Thread by @TaschaLabs

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

There’re so many L1 chains now & 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 best reward/risk tradeoffs in crypto.

But each of them has different opportunities & challenges ahead.

SOLANA

The chain that started current alt L1 wave & sole 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 its 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.)

https://twitter.com/TaschaLabs/status/1469762575571161088?s=20

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.

https://twitter.com/TaschaLabs/status/1464323086631661573?s=20

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.

https://twitter.com/TaschaLabs/status/1438940900424511498?s=20

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. Its willing to throw all sorts of spaghetti against wall to find best way to scale is high. 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.

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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. 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 the 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 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’re 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.

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