Aren’t there a bit too many chains?
I'm afraid no one can figure out how many chains there are now.
Once upon a time, blockchain replaced Bitcoin as the synonym of the entire industry, and the chain became the pearl of the entire crypto industry. The market would discuss the similarities and differences of each chain like a treasure. However, with the iteration of technology and the migration of narratives, the times have changed - the more chains there are, the more use cases are falsified; when old chains are falsified, new chains will fill in with a "higher, faster, stronger" attitude. God knows how many chains there are now?
In "100 Fencing Moves" about cold weapons written by German swordsmanship master Michael Hunt, Hunt's last move was to advise his lord to choose a hot weapon, a musket, as his deputy in a duel.
Not only can no one count how many chains there are. More importantly, the Layer 1 and Layer 2 with large financing are no longer sexy in the eyes of Mr. Market. Faced with the homogenized usage experience, it seems that only airdrop hunters and automated programs are persisting. Through the data, we can find that now there are more than one chain whose TVL value cannot match the project's financing amount, and there are few public chains whose token market value can exceed the value of the assets on the chain. It seems that the public chain that was once envisioned to run the entire "world" has only served the chain itself in the end.
In the financial industry in recent years, it seems that narrative can always serve as the primary productive force. Everyone grew up listening to stories, but encrypted stories have become narratives, and the content has changed from the Little Red Riding Hood and the Big Bad Wolf that we loved as children to the paradigm shift and "To da moon" that adults pursue.
Every "king-level" project or hot track is wrapped in a story. It is best to have a story that can evolve and iterate repeatedly. The narrative processed by such a story is the favorite of event-driven investors - with a story, there is an expectation, and with expectations, there can be a higher valuation. As a highly cyclical industry, the narrative after the tide is always found to be swimming naked, and the stronger the narrative, the stronger the negative feedback.
Narratives are good, but don’t be greedy. For projects derived from various narratives, timing is key. There are many cases where the once most attractive narrative, such as the public chain, was shot on the shore. From the historical law of the crypto industry, this is inevitable. Technological progress derives new tracks, and the blue ocean eventually turns into a red ocean.
In the Bitcoin era, adjusting parameters and algorithms created Litecoin and Dogecoin. Polkadot, Cardano, Zilliqa, Qtum, ICON, Aeternity, etc. - Ethereum and Ethereum killer narratives in some areas have created too many "zombie chains" that are now seen as "zombie chains", and even IOTA can trigger the once popular DAG (directed acyclic graph) concept.
What is more well-known is the DeFi Summer and EVM chain boom, from DEX to yield aggregator machine gun pool to decentralized contract and option platform, and finally copying Ethereum's protocol to other EVM-compatible chains. It is likely that less than 10% of the imitators on various EVM chains are still active in the market.
Take DEX Clipper as an example. Clipper uses serving retail investors and optimizing transactions below $10,000 as its promotional slogan. In 2021, it raised 20 million from institutions such as Polychain, 0x Labs, 1inch, and DeFi Alliance. However, after the token was launched this year, even the full circulation market value was only 9 million US dollars. If the project chooses to launch the token in 2021, even if the DEX data does not change much, I believe the situation will be much better. This is the importance of timing.
The same is true for the chain. If the timing is wrong, you will get half the result with twice the effort. The current market situation is just as Richard Chen of 1confirmation said. Although many media reported that crypto VC funds are drying up, in fact, new financing is constantly being carried out. It’s just that investors have long lost interest in assisting projects that have raised funds and spent them in the bull market without PMF.
PMF, Product Market Fit, is about making something that users want. Marc Andreessen, founder of a16z, mentioned it in a blog post in 2007 and it was popularized.
If we go back to the original question, how many chains are there?
The following data can only be used as a partial reference: ChianList, a website that provides RPC-related services, includes more than 550 EVM-compatible mainnets, the data website DefiLlama includes 221 chains, of which 132 are EVM-compatible chains, and L 2B EAT includes 48 L2s (including 15 projects that are about to be launched).
When LobsterDAO communicated with developers about this issue, a community member said, “In addition to the chains included in ChainList, I estimate that there are another 500 private, non-public chains in operation.”
Combined with the current market situation, it is obvious that under the traditional model, chain may no longer be a good business.
Disenchantment with public chains: the era of one-click chain launch is coming
Faced with the huge valuation of public chains that are still pouring in, users are in urgent need of breaking the long-standing concept. In most people's cognition, running a chain requires a lot of technology, money and time. However, through RaaS (Rollup as a Service), the existing technology is integrated and packaged, and the chain is no longer an encrypted pearl that ordinary people cannot touch, but more like a swallow in the old days.
The author had a conversation with the DF Archon team, which had used the Raas service platform Altlayer to build an L2. During the conversation, the team also expressed their recognition that RaaS is easy to build L2, and said that the mature codes on various EVM networks can be directly deployed on the chain, which is very convenient.
The DF Archon team previously launched the community round test of the full-chain game Dark Forest. Unlike the official version built on the sidechain xDai (now Gnosis), the community round uses the L2 testnet supported by Altlayer. In the communication with the author, the team members said that it is relatively easy to build an L2 testnet, and they also received free services from Altlayer. If it is for profit, then even the native tokens of the new chain can be priced.
DF Archon hosted the DF ARES v 0.1 Round 1 competition. It was reported that the event was supported by projects such as AltLayer, Weirdo Ghost Gang, 01 a 1, briq and TownStory Galaxy.
Not only Altlayer, there are already a large number of ready-to-use RaaS services in the market. I also used another RaaS product, Conduit, which helped Zora release the testnet and mainnet based on OP Stack. After testing, it is no exaggeration to say that building an OP L2 test chain only requires one click of the mouse.
Note: When deploying the testnet, Conduit's L1 and L2 are both in the testnet state, which may be the reason why ordinary deployment users do not need to pay any fees.
It takes some time to deploy
Transferring funds on the built L2 test network
According to the official documentation, in addition to deployment, users will also get logs, monitoring, Blockscout browser, and samczsun's transaction tracker. As Conduit is upgraded, users will also automatically gain access to new components. Unlike Altlayer, Conduit does not currently support the use of its own native tokens to pay for gas fees. According to their explanation, "because these native token gas fees will eventually be transferred to ETH because DA will transfer the native tokens to ETH." However, this kind of detailed problem is not immutable. With the iteration of the business model, everything is possible.
In short, if you want, you can build a Gobang game on your own test network and make sure you never regret your moves. Or deploy any potential use case like Uniswap, dark forest, etc. for testing, and you can also experience the pleasure of dominating the "computer room chain" - pausing this chain.
In addition to the recently popular OP RaaS, L 2B EAT, which focuses on L2 research, also recently published an article guiding users to deploy sovereign Rollup chains, entitled Build Your Own Rollup.
BYOR echoes the common term DYOR in the crypto circle, which stands for Do Your Own Reserach.
BYOR’s codebase consists of three programs: smart contracts, nodes, and wallets. The following technology stack is used:
Node: Node.js, TypeScript, tRPC, Postgres, viem, drizzle-orm
Wallet: TypeScript, tRPC, Next.js, WalletConnect
BYOR can implement functions such as fee sorting, publishing status to L1 and obtaining status from L1, discarding invalid transactions, viewing account balances, sending transactions, and viewing transaction status.
Not only that, Arbitrum's Orbit network, which is dedicated to private chains, is also about to go online. The Polygon team, which is recognized as the most capable BD (Business Development) team in the crypto community, has already brought in Canto, which was previously based on Cosmos, and Manta, which moved from Polkadot to OP.
In general, the technological development of the crypto industry has upgraded and iterated from "one-click coin issuance" to "one-click chain issuance".
Is the chain still a good business?
The fact that "there are thousands of chains for thousands of people" has disenchanted the chain among the general public, and the so-called top public chains have received mediocre market responses, and even have a sense of "dying in the light". In this case, we see the cruel side of the market: traditional and boring giants are either iterated or replaced. Mr. Market, who can't bear the irritability and loves novelty and hates the old, has begun to look for the next narrative like Socialfi, RWA and Telegram Bot.
But even though the chain has been so involuted, there are still chains that continue to develop. It’s just that the traditional model of huge financing and star teams-issuing coins-distributing coins may not work anymore.
Before introducing new possibilities, let me first quote a set of data that is easily overlooked: According to DeFiLlama, Tron (i.e. Tron) has more than 1.5 million daily active users and more than $1 million in daily revenue. In comparison, Ethereum's daily revenue is only more than $2 million, and Ethereum's revenue is distributed to a wide range of interest groups. Judging from many indicators such as TVL, number of active users, and stablecoin issuance, Tron has long been the public chain second only to Ethereum. With an annual revenue of nearly $400 million, Tron may be the most low-key and stable "money printing machine" in the industry.
Data source: Tronscan
Although users rarely see Tron in daily interactions with dApps except for Justin Sun’s marketing events, Tron is a real cash cow - it makes a lot of money mainly from the service fees for stablecoin transfers.
Tron did not choose this path from the beginning. The earliest Tron was positioned as digital content entertainment, and it evolved to what it is today through continuous iteration. Tron's achievements are also due to the fact that it was the first public chain to notice the stable currency on the chain, and launched free transfer fees and cooperation with major centralized trading platforms in the early stage, and gradually developed to more and more sinking markets. If Tether built a stable currency empire by issuing USDT, then Tron is the busiest and most profitable carrier in this empire.
Like a reincarnation, today's L2s have entered a similar stage - centralized sorters make running a chain more profitable.
Source link
The main source of the transaction fee income mentioned in the above figure is the transaction spread: the transaction fee income obtained on L2, minus the cost of L2 packaging the transactions on its chain into groups and transmitting the proofs to the Ethereum mainnet.
Igor Barinov, a former member of the xDAI team (now acquired by Gnosis) and current Blockscout and zkBob developer, once said that the cost of running a sorter is negligible compared to the profits from transaction fee surpluses and potential governance tokens.
Without considering the accusation of centralization (some people think that today's L2 is somewhat similar to the older concept of consortium chain; decentralized sorter is imperative), today's L2 proposes a new business model for the chain, the foundation of the encryption industry, and solves some deep-rooted problems in the encryption industry.
Real cash flow and "coinless" blockchain
I don’t know if you still remember the revenue governance sharing agreement jointly announced by Base and Optimism on August 25. The main content of the agreement is: Base will pay Optimism Collective 2.5% of its revenue or 15% of its profits, whichever is higher. In return, Base will receive up to approximately 118 million OP tokens.
According to the speculation and narration of user @0x jaypeg, L2 project parties can certainly create value by issuing tokens to capture the existing liquidity in the market - making money, but for Base and Coinbase behind it, issuing tokens poses regulatory and legal issues. By exchanging OP tokens for future income, it can serve as a proxy for directly issuing Base tokens. According to the data of the Base chain at that time, Optimism actually sold OP tokens to Base at a price of $0.25 to $0.3.
For Base, the revenue from the chain locks in excess "returns" while avoiding legal risks. For Optimism, it seems to be a good business to be optimistic about and bet on the future development prospects of Base, release OP token liquidity, and advertise Op Stack to potential customers through Coinbase.
As more and more projects like Uniswap choose to increase sustainable income by charging service fees, stable cash flow has become more and more the focus of projects. The business model of L2 is undoubtedly the most adaptable and consistent field in the crypto industry for sustainable cash flow - if someone uses it, there is money to be made.
In the last cycle, the all-purpose use cases that were popular, governance tokens are gradually losing their governance functions under the background of legal supervision and lack of funds. If some projects have legal concerns, or are trapped in the token use cases and token economic model issues, which are one of the ultimate problems in the crypto industry, and choose to weaken or even avoid the issue of issuing coins, then a form of exchange similar to Base and Op may be a path to explore. Of course, this requires the protocol to have enough real users and actual benefits.
Optimize cooperation and focus on own development
It may be a good idea to distinguish the focus of chains and applications. If we change our mindset, and applications focus on building solid and useful products, and public chains change from using token incentives to incentives for the actual performance of each protocol, the effect may not only be better, but the distribution of actual public chain revenue is also far more transparent and lasting than limited tokens, and even the chain and application can rise and fall together.
If a chain announces that it will give each protocol a certain percentage of the fees it creates for its on-chain applications, it may start a new round of inter-chain arms race. The redistribution of revenue at the protocol level has been upgraded to the public chain level. I believe that this year's popular Rollbit, Unibot and friend.tech, as well as Opensea, Uniswap and other protocols that require high-frequency interaction by users, will be very interested in this.
If it is more extreme, assuming that the application is built directly on its own chain, then the gas consumed by its contract can be used to calculate its income. This article uses the L2 chain as 1/50 of the Ethereum mainnet gas fee as an example to make a simple calculation. From May 8 to October 22, Uniswap consumed more than 64 million US dollars in gas fees in 5 and a half months, which is equivalent to L2's income of about 1.3 million US dollars, and monthly income exceeds 200,000 US dollars. Although it is extremely inappropriate to talk about this amount of interaction without considering liquidity, it does tell developers: if you build a crypto project again, you can try to focus on product design. Even if you only earn money from users using the protocol, you can live well.
Not only is there a new way to distribute income, but the division of labor between chains and applications can also be optimized. At a time when building your own chain has become a trend, whether it is Argus focusing on onchain games and Merit Circle, or Zora focusing on NFTs, or dYdX and Aevo focusing on derivatives, they have already or plan to launch their own chains. Many of these projects do not build their own chains from scratch, but choose to develop through cooperation or reference.
Source: How to scale app rollups
Similar to the white label companies that were popular on centralized platforms before. For professional public chain teams, building a decentralized network for protocols with specific use case requirements and earning a certain amount of service fees and commissions from project development is a good way. The public chain team is freed from the troubles of foundation operations and marketing and other complicated affairs, focusing on the technical iteration of the chain itself, providing users with a high-quality user experience and a good development environment for developers.
Final Thoughts
"Every project has its own era and the threshold of the era. If you pass it, it is a door, and if you don't, it is a threshold. When the times abandon you, it won't say hello to you, and you can't even keep up with its heels." The door to the era when traditional public chains are popular may be slowly closing.
The future of narrative and mass adoption is still unknown, but chains are certainly no longer "rare things". When we look at public chains from the perspective of on-chain transaction usage, revenue, user data and asset data rather than currency prices, degree of decentralization, technology and orthodoxy, the focus will shift greatly: chains are more inclined to products, data reflects the market's catering to products, and chains must also adjust their positioning based on data.
Looking back at history, even Ethereum has to admit that “products evolve, not plan”, and that absolute decentralization is neither possible nor realistic. Why can’t “Web 2.5”, where the sorter is centralized and on-chain data is open and transparent, be a new path to promote the development of the industry ecosystem and the implementation of Mass Adoption?
References:
From "Paradigm Shift" to "Attention Shift": Narrative vs. First Principles
《Analyzing the Base <> Optimism deal》
Building Your Own Rollup
