Why Multi-Chain, Why Now

Introduction

The crypto industry has evolved rapidly since 2021 (when LI.FI launched), with the multi-chain thesis becoming increasingly evident in real-time.

This article is written to compare and contrast why and how developers and/or users should utilize different types of chains being built, including EVM chains, smart contract networks built on zk tech, application specific blockchains, and non-EVM blockchains.

Before we dive in, let’s take a look at how the crypto industry has changed since 2021.

Where We Were, Where We Are

In 2021, most of the capital in crypto (~96.06%) was locked into Ethereum’s DeFi ecosystem. Few incentives existed to draw users to dApps on other blockchains due to limited scope and innovation…

In 2023, the story is substantially different. To show the growth of the industry, here’s a snapshot of chain usage in 2023:

  • Ethereum is still king but its TVL share fell from ~96% in 2021 to ~59% at the time of writing. (It went down below 50% for the first time in history on April 2, 2022, as Terra Classic’s ecosystem grew.)

  • Alt-L1 EVM chains like Polygon, Avalanche, Fantom, Tron, and BNB Chain, among others, were virtually nonexistent in 2021. In 2023, these five chains alone attract nearly 25% of the TVL in DeFi.

  • Rollups (blockchains that bundle transactions and settle on Ethereum) own approximately 6% of the TVL in DeFi.

Ethereum, large L1 EVM chains, and rollups make up 90% of all TVL in crypto. TVL on Solana, Cosmos chains, Bitcoin, Polkadot parachains, and Cardano contribute to the majority of the remaining TVL.

  • The daily active users metric shows that Ethereum and Bitcoin are still widely used despite expensive and slow transactions. However, the theory that cost drives user behaviour is also playing out as highly scalable chains have become far more prominent, with BNB Chain and Polygon accounting for just over half of all daily active users in crypto.

    Ethereum, BNB Chain, Polygon, Arbitrum, and Optimism account for approximately 90% of DEX volume in crypto. This highlights that users are actively executing on-chain trades.