Blockchain
Contemplating the requirements of 2022 and all that has occurred within the crypto area, layer 1 (“L1s”) can nonetheless be stated to have had a really fascinating and eventful yr. Many notable occasions have taken place within the L1 area over 2022.
From Ethereum’s transition from proof-of-work to proof-of-stake in September, to the implosion of the Terra ecosystem in Might. New layer 1 had been introduced, with Aptos launching its mainnet and Sui anticipated early to take action subsequent yr.
Notable incumbent, BNB Chain and main layer-2 (“L2”) resolution, Polygon, gained market share within the vacuum left by Terra, whereas Solana had a tougher yr, being one of many layer 1 extra impacted by the latest FTX saga. The yr was rife with materials occasions in arguably a very powerful sub-sector inside crypto.
What has occurred?
L1 / L2 market cap and day by day on-chain metrics throughout 2022
Key Observations
- Market cap is, after all, decrease for a mess of causes that we’re not going to dedicate this piece to. Nonetheless, we should always very clearly be aware that market cap doesn’t essentially correlate to essential on-chain metrics when it comes to day by day transactions and energetic addresses. As we will see, BNB Chain and Solana excel right here, whereas Ethereum, regardless of the larger market cap, is evidently decrease when it comes to day by day exercise.
- Ethereum: The Merge! Since this matter has been lined advert nauseum by everybody and their cat, fairly than repeating, we wished to speak about its influence. Knowledge reveals that since finishing the transition to proof-of-stake in mid-September, $ETH provide development is massively down (from 3.58%/y to 0.005%/y). Actually, together with its burn mechanism, $ETH spent nearly all of November as a deflationary asset and presently sits very near that stage.
- BNB Chain: a commendable yr for BNB Chain, with market cap down solely ~45% YTD, fairly a bit higher off than main rivals Ethereum (-64% YTD) and Solana (-90% YTD). BNB Chain was one of many main L1s serving to onboard builders displaced by the Terra and FTX scandals. Each day exercise metrics stay extraordinarily excessive, with the launch of BNB Liquid Staking and zkBNB being notable highlights. Innovation and partnerships within the NFT area are additionally persevering with in full swing, with OpenSea lately asserting help for BNB Chain NFTs on its platform.
- Solana / Avalanche: 2022 was difficult for the traditional “alt-L1” commerce of 2021. Solana noticed some robust traction of their NFT ecosystem, with development in collections, volumes and marketplaces. Avalanche noticed optimistic headlines on the again of their Subnets, which supplied scalability for decentralized functions (“dApps”), notably within the gaming area. Nonetheless, each alt-L1s have suffered from poor publicity (for Solana this got here by way of the FTX scandal, whereas for Avalanche this was a product of some not-so-flattering information that obtained leaked a number of months in the past). Solana has additionally continued to undergo from common outages, calling into query the reliability of the community.
- Layer 2s: Whereas L2s are technically one step faraway from the L1, any dialogue on L1s is incomplete with out at the least commenting on the rising scaling market. Polygon is the undoubtable chief right here, with its quite a few options throughout the board. It has been a robust yr for Polygon, with their enterprise growth persevering with to shine (Starbucks NFTs, Reddit NFTs, Instagram/Meta NFTs to call only a few latest headlines that Polygon has been behind). Extra pure-play L2s, Arbitrum and Optimism have additionally carried out strongly over the previous yr and continued to extend exercise / take market share from a number of the smaller alt-L1s. The OP token’s launch was a notable second for Optimism earlier this yr, whereas Arbitrum continued to concentrate on their core product choices with their launches of Arbitrum Nitro and Arbitrum Nova.
Expectations for 2023
Now that we’ve got obtained some thought of how the key L1s have moved by means of the yr and a few of their notable occasions, what concerning the coming yr? What are our tentative expectations?
Layer 1 (notably a number of the smaller alt-L1s) will really feel the strain of L2s
- One of many main narratives of the yr was so-called “L222” referring to 2022 being the breakout yr for L2s. Did we see this? L2 complete worth locked (“TVL”) figures present that there was a rise of 118% (in ETH phrases) for the reason that begin of the yr. So, in a means, sure. It definitely has been the most important yr that L2s have had to date. Nonetheless, in absolute phrases, complete TVL locked in L2s is barely round US$4.5B. Once we evaluate to complete DeFi TVL in Ethereum (round US$25B), and complete crypto market cap sitting close to US$900B, we will contextualize how far L2s nonetheless should climb.
- Take into account additionally the truth that, as proven in Determine 1, each Arbitrum and Optimism exceed Avalanche when it comes to day by day on-chain exercise. Add to this the rising deployment of alt-L1s dApps on L2s e.g. Dealer Joe of Avalanche lately introduced their deployment on Arbitrum, and it is going to be fascinating to watch what occurs with a number of the smaller alt-L1s. There was an concept that has been mentioned amongst many within the crypto area that the key L1s will merely turn out to be settlement layers, whereas execution and exercise occurs on the L2s. Whereas we’re seeing just a little little bit of this already, 2023 would possibly very properly be the yr that we see this occur on a a lot bigger scale.
New L1s might survive if they really convey one thing new to the desk
- Take into account essentially the most well-known new entrants within the L1 area, Aptos (who went to mainnet in This autumn of this yr) and Sui (who’re anticipated to launch in early 2023). Each of those L1s convey varied new improvements with them, together with the Transfer programming language. Given the background of this language and all that it guarantees, alongside the potential will increase in transaction pace with each L1s, there’s a potential for some true innovation. It needs to be value maintaining an in depth eye on whether or not both or each of those L1s are in a position to make the most of their new applied sciences to convey a few step change within the crypto market.
