adoption of the iPhone, and we see Apple absolutely annihilating Blackberry.
The network effects and first-mover advantages of Ethereum (ETH) and Solana (SOL) are substantive. Over 80% of all on-chain liquidity is locked between the two virtual machines, (EVM hosting over ~71% and the SVM around ~8.45%). Regardless of their lead, as history shows us, nothing is final. Nothing is certain—only change.
Even if Ethereum owns the majority of current developer mindshare and hosts most of the industry's liquidity inside of its EVM, the relative size of the crypto industry & the depth to which it has integrated itself with society is negligible at best.
Sitting at a market capitalization of 2.5 trillion USD (most of which is illiquid), the entire crypto industry is worth less than the equities of ~5,509 public companies listed on the NYSE & NASDAQ (which are in aggregate floating around ~72.63 trillion).
Global equities are worth ~110 trillion.
Real Estate is worth ~350 trillion.
Fiat money around ~240 trillion.
Commodities are ~170 trillion.
Apple alone is >3.2 trillion.
Crypto, as a tool and the technology it exists upon, blockchain, are/will be responsible for impacting and enhancing every other market on the planet, yet it makes up less than 0.05% of the world's wealth.
Regarding mindshare, in the most optimistic scenarios at the high end of the spectrum, only about 38,884 developers work full or part-time in the industry.
That is nothing.
To put things into perspective, worldwide, there are:
Over 2.8 million developers working in the IOS ecosystem, and Over 5.9 million developers working in the Android ecosystem.
Github, a single platform, hosts over 100 million developers alone.
It is inevitable that as tooling improves, more languages become available, and programs become all the more compatible, there will be more developers in crypto.
Crypto markets, like all other markets, go through trends and cycles.
Each cycle has a multitude of narratives that shape retail trends.
In 2013, it was Bitcoin.
In 2017, it was ICOs.
In 2021, it was NFTs.
This time, so far, it has predominantly been Memes.
Any culturally relevant object/ideology, be it Animals, Celebrities, Religions, Astrological signs, or just simply mental creations such as SCF (Smoking Chicken Fish) has been tokenized and captured the retail markets. Although, the 10,000%+ overnight returns have helped persuade them as well.
During these narrative flares, we lose sight of the foundations upon which this is all taking place, the foundations where all the real liquidity exists, the facilitators of these opportunities.
The last generation of Layer 1’s have done rather impressive numbers so far this cycle:
Near (NEAR)
Cycle Low: $0.99
Cycle High: $8.98 (+807.07%)
Current: $4.25 (+329.29%)
Sui (SUI)
Cycle Low: $0.38
Cycle High: $2.34 (+515.79%)
Current: $1.81 (+376.31%)
Sei (SEI)
Cycle Low: $0.10
Cycle High: $0.95 (+850%)
Current: $0.38 (+280%)
If we turn back further to look at the return generated from multi-cycle layer 1’s, these numbers grow exponentially:
Binance (BNB)
2020 Lows: $12
Cycle High: $605 (+4,941.66%)
Current: $585 (+4,775%)
Avalanche (AVAX)
2020 Lows: $2.79
Cycle High: $60 (+2,050.53%)
Current: $25.5 (+813.97%)
Solana (SOL)
2020 Lows: $0.60
Cycle High: $203(+33,733.33%)
Current: $172 (+28,566.66%)
With the thousands of crypto assets, multitudes of layers, and opaque definitions, understanding the actual size of the crypto economy is difficult (let alone how to identify them properly).
The layer 1 landscape is comprised of two blockchain types; smart contract platforms and value networks. Both are ideologically rooted in security, transparency, and decentralization, but smart contract platforms are turning complete POS environments that enable complex computation on-chain, whereas value networks are predominantly based on POW/mining and do not provide functionality outside of transferring cryptocurrencies.
Examples of Smart Contract Platforms:Ethereum (ETH), Solana (SOL), SUI (SUI), Aptos (APT), Cardano (ADA), TON (TON), SEI (SEI), Algorand (ALGO), Ripple (XRP), Polkadot (DOT), Cosmos (ATOM), Tron (TRX), Waves (WAVES), NEAR (NEAR), etc.
Examples of Value Networks:Bitcoin (BTC), Litecoin (LTC), Dogecoin (DOGE), Decred (DCR), Monero (XMR), Zcash (ZEC), Ravencoin (RVN), Digibyte (DGB), Groestlcoin (GRS), etc.
* there are some hybrids, such as Kaspa(KAS), that unify smart contract development with Proof-of-Work mining as the security modality.
There is one genuinely strong argument against the propagation of new chains.
Isolation or the fragmentation and loss of composability.
The argument is rooted in the concept that having more layer 1s would ultimately lead to a similar undesirable, suboptimal network architecture similar to what we have in the World Wide Web today. This is not true. Besides the constant advancement and expansion of interoperability solutions, many technological designs now allow chains to become language and VM-agnostic.
The opportunities of these new chains far outweigh opposing forces.
Industries can grow in two ways: vertically and/or horizontally. Vertical growth is the appreciation of existing asset prices. Horizontal growth is the expansion/introduction of new assets. Layer 1 will ultimately serve the industry by expanding it horizontally.
New Layer 1’s allow a new audience/group of sophisticated operators to have an early, meaningful stake in infrastructure.
New Layer 1’s will be able to deliver superior technological solutions due to the natural agility/flexibility afforded to younger projects and the ability to experiment faster with a broader range of tools (which are constantly being developed).
Ultimately, optionality, the ability to freely opt out of and into sovereign economic systems, will be a lynchpin factor in the final overall design of the crypto/blockchain sector that will eventually be integrated into society.
Is the future really going to be on-chain? Will it be Multi-chain? What chains are going to rule in the future? Are we destined to repeat the past?
Great questions!.. I don't know.
But, what I do know is that in 10 years, this industry will be orders of magnitude larger by every possible measure than it is today.
The builders are building;
fiat is crumbling;
users are coming.
Rather than sitting passively on the sidelines, it has always been best practice to build, experiment, and push the limits of what's possible.
This has all been warmup.
The real party is just begging.
See you on-chain Anon.
