Our goal has always been to onboard people to crypto and seemingly make everyone’s life easier through education & research.
If you’ve been following us for the past month, you know we’ve covered the Alternative Layer-1 (L1) sector.
Our thesis for L1s describes how we will assess the many L1s available to determine which ones have the best fundamentals and the fewest defects.
This report is intended for anyone who wants to practically use the thesis to evaluate any L1 of their choice using our framework. This is a guide for anyone who’s interested in advancing their knowledge.
By all means, this is not a research report, but our internal research process for choosing our top final assets.
Ethereum
Inflation & Fee Model
Inflation dropped from 4.6% to 0.5% per year at a fixed rate paying stakers to secure the network post-merge.
The base fee model is priced by the protocol’s bidding system on a set amount depending on congestion. In PoW, miners chose this base fee model, it changes now to the protocol. Users pay this base fee and it gets burned eventually instead of paid out to validators, which creates a deflationary mechanism over the long term if more ETH is burned rather than issued. Vice versa would create an inflationary mechanism. Validators secure the network and receive regular Txn fees instead of base fees. Burning removes ETH from the supply, which locks in more pressure for prices to go up if the demand is high – in a bull market, this will take effect because more people will use DeFi because of prices going up. Therefore, not only has Ethereum improved its economic value but created more scarcity for ETH.
Growth – Network Activity
58% of DeFi’s liquidity is captured by Ethereum.
Total Value Locked (TVL) value at all-time high (ATH) and current: 30mn ETH/23mn ETH.
Total fees paid by users are $14.8bn.
Total Revenue is the share of Txn fees burned or accrued to ETH holders is $8.6bn.
The total coin trading volume is $802bn.
Weekly active users since launch and average: increasing overtime, currently at 465k/500k.
Supply-side revenue is the share of Txn fees that goes to validators is $6.2bn.
Current APR 4%.
Decentralisation & Security.
The total active validators are 439,261.
Staking pools are owned by LIDO 29.9%, unknown 19.3%, Coinbase 13.4%, Kraken 8%, and Binance 6%.
25% of Ethereum blocks are OFAC-compliant regulations due to Tornado cash.
45% of Ethereum nodes are located in the U.S.
Total ETH staked is 14,864,695/120,000,000 ETH.
Scaling Solutions
Arbitrum and Optimism.
Many other ZK Solutions.
These scaling solutions offer a threat to other Layer-1s.
Smart Contract Language
Solidity and Vyper.
Development Activity
Development activity ATH 6150. The average is 3000. The current is 838. Increasing overtime.
Development activity contributors count ATH is 182. The current is 121.
Biggest blockchain in terms of dev activity.
Simply put, Development Activity can be used to gauge a project’s commitment to creating a working product, and continuously polishing and upgrading its features.
Note: Only development work done in public github repositories can be tracked.
Tokenomics
Ether’s value accrual has shifted massively to a 4/5.
Supply locking mechanism – over 14 million ETH locked from the market.
Network security is derived from high unit price.
Deflationary mechanism.
Store of value?
Upgrades & Future Anticipation.
ESG effect of The Merge.
Staking and a yield of 1%-8% depending on fees. Currently at 4%. Not a real yield narrative because its a base layer.
Sharding in 2023-2024.
Institutional adoption – ETFs and futures.
More than 400k validators now securing the blockchain increasing security more than ever.
Price Action
$1300 by the time of writing.
ATH at $4900.
Current Mcap $160bn.
ATH Mcap $550bn.
Followers
2.8 million Twitter followers.
UI/UX
Very great UI. The only issue is UX sucks sometimes when gas fees are high.
Wallet Holders & Concerns
Staking pools are owned by LIDO 29.9%, unknown 19.3%, Coinbase 13.4%, Kraken 8%, and Binance 6%.
Most amounts of ETH holders (whales) hold 0.2%-0.3%.
25% of Ethereum blocks are OFAC-compliant regulations due to Tornado cash. OFAC is the Office of Foreign Assets Control, a United States Treasury Department division that manages and imposes sanctions.
MEV-boost relays use flashbots to generate more money for validators.
Solana
Inflation and Fee Model
Inflation rewards and Txn fees are distributed to validators to secure the network.
Solana has an inflation rate of 8% that is dis-inflating until the long-term inflation rate of the network reaches 1.5% in year 15.
50% of the Txn fees on Solana are burned, while the other 50% are distributed to the block leader.
Solana recently introduced a “prioritization fee” model, paying an extra fee to execute and process a TX faster. This will help users as well as the network’s bot attacks.
Growth and Network Activity
Solana acquires 2.5% of all DeFi liquidity.
TVL value at ATH and current: 68mn SOL/40mn SOL.
Total fees paid by users are $48.5mn.
Revenue is $24.3mn.
Supply-side revenue is at $24.3mn.
Coin trading volume $32.5bn.
Weekly active users since launch and average: increasing overtime, currently at 205k/180k.
Current staking APY is at 6%.
Decentralisation & Security.
Total active validators 2000.
Active stake 408 million/ 530 million SOL.
Top validators of SOL represent 1%-2.6% of the total supply.
Nakamoto coefficient is 30. If 30 validators of the entire Solana network get together, they can control more than 33% of the network, these entities impose censorship risk and can halt transactions. This means that Solana’s top 30 validators make up roughly 33% of the total delegated SOL that is staked through the chain.
20% of Solana nodes are in the U.S, while 21% of the rest are in Germany.
NFT Market Share
Solana has managed to acquire $50 million NFT trading volume in less than 6 months on Opensea.
Scaling Solutions
Nitro is being developed. An SVM-compatible chain connected to Cosmos and a modular Rollup solution.
Eclipse is also a modular Rollup solution, SVM compatible and depends on Celestia data and consensus layers built on Cosmos.
Smart Contract Language
Rust.
Development Activity
Peak development: 5200 and current: 458. The average is 2000. Increasing overtime.
Dev activity contributors count ATH 1000, current at 47.
4th biggest blockchain.
Tokenomics
Solana’s value accrual for SOL is 3/5.
Supply locking mechanism, and network security derived from high unit price and a deflationary mechanism.
Solana offers staking yield but it doesn’t offer a real yield narrative because its a base layer.
Upgrades and Future Anticipation
Jump crypto building a second validator client in c++.
Scaling solutions described above and the evolution of SVM similar to EVM.
Solana’s mobile phone.
Upgrades and fixes to the current problems the network is facing.
QUIC, stake-weighted QoS, and fee market described above are all upgrades that will improve upon the network’s problems.
Price Action
$33 by the time of writing.
ATH at $260.
Current Mcap $12bn.
ATH Mcap $75bn.
SOL doesn’t have a maximum supply. It depends on inflation. But the total supply is 530 million.
Circulating supply 355 million/ 530 million. 67% circulating.
Followers
2 million Twitter followers.
UI/UX
Very great UI/UX one of the best.
Wallet Holders & Concerns
Top holders or validators of SOL represent 1%-2.6% of the total supply.
Solana bugs and outages are really big and need to be fixed to continue adoption for Solana. Otherwise, this hinders performance as the chain has already been down more than 5 times this year.
Restarting the chains imposes centralisation risks.
DeFi protocols are shit.
Near Protocol
Inflation & Fee Model
5% inflation is paid out yearly to validators for securing the network -90% of that amount actually goes to validators, and the other 10% goes to the protocol’s treasury.
All transaction fees collected by the network get burned.
Therefore, the issuance of Near is 5% minus transaction fees.
Near can become deflationary if more burning is done than issuing NEAR. High level of burning.
Validators do not use fees for ordering Txns, instead, they depend on the hash.
More NEAR burning from Txns, increases yield for validators.
When there are 8 shards running, 800 seats will be available for nodes and will require <100k NEAR.
Near allocates 30% of Txn fees to the creator of the dApp or smart contract – a steady stream of income. So 70% get burned while 30% go to smart contract creators
Growth and Network Activity
Near represent 0.5% of the entire DeFi liquidity.
TVL value at ATH and current in NEAR: 91mn/78mn.
Total fees paid $3.8mn.
Revenue is $3.8mn.
Near does not have supply-side revenue because all of TX fees get burned.
Total coin trading volume is $6.7bn.
Weekly active users since launch and average: increasing overtime, 489k/50k.
Current staking 10% APY.
Decentralisation and Security
The total active nodes are currently at 118.
Active stake 483 million/800 million NEAR.
The current Nakamoto Coefficient is 7. This means that NEAR’s top 7 validators make up roughly 33% of the total delegated NEAR that is staked through the chain.
Top validators of Near control 3%-6% of the entire stake of the network.
1,100.58M total supply not 1 billion like Coingecko and Coinmarketcap.
Scaling Solutions
Aurora.
Smart contract Language
Rust as primary – for Web3 devs.
JavaScript as well – for Web2 devs.
Development Activity
Peak development activity is 2950, the current is 545, and the average is 1500. Increasing overtime.
Dev activity contributors count ATH is 117, and the current is 49.
6th biggest blockchain.
Tokenomics
Same value accrual as SOL.
Supply locking mechanism, deflationary mechanism, and network security derived from high unit price.
No fixed supply as I thought at 1 billion. Current total supply at 1.1 billion.
Upgrades and Future Anticipation
USN stablecoin yield and risks – USN is funded by a reserve that over-collateralises USN through USDT and NEAR and also through arbitrage.
Near launched phase 0 of nightshade in November 2021 – Near’s sharding tech. This phase will shard the state but not processing however, TPS will improve drastically.
There is the remaining phase 2 and 3. Phase 1 is now live on the mainnet, which increases the number of validators to 200-400, improving the decentralisation of the chain. The expected delivery for phase 3 is in Q2 2023. Sharding is a very complex upgrade so taking the time is better to test it out before Ethereum does it for leaked alpha.
USDC will be widely available in the entire Near ecosystem by end of 2022.
USDT launched on Near’s ecosystem in September.
Near partnership with Fireblocks to enter institutional participation in the ecosystem.
Fireblocks is the number #1 custodial asset storing for digital assets for institutions.
Over 800 projects are building on Near, Aurora and Octopus networks.
The Rainbow bridge is a trustless bridge that relies on the entire validators to sign transactions instead of a multisg contract. Fewer censorship risks. Relies on the security of both chains instead of the bridge protocol itself. Rainbow bridge uses proofs to verify that funds have been locked on one chain to be minted on the other. Does not rely on trust but proof from relayers that connect both chains and inform nodes of the chains about the legitimacy of the locked funds in a smart contract on one chain.
USN offers 10 APY on reef finance.
Price Action
Current price: $3.5.
ATH price: $20.
Current Mcap: $2.8bn.
ATH Mcap: $12.3bn.
Circulating supply: $800mn.
NEAR doesn’t have max supply. Depends on the total supply currently 1.1 billion and depends on yearly inflation.
72% NEAR in circulation.
They raised $500mn in 2 rounds in 2022 led by FTX, 3AC, and Alameda.
Marketing
650k Twitter followers.
UI/UX
2 mins sent NEAR from Binance to Near wallet on the Near network. Fee 0.01 NEAR.
Bridged 1.5 NEAR from Near to Ethereum for 0.0005 NEAR. Bridging back to Ethereum can take up to 16 hours to finalise. Bridging from Ethereum to Near takes about 10 mins. Great UI though.
1.03s Block time, 2.00s Finality, $0.01 Typical Cost.
Wallet holders and Concerns
More centralised protocol in its early days.
Top validators of Near control 3%-6% of the entire stake of the network.
Only 9 functioning DeFi protocols on Near – mainly dominated by Reef Finance.
USN regulation risks.
Marketing is kind of lagging. Need to reach out to more people.
Needs to prove its time and competition with other Layer-1s.
Bridge risks for Rainbow. Although the bridge has been able to block 2 attacks in the past in just seconds. However, there are more concerns and motivations for future attacks on funds.
Summary | TLDR
Compare all aspects between every blockchain ranging from tech, tokenomics, growth, etc.
The blockchain that has more pros and fewer cons than the other should be your winner.