L2s Are the New Old L1s—And Why ETH's Price Is Stuck.

Ignas
@DefiIgnas · 16 Oct 2024
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Did Ethereum win the L1 wars?

It's now an obvious no, you'd say. And that's a big reason why $ETH price is stagnating.

But ETH as "L1 winner" was a common belief during the bear run. This was a lesson for me, too.

We all knew the bull market would arrive, so many sold their alt-L1 bags and loaded up on the two assets we believed wouldn't disappear: BTC and ETH.

All other L1s were supposed to fade into oblivion for two reasons:

First, alt-L1s competed for the same yield-thirsty degens by offering liquidity mining rewards on top of the same forked protocols as Aave & Uniswap V2.

There was little innovation on the app layer outside of Ethereum.

Avalanche, BNB Chain, Polygon... They were all the same. Their only distinguishing factors were:

1) lower gas fees
2) speed
3) branding
4) how many tokens in liquidity mining rewards they could offer.

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Secondly, the new narrative of Ethereum L2s emerged with Optimism, Arbitrum etc. promising to bring scalability without compromising on security.

Both did great even during the bear run while alt-L1s kept losing TVL and users.

Alt-L1s were in big trouble and needed to reinvent themselves. And they did.

Solana is the biggest slap in the face to ETH maxis.

SOL got hit extra hard due to FTX collapse but not only recovered but shattered the illusion that Ethereum rollup approach is the only viable scaling solution.

As more L2s kept launching, the liquidity and UX fragmentation problems worsened. With each L2, Solana's monolithic approach became more attractive.

The emergence of modular vs. monolithic debate ended the "Ethereum won the L1 wars" narrative.

Same degens who loaded up with ETH during the bear, now continue to sell ETH for SOL and other L1s.

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Other L1s innovated too and now have clearer, more diverse visions than a few years ago.

• Avalanche: Just launched Avax9000, enabling permissionless L1 (not L2!) launches for app-specific needs.

99% of us have NO IDEA what Avalanche9000 is about to deliver. Retro9000’s $40M in grants is fueling builders – but that’s just the start. Here’s how Avalanche is about to grow bigger than ever with the Avalanche9000 upgrade: 🔺🧵👇
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In contrast to ETH L2s, Avax L1s benefit for unified cross-chain communication. And Avalanche has a clearer value accrual to the main chain.

Avax biggest win is the Off the Grid game, showing that Avalanche vision is working out. It can revive the good-old GameFi narrative, too.

Off The Grid Twitch numbers are off the charts! 📈 Last 7 days: • 2.6M Hours Watched • 38,454 Hours Broadcasted • 15,626 Streamers (Up from 3.2k on day 3!) worth noting that, among the top 10 most-watched streamers, the top 2 are huge Spanish and Italian creators!
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• Near: Establishing itself as a Monolithic AND Modular blockchain. Near also offers Chain Abstraction to L2s via Unified UI (BOS), L2 account aggregation, and implemented sharding on which Ethereum gave up.

Crypto is a battle for attention, esp. for L1s competing for users and devs. While some eco focus on promos, point-to-airdrops, or unique cultures, others lean on tech and vision. Let’s examine NEAR and see how effective communication can drive fundamentals to growth 🧠🧵 1/24
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• BNB Chain: Launched an opBNB L2 to reduce fees but more important upgrade is BNB Greenfield to focus on DataFi for data & IP monetization, and decentralized AI (LLM training with privacy protection).

• Fantom: Doubling down on monolithic design with Sonic upgrade to bring 2k TPS without sharding or L2s. The goal is to attract new gen of dapps.

• Gnosis: Building financial dApps that I use daily.

In the memecoin trading and airdrop farming era, Gnosis excites me about crypto's future. Gnosis recently announced the 3.0 vision to build valuable financial dApps that even your neighbour could use. It's not just empty promises. I already use Gnosis more often than any other chain. For example, Europooors can use self-custodial (!!!) @gnosispay card with @monerium's EURe stablecoin. Add your card and track your expenditure with @zealwallet Or you can simply cash out EURe to fiat EUR via Monerium directly. → Tip: Borrow EURe on Aave v3 with your crypto collateral—never sell your crypto and optimize your taxes. Gnosis are crypto OGs - started in 2016 as a prediction market. --------- Part of the Gnosis 3.0 is focus on incubating unique dApps and spin them off as independent projects. Successful examples include: @CoWSwap, Gnosis Safe (multisig) and Gnosis Chain. Most recently, GnosisDAO approved a spin-off a DAO treasury management protocol @karpatkey with native token $KPK Gnosis also invested $1.5M in @hoprnet to build a private, decentralized VPN, and launched Gnosis AI for prediction markets. The Gnosis Chain itself is an Ethereum sidechain but functions more like an L1: • Secured with staked GNO • Validators stake GNO, transaction fees paid in xDAI (bridged DAI), buyback and burn GNO tokens Last month the DAO voted to buy back $30M worth of $GNO over 6-month period. They have $279M in liquid Treasury assets ($466M if including $GNO tokens), placing them in the top 4, higher than Aave, Maker, ENS, or Lido. GNO's current fully diluted valuation is $546M (86% circulating) but the chain secures $283M in TVL. Almost half of TVL originates from @RealTPlatform - RWA platform to invest in real estate. This is not a paid post. I'm genuinely excited about their vision and execution. Sad that few are actually paying attention to it. We're all too focused on memecoins, airdrop farming and major infra protocols.
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L1s that failed to innovate and adapt are struggling.

The most obvious example is Cosmos. Once a pioneer in the modular blockchain narrative, it is now losing users, liquidity, and mindshare. $ATOM is now trading pre 2020/21 bull run price.

However new L1s like Sui, Sei, and Aptos are still benefiting from the old "new shiny L1" playbook. To thrive long-term, they need to innovate and differentiate themselves.

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Meanwhile, today's new L2s resemble past L1s, with near-zero transaction fees and little to differentiate them beyond branding.

They attract forked protocols for airdrop farming but lack innovation. As the airdrop trend declines and TVL drops, L2s must diversify and attract unique dApps to survive. All while tokenomics are terrible.

Those that fail may be abandoned, like some 2020 DeFi summer EVM chains.

I see some signs of diversification though: L2 interporatability alliances (OP superchain, zkSync Elastic chain...), Base benefiting from Coinbase, and zkSync paying millions to attract unique dApps.

Overall, Ethereum isn't the winner of the L1 wars. The value accrual from all L2s is not yet clear as well.

And that's a good thing for the sake of all industry.

Even if Ethereum fails, alternative L1s are here building their own future. They also provide use cases where Ethereum might not be the best fit.

The time for L2s to prove the same is here as well.