We previously stated that Alternative Layer 1s is one of the sectors we will be watching in 2022. So, because there is potential for growth in this sector, we had to have a piece of the pie.
After evaluating hundreds of Layer 1 (L1) blockchains, we have finally chosen a shortlist of contender assets that stand the best chance of competing for market share in the nearly $1 trillion cryptocurrency market.
First, you must read our thesis to understand our selection among the sea of L1s.
Let’s dive in!
Disclaimer: Not financial nor investment advice. Any capital-related decisions you make are your full responsibility.
Things you need to know while reading:
Appchain: a blockchain that is exclusively designed to operate one specific application instead of multiple apps as a public blockchain is designed to do.
Appchains operate on top of existing blockchains in order to take advantage of their security and gas fees. Blockchains that use appchains: Polkadot Parachains, Cosmos Zones and Avalanche Subnets.
Perspective of Selection
These L1s are our contenders because they are:
Layer 1s that have been battle-tested and have established themselves as essential to DeFi.
Layer 1s who could be competitive in this sector. We anticipate strong performance from them in the upcoming bull run.
Since this is our first research report about Near Protocol, Osmosis, and Cronos, we have covered them more extensively than the others.
On September 15th, The Merge, Ethereum’s most anticipated upgrade, will launch, radically altering its consensus mechanism (security) and tokenomics (token model). The Merge catalyst and Danksharding (improving Ethereum’s scalability upgrade) will allow Ethereum to become the core of Web3 as the Ethereum network itself becomes scalable allowing for more adoption.
Ethereum is the king of DeFi, but Solana has proven to be the king of blue-chip NFTs. Solana started the year with congestion issues which slowed down the network. However, Solana has accomplished more than most L1s in just over a year. The upcoming fee market is implemented similarly to Ethereum, with users paying a premium to have their transactions (TXs) processed more quickly. Because of this, SOL will accrue more value and generate more revenue.
Additionally, Jump Crypto (a prominent Web3 infrastructure developer) and Solana are working together to create a separate second validator client in the C++ programming language. This action is crucial to enhancing the network’s decentralization and performance.
BNB Chain (BNB)
The fact that Binance, the largest cryptocurrency exchange in the world, is backing BNB Chain justifies its inclusion on this list even though it is not the strongest L1 available. Following Ethereum, BNB Chain generates the most revenue and DeFi liquidity. BNB has been one of the top 5 cryptocurrencies by market cap for at least a year.
Cosmos Hub (ATOM)
Cosmos (Layer 0) is an ecosystem of interconnected L1 blockchains. These L1s built on top of it connect using IBC, the Inter-Blockchain Communication protocol and share messages. The Cosmos Hub (Layer 1) is the first of thousands of interconnected blockchains that comprise the Cosmos Network. The primary token of the Cosmos Hub is ATOM.
The ATOM token does not accrue great value because its primarily used for governance. ATOM is not used to pay for TXs. The Cosmos Hub has proved vital in the IBC ecosystem and will always have hype regardless of its poor tokenomics.
Near Protocol (NEAR)
In October 2021, Near Protocol unveiled an $800 million ecosystem fund, and ever since, Near has experienced significant growth. Near Protocol claims to be scalable through the use of Nightshade, a sharding technology.
Near achieves EVM-compatibility with Ethereum in a unique way via Aurora, Near’s scaling solution. Ethereum developers can easily write solidity smart contracts and deploy existing dApps to Near through Aurora.
A smart contract’s creator receives 30% of the TX fees on Near. This mechanism encourages developers to build on the network because they can develop a dApp that will generate income for them in the future.
The Octopus Network (OCT) is a multichain, interoperable network for launching application-specific blockchains, aka appchains on Near.
Octopus appchains are fully interoperable with Near. OCT tokens can be used as collateral for cross-chain assets between appchains and Near.
Mina Protocol is a 22-kb blockchain that enables anyone to participate in network security through a smartphone. Mina Protocol leverages ZK-SNARKs tech to allow use cases between the real world and Web3.
Off-chain verification and private scalable dApps are features that will enable Mina to assist the crypto industry. Mina is still under development, which accounts for its lack of traction.
The most anticipated event on Mina’s roadmap is zkApps, zero knowledge apps. ZkApps should go live in Q3-Q4. Mina Protocol is covered fully here.
Acala is a Polkadot-based DeFi network that supports the Acala Dollar (aUSD) ecosystem and is EVM-compatible. Acala makes use of the Homa protocol to support liquid staking. Users stake their tokens, and in exchange, they are given L-Tokens (such as LDOT), which represent the principal asset and the continuously accruing staking yield.
Liquidity from various chains and token standards can be used for a range of DeFi activities on Acala. Acala is fully covered here.
Acala Dollar got exploited in August, and the chain is in maintenance mode until further notice. More on this incident can be found here.
Astar Network either using WASM/rust or EVM/solidity offers developers various ways to write smart contracts. ZK scaling solutions have been created by Astar to increase the scalability of the network.
Based on a dynamic rewards model, Astar allocates staking rewards to application developers. Developers will eventually receive 50% of Astar’s staking rewards.
Acala and Astar will work together to develop several new cross-chain use cases and aUSD liquidity pools in the Astar ecosystem. Astar is covered fully here.
Moonbeam is a cross-chain smart contract platform that is EVM-compatible. The XC-20 token class, which Moonbeam introduced, is a new token class that offers the native interoperability of Substrate-based assets while letting users and developers communicate using the well-known ERC-20 tokens.
LayerZero and Moonbeam recently integrated. Without being limited by solo chain development, Moonbeam developers can create the next generation of applications using LayerZero’s messaging standard.
Astar and Moonbeam recently integrated, enabling Astar’s ASTR token throughout the Moonbeam DApp ecosystem as xcASTR deposited on Moonbeam.
Moonbeam is covered fully here.
Parallel Finance (PARA)
The DeFi platform Parallel Finance has a lot of features. Numerous financial services are available, including a DEX, lending and borrowing, an NFT marketplace, a DAO, liquid staking, and cross-chain bridging. Parallel integrates leverage staking, which allows users to lend and stake simultaneously, thus earning double yield.
These use cases can all expand the multi-chain universe and drive liquidity in the ecosystem. More on Parallel Finance here.
Osmosis is a decentralised exchange (DEX) supported Inter-Blockchain Communication (IBC) protocol in the Cosmos ecosystem. Users can start liquidity pools with features like multi-weighted asset pools and bonding curves. In the Cosmos ecosystem, Osmosis has the most IBC transfers.
The Osmosis automated market maker (AMM) affords users the ability to create new and unique liquidity pools that are controlled and voted on by governance participants.
Users can send ERC-20 tokens from Ethereum to Osmosis via the Althea gravity bridge – a trustless bridge. Because Osmosis is built on the Cosmos ecosystem, users are able to natively trade assets from more than 47 different chains within Cosmos.
Osmosis introduces superfluid staking. OSMO can be used simultaneously to stake and provide liquidity – a feature that makes OSMO unique.
Similar to Bitcoin’s halving, which reduces token issuance by half every four years, Osmosis will reduce token issuance by one-third annually. The initial distribution of OSMO provides users with a strong incentive through:
25% staking rewards.
45% Liquidity Mining program. LPs can bond their LP tokens to receive liquidity mining rewards.
Cronos is an EVM-compatible blockchain that supports the Ethereum and Cosmos ecosystems. Crypto.com, one of the largest exchanges in the world, supports Cronos. Ethermint, the technology that powers Cronos, enables quick dApp and smart contract porting from Ethereum chains. Cronos is connected to the IBC.
The mainnet for Cronos Chain launched in November 2021. TVL growth has exploded despite the recent launch. The Cosmos ecosystem’s highest TVL belongs to Cronos. The $100 million CRO EVM fund, which provides incentives for developers to build on Cronos, may be partially responsible for this.
There are at least 120 dApps built on Cronos and at least 3,500 different CRC-20 tokens minted. The Cronos gravity bridge is anticipated to connect Ethereum and Cosmos soon.
Cronos has its own NFT marketplace where users use CRO to make NFT purchases. The NFT marketplace created billions worth of demand for CRO in recent months.
Increasing cashback, growing interest in staking on Crypto Earn, and purchase rebates on Expedia, Airbnb, Spotify, Netflix, and Amazon Prime are additional incentives to stake and hold the CRO token.
Staking CRO can also result in lower trading fees. The discount rate increment rises as the stake increases, but they are not always linear.
Inevitably, crypto will soon reach a multi-trillion valuation, where Layer 1s will occupy a sizable portion of the market. Layer 1s will be the base infrastructure for Web3 to allow decentralised apps to thrive.
In the following report, we will go over a new type of Layer 1s that are being built. These L1s have caught our attention because they offer unique new features that can improve upon existing L1s. These new L1s are already being called Solana killers
From there, we will selectively choose our top L1 picks from both reports. Our final selection will be the L1s we believe will have the best chance of competing in this sector.