The market value of new public chains has surged, but on-chain applications are lackluster

2021 is another year of contention among public chains. Emerging public chains such as Solana, Fantom, and Avalanche that pursue high performance have been launched one after another and are vigorously carrying out ecological construction.

As the main representative among them, Solana's current total locked value has reached 12.47 billion US dollars, second only to Ethereum and Binance Smart Chain BSC. The circulation market value of its on-chain native token SOL has reached 60.097 billion US dollars, ranking 6th in the cryptocurrency market value ranking, and has become the new mainstream in the crypto world.

While SOL is leading the pack, Solana’s ecosystem development is lagging behind. According to Defillama data, there are only 30 relatively active applications on the Solana chain, of which the top ten protocols have a total TVL of $11.35 billion, accounting for 91% of the entire ecosystem on the chain.

Except for the two DEXs, Raydium and Serum, most of the protocols on the Solana chain are not well-known. This situation is also reflected in other new public chains. Currently, Avalanche ranks 12th in the crypto asset market value ranking, and Fantom ranks 40th, but the market value of the top applications on both chains is ranked outside the top 200. BSC, which started ecological construction earlier, performed relatively better, giving birth to well-known applications such as PancakeSwap and Venus, but its development path backed by the coin security ecosystem is difficult to be replicated by other public chains.

The new generation of public chains hold high the banner of high performance, but the well-known applications on the chain are lackluster, just like a highway that has been built, but few cars run on the road. Whether in the field of NFT, derivatives, DeFi2.0 or even GameFi, Ethereum is still the source of innovation. Some DeFi analysts believe that the core advantage of Ethereum lies in its strong network effect. "It is like a congested and expensive metropolis, while other public chains are like towns and plains under construction."

For new public chains, building network effects is undoubtedly a long process. They not only need to improve the infrastructure, but also need to establish Uniswap-level ace applications to complete qualitative changes. After DeFi has released a round of dividends, GameFi may contain opportunities.

Solana has a high market value but few on-chain applications

Since the public chain war started in 2017, the crypto world has witnessed the thriving growth of Ethereum and the ups and downs of public chains such as EOS and TRX, but the final answer to the public chain has not yet appeared. In 2021, more "problem solvers" have come, and a group of emerging public chains pursuing high performance, such as Solana, Fantom, and Avalanche, have all landed and blossomed, opening another round of exploration of public chain advancement.

Solana is undoubtedly the most powerful representative of this group of emerging public chains. According to Deflama data, as of November 19, the total locked value (TVL) of Solana chain reached 12.47 billion US dollars, ranking third among all public chains. The top two are Ethereum and BSC, with on-chain TVL of 166.79 billion US dollars and 18.46 billion US dollars respectively.

When Solana mainnet was first launched, it painted a grand blueprint for the crypto world, which is to build an Internet-level blockchain network. Its official website claims that high throughput is a major feature of Solana, and TPS can reach 50,000+, which is 10 times that of public chains such as BSC and Heco.

What is noteworthy is that Solana's founding team not only includes former engineers from major companies such as Qualcomm, Intel, and Dropbox, but also attracted many developers due to the support of FTX founder and talented trader Sam (Sam Bankman-Fried). During its mainnet deployment phase, more than 100 projects announced that they would develop on Solana, covering all mainstream sectors of DeFi.

Since the beginning of this year, Solana's market value has been rising rapidly in the process of building its ecosystem. According to data from CoinMarketCap, the current market value of Solana's native token SOL has reached 60.097 billion US dollars, ranking sixth in the crypto asset market value ranking, and has become a new mainstream in the crypto world.

However, when Solana became famous and had a high market value, the development of its on-chain applications did not seem to keep up. Both the popularity and market value of the leading protocols were far from those of the public chain itself.

Defillama data shows that there are only more than 30 relatively active applications on the Solana chain. The top five in terms of TVL are Raydium, Serum, Marinade, Orca and Saber. Except for Marinade, a liquidity solution, the others are decentralized exchanges (DEX). At the same time, the distribution of funds on the chain is relatively concentrated. The TVL of the top ten protocols totals 11.35 billion US dollars, accounting for 91% of the entire chain ecosystem.

Solana on-chain application TVL ranking

Judging from market feedback, the most well-known application on the Solana chain is Serum, for which Sam serves as a consultant. It is also the first DEX on the chain. Its main feature is that it moves the order book trading model to the chain and can achieve a relatively smooth trading experience. In addition, Raydium, an AMM mechanism exchange similar to Pancakeswap, is also a mainstream protocol on the chain. However, a closer look reveals that in addition to these trading protocols and lending and financial management protocols such as Solend and Tulip Protocol, it is difficult to see more highlights on the Sonala chain.

From the perspective of market value, the top two applications on the Solana chain are Serum and Raydium, but they are only ranked 122nd and 129th respectively on the crypto asset market value list, with a circulating market value of US$754 million and US$722 million respectively. In comparison, Ethereum's iconic application Uniswap ranks 18th on the market value list, and BSC's top application PancakeSwap ranks 48th.

Beneath the surface of Solana’s prosperous ecological development, there are relatively few innovative applications, and it lacks top-level applications like Uniswap and Maker in the Ethereum network, giving it the weird phenomenon of having a “thick trunk and thin branches”.

In addition, Solana's network performance has also shown an unstable side under the test of the market. In mid-September, Solana was down for more than 13 hours due to a large number of load transactions, causing on-chain applications to be unable to operate normally.

It is difficult for new chains to come up with ace applications and BSC paths are difficult to replicate.

Although Solana has developed fast enough, it still exposes the common problems of emerging public chains, that is, the market value of public chains has soared, but there is a lack of innovative applications on the chain, and most applications seem to be "copycat versions" copied from the Ethereum chain.

According to data from CoinMarketCap, Avalanche currently ranks 12th in the cryptocurrency market and Fantom ranks 40th. Although the market value of these new public chains has increased dozens of times in the past year, most of them are not very good when it comes to on-chain applications.

Currently, the top native applications on the Avalanche chain are the trading protocol Trader Joe, the lending protocol Benqi, and the trading protocol Pangolin. The TVLs of the three are US$1.5 billion, US$1.31 billion, and US$420 million, respectively, and their market capitalizations rank only 252nd, 591st, and 409th.

The native leading application on the Fantom chain is SpookySwap, with a TVL of US$548 million. It has not yet been included in the market value rankings on CoinMarketCap, a crypto asset data collection website.

Overall, the applications that can attract the most funds and have the largest scale on these emerging public chains are DEXs, and these DEXs are generally evolved products of Uniswap. That is, in addition to the core module of the AMM (automatic market maker) mechanism, new functions such as yield farming, IDO, and NFT have been added. This evolutionary route was first pioneered by Pancake Swap on the BSC chain.

Raydium Trading Page

The side effects of the lack of innovation at the product level are also very obvious. None of the top applications on Solana, Avalanche and Fantom are among the top 100 in market value, which shows that their ecological accumulation is still relatively weak.

Some industry insiders believe that the market value of public chains such as Solana is high, but the market value of applications is low, mainly because the market is generally optimistic about the growth potential of public chains as underlying infrastructure. This logic is similar to the early EOS; while on-chain applications are more inclined to the business layer, and their market value is closely related to TVL, number of users and operating mechanisms, so the market valuation of them is more rational.

It is worth mentioning that among the new public chains that have been launched in the past two years, BSC is a special one, with better ecological development and a higher market value of the head protocols. A number of well-known applications have been launched on BSC, including PancakeSwap, Venus, AutoFarm, Alpaca Finance, etc.

The earlier start of ecological development is an important factor that enables BSC to stay ahead of public chains such as Solana, but the strong support of the Binance trading platform behind it seems to be more critical, which also makes it difficult for other public chains to replicate the rise path.

Unlike other public chains, BSC directly uses Binance platform token BNB as the native token on the chain, establishing a deep connection between the exchange and the public chain. After BSC went online, Binance provided support in many aspects such as capital, traffic, technology, and resources. For example, it set up a $100 million seed fund to support projects and developers, collaborated with project parties in marketing and business development, and launched hackathon development activities.

In the eyes of many users, there is another important reason to choose BSC, that is, Binance often lists high-quality projects on the BSC chain on the site, and usually, the projects listed on Binance will show good market value performance, and the wealth effect attracts a large number of users to conduct early mining on the chain. This is also an advantage that other emerging public chains do not have.

Backed by the huge resources of Binance, BSC has maintained a strong momentum of development. However, the close relationship with Binance has also brought some side effects. For example, BSC only uses 21 verification nodes and has been criticized for not being decentralized enough. In addition, there have been many security incidents in BSC chain applications.

Where is the breaking point?

The new generation of public chains hold high the banner of high performance, but the on-chain applications are lackluster, which is particularly contradictory. Although the current Ethereum TPS is only in the double digits and the gas fee for a single transaction on the chain is often as high as more than $100, it has always been a vibrant place for innovation in blockchain on-chain applications.

In addition to pioneering innovative DeFi protocols such as Uniswap and Aave, Ethereum has shown pioneering and first-launch characteristics in NFT, on-chain derivatives, DeFi 2.0, and even GameFi, which is extremely dependent on on-chain performance.

In terms of NFT, CryptoPunks was born on Ethereum in the early days and became popular this year; after the concept of NFT became popular, applications such as BoredApe and Loot appeared on Ethereum, leading other chains to follow suit; in terms of derivatives, the transaction volume of the dydx protocol based on Ethereum Layer2 solution once exceeded Uniswap, and the trading experience is comparable to that of centralized exchanges; and the recent DeFi 2.0 projects represented by the non-anchored stablecoin protocol OlympusDAO and the decentralized market-making protocol Tokemak also originated on Ethereum, and then triggered imitations on other chains; in terms of GameFi, Axie Infinity is the leader in this field, and it is built on the Ethereum side chain RoninChain.

Here comes the question. Logically speaking, whether it is DeFi, NFT or GameFi, they all require high-performance support from the chain. When there are so many new high-performance, low-fee public chains on the market, why do innovative traffic projects still appear frequently on Ethereum?

In the view of Kyle Samani, co-founder of investment company Multicoin Capital, the main advantage of Ethereum is that its network effect is the broadest, and its chain includes comprehensive DeFi protocols, development tools, collision of ideas, and technical solutions such as Layer2. "Everyone in the crypto field is developing a bridge to Ethereum as an economic link."

Undoubtedly, Ethereum's huge network effect benefits from its long-term accumulation. As the earliest public chain that can deploy smart contracts, almost all blockchain developers start with Ethereum. As more and more ace-level applications emerge, Ethereum's blockchain city is getting bigger and bigger and more prosperous.

A developer once gave a vivid example to describe the difference between Ethereum and other public chains. He said that Ethereum is like a metropolis with traffic congestion and high prices. Despite these shortcomings, it is more prosperous, more convenient, more avant-garde, and more dynamic; new public chains are like sparsely populated towns or plains under construction. Apart from no congestion and low prices, it is difficult to find other highlights.

Judging from the development trajectory of emerging public chains, they are in the stage of city construction, which may attract many developers and users, but it is difficult to compare with Ethereum in terms of scale, so it is not surprising that they cannot challenge Ethereum.

In the view of industry insiders, building a network effect is a long process, which requires new public chains to first establish a sound infrastructure and then increase innovation. If a Uniswap-level ace application can be born, it may bring qualitative changes to the chain ecology and form an ecological linkage. "GameFi may be an opportunity for new public chains. It needs more performance support, and this field is relatively new. It is not as popular as DeFi, and users also seek novelty and speed."

Currently, new public chains such as Solana are accelerating the pace of building on-chain cities. Networks such as Avalanche and Fantom have put out hundreds of millions of dollars as ecological incentives, which will help them catch up with Ethereum. However, the market still needs to have a clear understanding of emerging public chains. In the case of high market value of public chains, if the development of on-chain ecology cannot keep up with the pace, it will be like a castle in the air. EOS, whose market value ranking has slipped from the top five to the 45th, is a lesson for us.