L1 public chain competition weakens, L2 public chain will become the next focus of competition

Original author:Zixi.eth

Original author:

In the next cycle, there may no longer be an L1 public chain war, and it may be replaced by an L2 public chain war.

I am very bullish on General L2 and Vertical L2.

The following analysis:

All L1s have the problem of the impossible triangle, that is, there is no way to achieve decentralization, scalability and security at the same time. All L1s want to solve this problem in 2018-2020 and 2021-2023. The fact is that no one can do all three points, and must do Trade Off.

When people realized that there was a problem with the direction of L1, Israel made the first Layer 2 Starkware. L2 is the operation node of the project party. It creates a "chain" by itself. There are multiple transactions in a batch, and the multiple transactions are packaged into a single transaction and submitted to L2's contract in L1. The contract will be executed in L1, and then the main The chain confirms L2 transactions, so that it can be fast + cheap, and it can inherit L1 in terms of security and decentralization.

In 2022, Celestia proposed the concept of a modular blockchain, that is, the blockchain should be divided into 4 parts, Execution execution, Settlement settlement, Consensus consensus and DA data availability. Among them, Execution and DA are the most worthy of attention. These two parts undertake the business of the top layer (execution) and the bottom layer (archive transaction).

Let’s go back to 2017-2018. At that time, most of the investment targets were ethereum fork chain. Needless to say, the grand occasion at that time, but why was it so popular? This is related to the issuance of IEO IDO, a new asset type ERC 20. Anyone can issue new assets without permission for the market to subscribe. This was the fuse of the bull market at that time. At that time, the targets for making money were L1 (eth fork) and trading platforms for various new assets.

From 2020 to 2021, in addition to Ethereum competitors, dapps represented by defi and gamefi will gradually appear as investment targets, and the new asset type NFT can also be regarded as one of the entry points for traffic. The targets that make money and survive here are L1 (eth competitor) and trading platforms for various assets (in addition to the above-mentioned various cexdexes, there are also NFT exchanges, and various derivatives exchanges have also begun to grow bigger and stronger).

Let's look at another interesting phenomenon, thanks to Boss Tang for enlightening me. Let’s look back at the L1 that came out of the last cycle. At that time, we thought their last round of financing before listing was very expensive, but after going through a bull and bear market, and comparing the current valuation, we still feel that the valuation at that time What a bargain. But that statement has a survivor bias.

Why did L1 make money in the last cycle? Because: 1. Everyone really wants to use different ways to solve the scalability of Ethereum 2. The innovation of various consensus methods 3. Everyone wants to create their own ecological perspective 4. The release of water caused by the epidemic has caused funds to rush to the story The most ambitious track that can be talked about 5. The ecology of Ethereum at that time was not enough to have absolute dominance.

From the perspective of General L1, I define them as L1 with the largest and most comprehensive narrative. Everyone is an Eth killer, and everyone wants to create their own ecology. Even if it is the last round of investment, or even the first and a half investment after the coin is issued, even if it is put into the current valuation, it is more than double. If it can be sold at a high point (and it can be sold because it is unlocked), the multiple Quite high, is the optimal solution.

From the perspective of L1 as a service, this seems to be a bigger and more complete story than L1, but the problems will appear in: 1. It is more challenging than L1 to test the ability of team building ecology 2. Token’s ability to capture value is very poor (cosmos Token is pure air, and polkadot’s card slot auction has been complained for a long time). But you can still make a lot of money, and even if you get on the car in the last round, you will have more than double the income, but the overall ceiling is relatively small.

From the point of view of the vertical category L1/L2, this is more subdivided. Indeed, from the perspective of the ceiling, etc., it is inferior to the above options, but the reasons for not making it at that time are: 1. There was no idea of ​​​​modularization at the time 2. Essentially It is still a L1, and it is still necessary to start vm fund users and development again. But when the momentum comes, the benefits will be extremely obvious.

But in the next cycle, I think there may be a different situation, such as ethstorage and xxxx (sell it off), one is to solve the problem of data storage on Ethereum, and the other is to achieve the ultimate execution layer to support consumer-level Apply and serve enterprise-level high-performance derivatives/spot exchanges. There has been no mass adoption at present, is it because the blockchain is not suitable for mass adoption at all?

Not necessarily, especially from the financial side, blockchain or distributed technology is very suitable for mass adoption of transactions. If a fast execution layer, that is, a fast vertical layer 2, can be created, web2 developers, especially the Chinese development team, are likely to be able to create a new paradigm on it.

In these two cycles, the unshakable position of Ethereum has been proved. Will the public chain war reappear in this cycle? I don't think so. The reasons come from: 1. Development (3 w developers). 2. Users (30-40 wDAU) 3. Funding (30 B TVL) 4. Full iteration and update, we have confirmed the direction of Rollup, modularization, DA and so on in three years. Therefore, the public chain war in the next cycle will be the L2 war.

The current L2 is still dominated by General. In fact, it is still not cheap and fast. There is still a lot of room for improvement, and the current L2 ecology is not that big. At present, the performance of L2 cannot widen the gap with other L1 competitors. For example, for 2B financial projects, let’s take gravity as an example.

Derivatives on the CeDeFi chain are born to serve large customers, but limited by the performance of the current Starknet, even if an appchain is built, from the perspective of cost and speed, there is still no way to achieve on-chain matching (now it can only be done on-chain. Matchmaking and off-chain settlement), so it is still not completely transparent and trustless. If Gravity is moved to xxx, it will be a high-performance and fully transparent 2B chain derivatives exchange.

Can we find another way to temporarily abandon some of the decentralization capabilities to build a very high-performance L2 to compete with the current General L1? Maybe this L2 is not suitable for defi, etc., but it is very suitable for consumer projects (games or e-commerce, etc.) and some enterprise-level financial projects (orderbook exchanges matched on the chain). This creates possible soil for potential mass adoption.