Web3 OGs and folks in the ecosystem generally deeply believe in one or a few L1 blockchains. But how do you figure out which L1 makes most sense to you? There are as many L1s as pubs in Koramangala and its only increasing. For newbies just getting into crypto, their attention is usually diverted to one of the following:

→ Blue chip protocols - BTC, ETH. → Platforms which have had coverage cause of recent traction / bull runs / funding. → Platforms which crypto ogs and influencers tweet about / discuss. → Platforms because of which a friend / loved one has made wealth

DYOR (do your own research) is all over the web3 space, but the reality is that the activity of web3 noobs is limited to protocols which are accessible and not intimidating. Although any starting point is good, the real friction comes with progressing further. Accessibility and ease of understanding web3 platforms is seldom an enabler today, it is more of a deterrent. Listening to secondary research / unsolicited advice / a friend and making quick profits (do you, really anon?) is just easier.

In this article, I aim to help you DYOR. I’ll be talking about a framework which will help you evaluate L1 blockchains. I’ll be going through different angles to assess L1s by:

• L1s as sovereign economies

• The Trilemma

• The L1s role - Governance, Policy & Culture

• Metrics to look at - Macro & Traction

Feel free to jump to whatever’s relevant to your context. Let’s go!

When talking about L1s, most initial conversations are skewed towards technicalities or the trilemma. Although this is an important aspect, at the end of the day, the value of an L1 will be based on on-chain economic value generated and initiatives taken to grow variables which will enable the same.

We of course can’t dismiss the trilemma and we will discuss the same later in the article.

The introduction to Michael Porter’s theory on the competitive advantage of nations, goes like this —

National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists.

A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers.

Inspired from his framework, we will look at conditions which are crucial for an economy to flourish and extrapolate these to L1 blockchains.

Capital - Financial and Human

→ Crypto idealists balk at announcements about VCs funding L1s with millions, questioning the real extent of decentralisation. While the intent is good, nation building requires large financial ammo. We’re transitioning from an entirely centralised world to a gradually decentralised world. A utopian decentralised world will not happen immediately and even if it does, it will break, we can’t handle it.

→ Finding good developers is hard. For an L1 to prosper, it needs an army of developers and talent who are building dApps or companies / industries on the chain.

• Initiatives taken and capital deployed by L1 to up-skill and train web2 developers to web3?

• How easy is the transition from a web2 language to the language in which L1 is written. (eg: js → solidity transition)

• Traction / awareness of the L1 in places with high developer density.

For any company to be internationally competitive, domestic industry must flourish with healthy competition and promote innovation and growth. An exchange on Ethereum isn’t just competing within the chain but also with exchanges on other chains.

• Is there strong competition within players in an industry on the chain?

• Balance between knowledge sharing for mutual and industry growth and respecting proprietary IP.

New products, niches and industries don’t develop out of nowhere. Horizontally and vertically aligned products and sectors lead to this happening.

Eg: NFTs give perpetual proof of ownership and fractionalising them helps in distributed ownership. DAOs help people who would normally be unable to access high value assets to organise and come together.

The outcome of this is not just a bunch of products / industries working together, but the symbiotic relationships resulting in synergy + a moat. An L1s composability and policies + culture should accelerate creation of this moat and encourage innovation.

The ability for chains to onboard and integrate the following is critical to their short-term growth and long-term sustainability.

Developer tooling

Tools to ease building dApps by developers post transitioning to web3 development.

• Frontend and backend APIs, Out of the box tools, Messaging and Testing.

TVL Drivers

Bringing liquidity to the platform by establishing a basic deFi system. This incentivizes the core developer community to build better tools and abstractions, thereby allowing less sophisticated ones to build more consumer-facing products.

• Lending and borrowing, AMMs, Exchanges and Staking.

Interoperability

Enabling cross-chain communication through asset or general-purpose bridges.

• Bridges, Routing and Cross-chain calls.

Data Availability

Focus on bringing quality data on chain, either through oracles or a specialized data availability layer. Indexing this data and displaying it in an easy-to-understand format is necessary (e.g. on an explorer).

• Oracles, Explorer, Storage and Indexer.

User personas of the demand and creators matter a lot. Having 1k high quality users who genuinely understand what’s happening and proactively use + contribute to the development of an L1 ecosystem have much more value than 10k users who don’t have a clue of what’s going on and are just lurkers on another L1.

A good way to check a blockchain’s technical soundness is to understand how they’ve approached / solved the trilemma problem. The blockchain trilemma is a term coined by Vitalik is used to describe the challenges developers face while building a blockchain and keeping it decentralised, secure and fast without compromising on any facet.

→ Scalability

• Horizontal scalability - Processing power of the network must increase with the increase in the number of nodes. Although realistically it will be sub-linear, ideally, it is expected to be linear.

• Low overhead - The additional cost to ensure security and process the transaction should be minimal relative to the cost of processing the transaction.

• Short time to finality - The time taken to update the state of transaction, once submitted, must be minimal.

→ Security

• Protection from attacks - Malicious parties should not be able to convince the network that invalid transactions are valid with ease. Bad behaviour must be deterred using game theoretic incentives or cryptographic methods which make it computationally infeasible to carry out an attack on the network.

→ Decentralisation

• Node requirements - Computing requirements must be minimal to make allow more people to participate in the network.

• Freedom to participate - The platform must be censorship resistant and people must be able to discuss freely on the network.

→ Decentralisation vs Speed

For a blockchain to be decentralised, there needs to be several nodes in the network. The tradeoff of increased decentralisation is speed. This is because of the fact that multiple confirmations needs to achieved in order to arrive at consensus.

→ Speed vs Safety

If the TPS of a network is high due to low time to finality, there is a compromise on safety. This is because, faster the block speed, lesser the time validators have to agree on state transitions. Without enough time to reach consensus, rollbacks could become frequent, thereby compromising safety.

→ Decentralisation vs Computing power (which could translate to speed / security)

To truly make the network decentralised, the computing requirements to be a node needs to be least in order to make it accessible. If this is done, then the aggregate computing power of the network is less because of less capable nodes. The hurdle for scaling will be to have a lot of nodes on the network to make up for the capability of each node.

Although there is no rule that decentralisation, speed and security are tradeoffs, it is a well recognised problem which the community is trying to solve. Several blockchains claim to have solved the trilemma, but that usually isn’t true without caveats.

The challenges in building and problem solving must inspire solutions and entrepreneurship, rather than demoralise or daunt the builders and users in the ecosystem. The L1 must play its part in fostering a culture and set of policies that enable and empower ecosystem participants to feel motivated and contribute with ownership.

The L1 must focus on fostering competition within industries and take initiatives to improve human, financial and infra capital to enable builders. L1 support for some niches in the ecosystem in terms of grants or subsidies must be driven by long term goals in mind and not for short term traction.

Some industries are strategic for any chain, stable coins and related products for example. Others are more strategic and to be aligned with the competitive advantage which the L1 decides to pursue / build on basis of its technical limitations / advantages and culture.

Eg: India IT and outsourcing, Korea electronics, China manufacturing. Adopting a gaming focused strategy for an L1 with high transaction speed and just enough security makes sense.

• Market cap

• Daily trades volume

• Amount raised

• Number of dApps over time

• Daily transactions vs price - greater no of transactions means more economic activity, which in the long run reflects the demand for the currency.

• Blocks per hour

• Active Users (Daily, Weekly or Monthly)

• Total transactions (number)

• Value of transactions (value)

• Balances in smart contracts (value)

• Transactions to/from contracts (number)

• Value of transactions to/from contracts (value)

• Wallets value (value)

Although this isn’t an exhaustive or advanced set of metrics, these give a good idea of how sound an L1 is fundamentally, and if it is set to grow or not.

Hope this helped and if it did, fund me to encourage me to write more!

Feel free to reach out to me on Twitter @idlyboy_ to discuss DAO, NFT use cases or web3 in general! Peaceout 🤟🏽

Web3 OGs and folks in the ecosystem generally deeply believe in one or a few L1 blockchains. But how do you figure out which L1 makes most sense to you? There are as many L1s as pubs in Koramangala and its only increasing. For newbies just getting into crypto, their attention is usually diverted to one of the following:

→ Blue chip protocols - BTC, ETH. → Platforms which have had coverage cause of recent traction / bull runs / funding. → Platforms which crypto ogs and influencers tweet about / discuss. → Platforms because of which a friend / loved one has made wealth

DYOR (do your own research) is all over the web3 space, but the reality is that the activity of web3 noobs is limited to protocols which are accessible and not intimidating. Although any starting point is good, the real friction comes with progressing further. Accessibility and ease of understanding web3 platforms is seldom an enabler today, it is more of a deterrent. Listening to secondary research / unsolicited advice / a friend and making quick profits (do you, really anon?) is just easier.

In this article, I aim to help you DYOR. I’ll be talking about a framework which will help you evaluate L1 blockchains. I’ll be going through different angles to assess L1s by:

• L1s as sovereign economies

• The Trilemma

• The L1s role - Governance, Policy & Culture

• Metrics to look at - Macro & Traction

Feel free to jump to whatever’s relevant to your context. Let’s go!

When talking about L1s, most initial conversations are skewed towards technicalities or the trilemma. Although this is an important aspect, at the end of the day, the value of an L1 will be based on on-chain economic value generated and initiatives taken to grow variables which will enable the same.

We of course can’t dismiss the trilemma and we will discuss the same later in the article.

The introduction to Michael Porter’s theory on the competitive advantage of nations, goes like this —

National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists.

A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers.

Inspired from his framework, we will look at conditions which are crucial for an economy to flourish and extrapolate these to L1 blockchains.

Capital - Financial and Human

→ Crypto idealists balk at announcements about VCs funding L1s with millions, questioning the real extent of decentralisation. While the intent is good, nation building requires large financial ammo. We’re transitioning from an entirely centralised world to a gradually decentralised world. A utopian decentralised world will not happen immediately and even if it does, it will break, we can’t handle it.

→ Finding good developers is hard. For an L1 to prosper, it needs an army of developers and talent who are building dApps or companies / industries on the chain.

• Initiatives taken and capital deployed by L1 to up-skill and train web2 developers to web3?

• How easy is the transition from a web2 language to the language in which L1 is written. (eg: js → solidity transition)

• Traction / awareness of the L1 in places with high developer density.

For any company to be internationally competitive, domestic industry must flourish with healthy competition and promote innovation and growth. An exchange on Ethereum isn’t just competing within the chain but also with exchanges on other chains.

• Is there strong competition within players in an industry on the chain?

• Balance between knowledge sharing for mutual and industry growth and respecting proprietary IP.

New products, niches and industries don’t develop out of nowhere. Horizontally and vertically aligned products and sectors lead to this happening.

Eg: NFTs give perpetual proof of ownership and fractionalising them helps in distributed ownership. DAOs help people who would normally be unable to access high value assets to organise and come together.

The outcome of this is not just a bunch of products / industries working together, but the symbiotic relationships resulting in synergy + a moat. An L1s composability and policies + culture should accelerate creation of this moat and encourage innovation.

The ability for chains to onboard and integrate the following is critical to their short-term growth and long-term sustainability.

Developer tooling

Tools to ease building dApps by developers post transitioning to web3 development.

• Frontend and backend APIs, Out of the box tools, Messaging and Testing.

TVL Drivers

Bringing liquidity to the platform by establishing a basic deFi system. This incentivizes the core developer community to build better tools and abstractions, thereby allowing less sophisticated ones to build more consumer-facing products.

• Lending and borrowing, AMMs, Exchanges and Staking.

Interoperability

Enabling cross-chain communication through asset or general-purpose bridges.

• Bridges, Routing and Cross-chain calls.

Data Availability

Focus on bringing quality data on chain, either through oracles or a specialized data availability layer. Indexing this data and displaying it in an easy-to-understand format is necessary (e.g. on an explorer).

• Oracles, Explorer, Storage and Indexer.

User personas of the demand and creators matter a lot. Having 1k high quality users who genuinely understand what’s happening and proactively use + contribute to the development of an L1 ecosystem have much more value than 10k users who don’t have a clue of what’s going on and are just lurkers on another L1.

A good way to check a blockchain’s technical soundness is to understand how they’ve approached / solved the trilemma problem. The blockchain trilemma is a term coined by Vitalik is used to describe the challenges developers face while building a blockchain and keeping it decentralised, secure and fast without compromising on any facet.

→ Scalability

• Horizontal scalability - Processing power of the network must increase with the increase in the number of nodes. Although realistically it will be sub-linear, ideally, it is expected to be linear.

• Low overhead - The additional cost to ensure security and process the transaction should be minimal relative to the cost of processing the transaction.

• Short time to finality - The time taken to update the state of transaction, once submitted, must be minimal.

→ Security

• Protection from attacks - Malicious parties should not be able to convince the network that invalid transactions are valid with ease. Bad behaviour must be deterred using game theoretic incentives or cryptographic methods which make it computationally infeasible to carry out an attack on the network.

→ Decentralisation

• Node requirements - Computing requirements must be minimal to make allow more people to participate in the network.

• Freedom to participate - The platform must be censorship resistant and people must be able to discuss freely on the network.

→ Decentralisation vs Speed

For a blockchain to be decentralised, there needs to be several nodes in the network. The tradeoff of increased decentralisation is speed. This is because of the fact that multiple confirmations needs to achieved in order to arrive at consensus.

→ Speed vs Safety

If the TPS of a network is high due to low time to finality, there is a compromise on safety. This is because, faster the block speed, lesser the time validators have to agree on state transitions. Without enough time to reach consensus, rollbacks could become frequent, thereby compromising safety.

→ Decentralisation vs Computing power (which could translate to speed / security)

To truly make the network decentralised, the computing requirements to be a node needs to be least in order to make it accessible. If this is done, then the aggregate computing power of the network is less because of less capable nodes. The hurdle for scaling will be to have a lot of nodes on the network to make up for the capability of each node.

Although there is no rule that decentralisation, speed and security are tradeoffs, it is a well recognised problem which the community is trying to solve. Several blockchains claim to have solved the trilemma, but that usually isn’t true without caveats.

The challenges in building and problem solving must inspire solutions and entrepreneurship, rather than demoralise or daunt the builders and users in the ecosystem. The L1 must play its part in fostering a culture and set of policies that enable and empower ecosystem participants to feel motivated and contribute with ownership.

The L1 must focus on fostering competition within industries and take initiatives to improve human, financial and infra capital to enable builders. L1 support for some niches in the ecosystem in terms of grants or subsidies must be driven by long term goals in mind and not for short term traction.

Some industries are strategic for any chain, stable coins and related products for example. Others are more strategic and to be aligned with the competitive advantage which the L1 decides to pursue / build on basis of its technical limitations / advantages and culture.

Eg: India IT and outsourcing, Korea electronics, China manufacturing. Adopting a gaming focused strategy for an L1 with high transaction speed and just enough security makes sense.

• Market cap

• Daily trades volume

• Amount raised

• Number of dApps over time

• Daily transactions vs price - greater no of transactions means more economic activity, which in the long run reflects the demand for the currency.

• Blocks per hour

• Active Users (Daily, Weekly or Monthly)

• Total transactions (number)

• Value of transactions (value)

• Balances in smart contracts (value)

• Transactions to/from contracts (number)

• Value of transactions to/from contracts (value)

• Wallets value (value)

Although this isn’t an exhaustive or advanced set of metrics, these give a good idea of how sound an L1 is fundamentally, and if it is set to grow or not.

Hope this helped and if it did, fund me to encourage me to write more!

Feel free to reach out to me on Twitter @idlyboy_ to discuss DAO, NFT use cases or web3 in general! Peaceout 🤟🏽