If you have trouble figuring out which layer 1 blockchains are investment worthy, it’s not your fault.

There’re more L1 chains than Italian restaurants in NYC & things are changing fast. Hard to keep up.

Let’s go through major L1s one by one & assess prospect for each.

Note ’tis my opinion & not investment advice. I try to tell it like it is. If I don’t say nice things abt your bag & you get triggered, sort it out w/ your therapist. I’m not your mother & not obliged to make you happy.

First let’s divide main L1s into 4 tiers according to how much traction they’ve got:

  • Tier 0: Ethereum the OG
  • Tier 1: Start to get network effect: Solana, Avalanche, Terra, Polygon
  • Tier 2: Solid team/tech/funding/etc but little traction: a lot of them
  • Tier WTF: As in “WTF, how does this thing get to such huge mkt cap?”

 

TIER 0: ETHEREUM

Narrative keeps shifting. Stakeholder expectations vary, from sharding solving scaling issue once & for all, to being a settlement layer w/ L2s on top, to competing w/ bitcoin on who’s ultimate ‘sound money’ (the answer is neither).

All are signs of Eth still searching for a pivot in value prop, while alt L1s are growing bazillion times. Existing L2 deployments didn’t have much traction to show for. Expectation for upcoming zk rollup L2s is so high that it’s already hard for them to not disappoint.

The truth is whatever Ethereum wants to be in future— sharding, security layer for L2s etc— newer chains are already delivering similar in more elegant ways, e.g. subnets of Avalanche, appchains of Near, zones of Cosmos.

The world isn’t standing still & waiting for Eth to sort itself out. Hard to see a scenario where Ethereum would outgrow competing solutions.

 

TIER 1

SoLunAvax became a meme b/c these 3 got most adoption among alt L1s & prices reflected that. Their growth curve has only begun. Next 1-2 yrs they may still offer among the best reward/risk tradeoffs in crypto.

But each of these has different opportunities & challenges ahead.

SOLANA

The chain that started current alt L1 wave & only torch holder for monolithic scaling against a sea of modular-architecture group thinks.

The latter is a blessing & a curse.

Blessing b/c #1, nobody else serious is building scalable monolithic chain. For use cases that benefit from having a single state across platform & elegant full composability, Solana has the mkt by itself w/ clean value prop.

#2, monolithic structure means SOL is the one & only platform token. No confusion as to where platform values accrue. Good for stability of community, compared to modular chains where value accrual is shared btw base chain token & its L2s/sub networks (Cosmos being Exhibit A).

Solana has highest staking rate among major L1s for a reason. Community is strong & loud FUD from modular crowd only gives supporters breathing room to accumulate more.

Curse b/c monolithic structure is less flexible & precludes Solana from competing in many potentially promising use cases, e.g. enterprise/private chains. Modular camp also has larger mindshare. More people working on them—> learn from each other—> faster improvement.

None of these alone are reasons to be bullish or bearish. At end of day, a chain is as good as what’s built on top.

Being 1st alt L1 that’s fast, cheap, scalable, Solana’s a step ahead of non-Eth competitors in size of ecosystem & public awareness. Extra rare as it doesn’t have EVM-compatibility as crutch for growth.

But what’s concerning rn is there hasn’t been ultra successful apps coming out of Solana platform. Esp in DeFi. Although number of apps & TVL are growing, OG project Raydium, which is brilliant in neither idea nor execution, still has highest TVL share (15%) after almost 1 yr.

Esp in last 3 mos Raydium dominance barely budged. The lack of outstanding DeFi success stories so far is disappointing given the availability of platform-wide order book is touted as major value prop for DeFi dev.

Next yr’s competition among L1/L2s is only to get more fierce. Gaming/metaverse industry is next main battleground. Solana’s lead would not disappear overnight but it needs more successful apps to keep that lead.

AVALANCHE

No 2 alt L1 in network adoption. It got traction later than Sol w/ bigger room for growth in ST.

Curse for Sol is blessing for Avax— subnet structure offers more flexibility, use cases & possibility for expansion, while EVM compatible C chain leverages Ethereum user base for ST growth. (my android/iOS analogy is not a joke.)

There’re emerging signs of healthy & diversified ecosystem growth w/ native innovations. Strong growth in dev community & promising progress in subsets. DeFi industry on Avax has produced bigger winners than Solana despite a later start.

So far Avax ticks a lot of boxes on my L1 investment checklist. Challenge is other chains w/ similar infra offer but slower start (e.g. Near, Algorand) may be catching up faster next yr. Tech in itself isn’t differentiated enough to be a sufficient moat.

It’s therefore no time to be complacent & Avax needs to leverage existing traction/community to continue attracting quality projects. Still it’s got the most potential at present among SoLunAvax imo.

TERRA/LUNA

It’s fundamentally different from Sol & Avax in that it’s less of an ecosystem but more of a product suite. While the other two are proper networks w/ diversified projects on top, Luna’s growth is driven by 1-2 projects whose dominance is increasing over time.

Anchor alone occupies over 40% of total TVL. If you take out Lido, which is simply a Luna staking service, Anchor’s share goes over 60%.

It’s remarkable that UST stablecoin growth & a couple knockout projects carried Terra to top 10 in mkt cap, which speaks to the power of building products for the masses instead of targeting sm groups of crypto degen nerds.

But there’s little abt Anchor or Mirror that’s not copiable, which raises question abt Terra’s growth momentum & defendability of moat.

The setup is eerily similar to Korean economy, where 4 largest “projects”— Samsung, Hyundai, SK & LG— make up nearly half of GDP. Yes it’s a nimble & creative economy, but also w/ highly concentrated risks unlike larger ecosystems.

As such, my opinion on Terra is similar to that on S Korea— has a place in portfolio but not something to go all in on.

POLYGON

Growth is strong, but given close tie to Eth, most larger apps are ported over from Ethereum. Native innovations are still few.

Its attitude abt tech is mercenary & is willing to throw all sorts of spaghetti against wall to find best way to scale. It hustles hard & pivots fast, which may provide some protection against incoming onslaught of Eth L2 competition.

Potential is weaker than Avax, but w/ strong traction & future momentum it deserves a spot in top 10 mkt cap.

(BTW, like this so far? I write about ideas on investment, macro and human potential. Subscribe to my newsletter for updates.)

TIER 2

These’re chains that’ve got something going for them but traction is low. Some may ascend to Tier 1 & give better returns than SoLunAvax in future. Others will die. If you invest you’d want to monitor progress (or lack of) closely.

NEAR

The more interesting one among Tier 2s. Had slow start but is showing signs of life. Its EVM Aurora is seeing nice pickup in activity (though it’s small, DeFi trends are fickle & tide can turn any day).

Its Octopus network allows app-specific chains & multichain interoperability. And it’s giving copious dev incentives to encourage building.

If it sounds like Avalanche playbook, you’re not wrong. It’s doing the right things to get adoption. Though sustained growth rides on quality of projects that turn out. Too early to tell.

COSMOS

Useful protocol. Unuseful token.

HARMONY

So far it’s a beneficiary of DeFi Kingdoms & not much more. But DFK will be multi-chain, just like many great companies that eventually become multinationals & go where they can find biggest market. Beyond DFK the path to differentiation from competition isn’t clear.

ALGORAND

Wholesome narrative & legit team but need more hustle. Some partnerships & launches here & there, yet still far from escape velocity.

Having 1 or 2 killer apps can really help kickstarting L1 growth. Terra & Harmony are cases in point.

ELROND

Some brilliant marketing but actual traction is featherlight relative to mkt cap. Road to more adoption may be a long & winding one.

A shortcut for protocols in Tier 2 may be to identify & attract projects on other chains that are already successful w/ incentives, similar to how developing countries leverage FDIs (foreign direct investments) to bootstrap growth. That’s a much longer discussion though.

TIER WTF

If a L1 is in top-15 mkt cap but not mentioned even once above, it’s likely in the WTF bucket. Not saying they won’t ever live up to mkt cap, but reality so far doesn’t offer favorable evidence. I’d stay away from those, but it’s obv your own call.

All in all, the space changes fast & there’s always new things coming. Some L1s have good prospect in MT, i.e. next 1-2 yrs. Beyond that you’d need to reevaluate & none of them deserve undying loyalty. Whatever you do, don’t be a maxi.

26 Comments

    • Thank you! Would you be able to cover the other WTF ones? I hold some of them and wonder what you see that makes you less optimistic about them. Thanks!

    • Tascha you have to do Conflux. It is the only legally compliant blockchain in China. It will move to prove of stake. China, whatever it will do it will be centralised.

  1. Would love to hear your opinion on vechain. Do you like it at all?

  2. Tascha, are you able to include datestamp on article written here? 🙂 so that when when click on the recommended articles on the right, we would roughly know when was it written and whether it is still relevant to the current date.

  3. lance miller Reply

    An evaluation with no definitive conclusions is a bit of a nothing burger.

  4. Wonder why the no 6 chain, Cardano (ADA), is not explicitly mentioned… from a team, tech & partnerships perspective I think it‘s at least as strong as Algorand…

    • From my understanding Tascha has no time for projects without traction never mind ones without apps yet.

  5. Tascha keep IOTA on your radar. It’s gonna be the first feeless protocol with EVM support, and many other features.

  6. thanks Tascha for this very useful. I am by no means a Maxi and am involved with some of the names above but I was suprised to see no mention of DOT (and KSM I guess) and FTM. If ever you have thoughts on the DOTSAMA ecosystem I would love to hear them and anything on FTM too. thx!

  7. Very useful, strong synthesizing capabilities. A short completion for Cosmos: if the protocol is actually useful, it’s only a matter of time until the token is useful too. Keep an eye on shared security in Q1 2022 (if they can deliver) and you’ll see the network of zones becoming one huge distributed chain, at the core of which sits… the Cosmos token. Shared security is the mechanism by which a single validator can share trust across multiple chains, which drastically increases staking returns.

  8. Thanks for the great insights on L-1 & L-2, I own most of them. Looking forward to hear your thoughts on interoperability and Quant.. I think interoperability will be front and Center in 2022 and Qnt and it’s tokenomics stand to gain the most in my opinion. Please advise?

  9. Older Grasshopper Reply

    Tascha, just stumbled across ur post. Very nice ‘high-level’ write-up and educational post.

    I don’t believe you fully understand a few of these ECO systems, for example…. while your observation on ANC is spot on… Terra is not about the dApps, it is all about UST demand, and of this month its the largest decentralized stable coin in the Crypto Market place with a nearly $10B market cap.

    In simple terms, it doesn’t matter if Terra builds zero apps, as long as there is more UST being used, the more they burn LUNA, which results in a higher price for LUNA.

    In addition to being the leading ALGO stable coin in the world, they are deploying 160 dApps next quarter. And, ANC is a savings protocol yielding nearly a 20% fixed income on your stable coin. Whether you hold UST, USDC, USDT, or DIA. Check out Orion Money for more info.

    I’d hazard a guess as more regulations and FUD hit crypto, the more people will adopt a DEX stable over a CEX stable. Resulting in a $1000 LUNA price.

    Understanding space n time is limited, I’d consider ADA, DOT, n FTM as solid long term projects.

    In full disclosure, I bought a large bag of LUNA at $5, now I am buying QREDO, it’s my next LUNA type project.

  10. lovely reading your article, I would love to hear your thoughts about theta network project, I hope you can look at it.

  11. Great post which reminded me of previous post on thinking of equities like stocks. Love to hear disagreement on this mapping:

    Ethereum is United States

    Longest history of innovation and rich in idealism (i.e. decentralization), but facing real questions about its longevity as a superpower in a global (read: multi-chain) economy. Still attracts top talent.

    Solana is China

    Many dismiss success in favor of questioning its integrity and scalability (as a result of being a monolith), but the growth and resources are undeniable. Ignore at your own risk.

    Terra is Singapore (not S. Korea)

    Flies under the radar, but smart and resourceful with enviable efficiency (only 13 projects). Outstanding record and great metrics but does it have the potential to grow into a superpower?

    Avalanche is Panama

    Has been on a tear since it forked ETH i.e. took over the canal. Diversified economy with many reasons for optimism. Tall order to grow in the shadow of EVM.

    Polygon is India

    All the ingredients for success — talent, size, productivity — but destined to be a member of the supporting cast rather than a superpower.

    Cardano is Russia

    Has a strongman leader that will tell you dominance is inevitable, but every metric is going the wrong direction and supporters are starting to look more like cultists.

    Polkadot is Brazil

    A long-time investor favorite, but more narrative than traction — “country of the future and always will be” like CDG said

  12. Think I might need to make an appointment with my therapist to restructure my crypto portfolio =) Thanks for the lightning jolt, Tascha. Always appreciate your in-depth analysis of the cryptoverse.

  13. Hi Tascha – loving your work, thank you.

    How do you approach valuation for SOL and AVAX?

    Since EIP 1559, we can assess the value of ETH with reference to the burn rate (this is akin to a share buyback in trad equities). So with ETH I can calculate a P/E ratio (kind of) and a free cash flow yield…but what can we do to analyse the valuation of SOL / AVAX?

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