How important is 2022? Annual inspection of L1 and L2 alcohols

The explosive growth of Layer 1 will be one of the most significant developments in the crypto industry in 2021. Several new Layer 2s have challenged Ethereum, and several Layer 2s have been created to compete. .

Recent reports are published annually by The Block analyzing in detail the competitive models of Phase 1 and Phase 2 and detailing the technological processes and development of 10 main layers.

1. 2021 competition process

One of the key models for 2021 will be the development of Phase 1 (L1) blockchains and their ecosystems, especially with regard to the development of Ethereum, now the leader of the contract platform. As mentioned in the Industry Status section, the Phase 1 protocol is one of the cryptocurrency market wins in 2021.

The amplification of the recovery rate of class 1 platform cryptocurrencies against ETH surpasses the recovery rates of ETHs such as Fantom (FTM), Solana (SOL) and Terra (LUNA).

Price and performance side by side, the consumer value of L1 will increase further, mainly due to the emergence of the DeFi ecosystem on multiple L1 platforms. With a growing selection of DeFi protocols, users are increasingly able to deposit large amounts of financial data into business applications such as digital exchange (DEX), loan processes, mutual benefits, aggregation and exchange.

At Ethereum alone, the total cost (TVL) of the DeFi protocol rose from around $ 16.1 billion at the start of 2021 to $ 101.4 billion on November 30, an increase of 530% from a year over year. TVL's DeFi operations, the L1 ecosystem, have grown exponentially, adding more than $ 166 billion, an increase of 974% since the start of the year.

Ethereum has always pegged almost all of its capital to DeFi as early as 2021, but DeFi TVL shares have fallen to 63% as of November 30.

The emergence of the alternative L1 ecosystem occurs at a time of steady growth in the cryptocurrency industry, including Ethereum. Users of larger contracts began to experience network communication issues in early 2021, as there was an increase in the broader crypto industry as the Ethereum packaging industry continued to access. to data.

Ethereum exchange rate prices hit all-time highs in the first half of 2021, with users crippled during high demand due to high fuel prices and the long warranty period. The increase in priority gas auction bots (PGAs) and SRM activity since January also led to an extension of the rise in oil prices at the start of the year.

In an environment where network demand is high and prices are rising rapidly, low-cost non-Ethereum L1 is starting to become the middle ground as users seek alternatives to their traditional way of doing Ethereum. . EVM-enabled chains such as the Binance Smart Chain (BSC) are particularly effective at absorbing new and existing customers, providing opportunities for experimentation in new ecosystems and recognizing the financial viability of the industry.

Since February, the BSC ecosystem has grown significantly, accounting for around 26% of DeFi TVL after a $ 34.8 billion increase in TVL on May 9. In addition to TVL, the number of modern BSC users has also increased, and the average daily market volume in May reached a maximum of 8 million.

The adoption and implementation of these metrics by the BSC has declined, as the cryptocurrency market has generally declined since mid-May, and TVL did not return to its previous highs until November 14. In particular, throughout the second quarter, the ecosystem faced a number of challenges highlighting the downsides and risks of various forms of networking stemming from the uncontrolled Ethereum DeFi protocol model.

However, the BSC growth spurt in 2021 provides a guide for other new L1s to develop DeFi technologies like DEX and loans into the new L1 ecosystem, which can be appreciated by consumers and developers alike.

Having said that, one of the biggest problems the process still faces today is the problem of water scarcity. Even with the EVM integration, the new L1 ecosystem tries to attract revenue to face tough battles. This is because most consumers need a reason enough to transfer the money they have already received from another real estate exchange. One of the best ways to attract financial aid providers is to simply provide support.

2. Incentives and funding

The second half of 2021 saw a further increase in the number of users and features of OTC EVM channels, in part due to an increase in the number of freebies and budgets offered by the L1 group.

The highlight of these projects is the Avalanche Foundation's "Avalanche Rush" project, which expanded DeFi on August 18 by distributing 10 million AVAX tokens to the public (valued at approximately $ 1.8 million at the epoch) providing liquids from the Avalanche protocol. ecosystem.

Since then, other L1 funds have reported at least eight grants worth $ 100 million or more, including the Fantom Foundation, Terraform Labs and the Algorand Foundation. While each task has different goals and resources, and how the tokens will be distributed, most of the tasks focus on improving DeFi in their ecosystem.

The Avalanche Rush project primarily benefits mining operations for ecosystem participants, while other projects, such as Fantom's 370 million FTM reward project, aim to improve the production budget. In the Fantom project, when the designers meet certain performance requirements over time, they can use their freebies however they want, including gift vouchers.

The Avalanche and Fantom projects both distribute funds in the form of native tokens, while other activities include Hedera, Algorand, and Terra. Therefore, the value of these rewards may vary depending on the market. Especially since the tokens are returned more often to the team that holds them. These gifts usually come from a group of people who give money to early traders through sales of seeds or tokens.

In 2021, investment firms will increase their capital in specialized L1 ecosystems, either by investing in specialized operations or by selling underlying assets.

For example, as mentioned in the Finance and Mergers and Acquisitions segment, Solana Labs raised $ 314.15 million in June through a private sale led by a16z and Polychain Capital. Avalanche also announced in September a $ 230 million funding round led by Polychain Investment and Three Ships.

No matter how many freebies are distributed or budgeted for, the most important thing for any L1 team is that users and developers choose to invest their time and money in a special place. One way to measure this is to see how TVLs change over time, which provides a better understanding of the DeFi development protocol.

However, as mentioned in previous reports, the DeFi process in some ecosystems typically retains local commercial products (such as SOL from Solana), which has an impact on the change in symbolic value of the entire TVL Impact ecosystem. .

Normalizing the growth of a TVL ecosystem for the value of its native token gives us a true picture of how much new capital has poured into the ecosystem, rather than the dollar, which is often cut based on value. symbolic of performance. After Q3, just before the start of the L1 recovery wave, and after price normalization, growth rate of TVL in the Avalanche ecosystem relative to other large L1 ecosystems.

Interestingly, Avalanche's TVL made its first big jump soon after Project Rush was announced and has held a large chunk of its TVL for the past several months.

As of this writing, in November 2021, Avalanche's TVL had increased by $ 13.5 billion in the quarter. Avalanche's success in raising capital is part of the Avalanche C chain EVM relationship that Avalanche's entire DeFi protocol has developed.

The impact on access to this ecosystem is minimal, especially for existing Ethereum users, as users and developers can interact with Avalanche using Web3 tools such as Metamask and Solidity. In the second half of the year, the development of avalanches benefited from the Avalanche bridge, which reduced the cost of the bridge over the chain since the renovations at the end of August.

At the time of writing, Avalanche Bridge will continue to offer AVAX airdrops to connect users over $ 75, allowing Avalanche users to immediately cross the channel to start using the network without having to purchase first. AVAX insulated for petroleum.

3. Competitiveness in the development of the level 1 ecosystem

The relative ease of value transfer from Ethereum to Avalanche, combined with Avalanche's EVM relationship, has led to unique challenges in ecosystem development. In the Avalanche, for example, Pangolin DEX is by far the largest TVL protocol, but the release of Trader Joe in mid-August makes the ecosystem with a clean interface and liquid mining prices, and on the TVL of Pangolin in September.

For about a month, Trader Joe and lender Benqi have been consistently ranked # 1 in the TVL Avalanche ecosystem rankings, with two rights holding over $ 1 billion in assets since December.

However, with the advent of the existing DeFi process by Ethereum, Aave, and Curve in October, a new phase of competition began in the avalanche ecosystem. Inspired by the new ventures provided by Avalanche Rush, Aave's TVL increased in Avalanche, overtaking Benqi and Merchant Joe for the first time on the day of the announcement.

A similar situation occurred in the Phantom ecosystem, with TVL increasing by $ 6.2 billion on November 9. Like the Avalanche ecosystem, DeFi incumbents who have received mass adoption of Ethereum are now starting to enter the Fantom ecosystem. As of November 30, Curve became the 4th largest TVL protocol in the Phantom ecosystem and was launched before Fantom in June and received the CRV Awards.

On September 1, the Curve's FTM Awards also opened, further supporting the financially stable activity of the Fantom Awards. Fortunately, existing DeFi groups such as Curve and Aave can receive giveaways directly from Avalanche and Fantom giveaways, highlighting this L1 group's hope of bringing the well-known DeFi process to life in the ecosystem. Basic protocol.

Indeed, the request to send Aave to the Fantom network passed on October 18, and this concept will allow Aave to benefit from FTM advantages and to set up distribution procedures in the future.

The battle for DeFi protocol management in the Fantom ecosystem is still heavy in 2021, and Fantom's native DEX, SpiritSwap and spookswap, have both become Fantom's first DEX-related TVL and pack for years. In the rapid development of the DeFi ecosystem, a clear vision for 2021 is to further streamline the process, leaving room for the process to create meaningful impact on networks and communities. .

While the well-known Ethereum DeFi racing protocol is now starting to be deployed in multiple L1 ecosystems, the L1 racing protocol faces one of the biggest challenges to date in managing and growing the size of its user base. . In newer and smaller L1 ecosystems like Harmony, there are more opportunities for the DeFi process to gain momentum without a clear leader.

The consolidation has smaller users and capital compared to the more popular EVM-enabled L1 and as of November 30, TVL's ~ $ 542 million ecosystem has grown further as it continues to grow. . A harmonious environment is also necessary for innovation, giving developers the opportunity to experiment with ideas in a non-competitive environment.

A prime example of this innovation is the DeFi Kingdoms (DFK) protocol, which became Harmony's biggest acquisition since November 30, with a $ 280 million investment in TVL, or roughly 51% of the Harmony ecosystem. TVL.

DFK, the DeFi protocol that includes DEX-based Automated Market Maker (AMM) and the store does not work with UI games, is a mix of games and DeFi in the crypto space today. In fact, DFK's # 1 location for TVL Harmony leadership means that DFK delivers the best value to the ecosystem.

Although users had to go through a role-playing (RPG) style interface to access DEX and the pool, DFK got more TVL than Curve's SushiSwap and Harmony. DFK and SushiSwap are very similar in DEX packaging, which suggests that some Harmony users looking for commercial tokens will also prefer the simpler, more straightforward DEX model.

However, DFK has regularly run SushiSwap in Harmony Daily Traffic for the past few months. This clearly demonstrates that the new DeFi protocol is capable of capturing some of the top gaming users in a small but growing L1 ecosystem. The big question is whether DFK can run its administration more legally than Sushi in the face of future growth.

Now DFK is still expanding its horizons beyond DeFi competitors in the social ecosystem, and despite Harmony's decision in September to offer Curve users a $ 2 million reward token, DFK does not appear to be affected. .

In the end, it's hard to predict which scenario will be the most successful at the moment in the L1 ecosystem, but one thing is for sure. in a few weeks.

4. Over EVM - Improved performance and growth

EVM-enabled strings are a great place to switch from Ethereum to other L1 ecosystems, as users and developers alike seek cheaper options with familiar user interfaces and themes based on the Ethereum query network and prices of the fuel generally increase in 2021.

At the same time, focusing on L1 alternatives allowed to appreciate the differences between non-EVM-based blockchains and their performance, security and design. Compared to previous years, usage started to increase as more and more blockchains hit values, and the unique characteristics of different network architectures, Sybil resistances, and approval mechanisms were tested. in design products.

After the explosive growth of DeFi and the entire crypto industry in early 2021, many L1 chains began to develop their own DeFi ecosystems without considering EVM compatibility or easy access to capital. in chain.

Numerous product launches throughout 2021 suggest that processes designed for a specific blockchain may lead to past experiences that cannot be applied elsewhere. One of the most obvious examples of an app and blockchain combination is Serum, a DEX-based ordering app designed by Solana.

In general, DEXs like Uniswap and SushiSwap adopt AMM designs available in DeFi. Unmodified design changes have occurred over time in the AMM category, but each still relies on its own ability to regenerate capacity without some traceability.

For example, an AMM user essentially requests a buyback trade, unlike the traditional order book where the engine ends the trade when the buy and sell orders overlap at the price you set.

Solana's unique range of shipments (around 50,000 exchanges per second) and lower costs compared to other blockchains allow Serum's on-chain order book to be available and cost effective in other blockchain functions in events . In comparison, Ethereum and Avalanche's previous estimate was around 20 TPS and 4,500 TPS, respectively.

The ability to use specialist training to enable applications to benefit from the export ecosystem could be one of the reasons Solana will experience significant growth in 2021.

Although Solana has not been following EVM, she has raised $ 14.4 billion on TVL as of this writing. Solana's TVL growth has been significant, and while still positive, the SOL share price fell from $ 1.84 at the start of the year to $ 208.71 on November 30, compared to the strong price increase in 2021.

Solana's DeFi ecosystem is regulated by DEX, which makes the most of the TVL overload process. The first is Raydium Exchange, which uses serum manuals to provide a commercial-type exchange, while providing a pool of liquid for users to exchange serum-based.

As one of the first DEXs launched by Solana, Raydium was largely at the top of the Solana TVL ecosystem in 2021 and now owns the majority of the packaging industry in the ecosystem.

A process that has grown a lot in recent months, Marinade Finance is a floating solution for Solana that allows users to get legitimate value from SOL Racing in exchange for mSOL.

The marinating process is similar to LidoFinance, and Lido Financial is a staking solution that has seen significant growth in the form of stETH and bLUNA in the Ethereum and Terra ecosystems.

Fortunately, the growth of the marinade continued even when Lido used their own stSOL Liquid Staking Solution for Solana in early September. At the time of this writing, Marinade is betting SOL on $ 1.5 billion TVL, topping Lido's $ 208 million.

Many value proposition products like mSOL and stSOL come from what they look like with other DeFi protocols in the ecosystem. If there is not enough capacity or material usage for these products, their recommendations are inferior to the SOL bases available throughout the Solana ecosystem.

While Solana immediately reaped the technological benefits of the DeFi ecosystem, 2021 saw significant growth in the NFT ecosystem, where such network connectivity was not as important. As of November 30, using mainly Solana NFT floor based on its current market value, total sales of Solana NFT exceeded $ 820 million.

The growth of the Solana NFT ecosystem in 2021 will benefit from a number of significant improvements. One of them is the June launch of the Metaplex NFT platform, which allows users to create NFTs in Solana and set up their own store or store.

The advent of the Metaplex contract ecosystem has fueled the expansion of Solana's large non-functional businesses, such as Solanart and Digital Eyes, which are critical to the development of Solana's entire product line.

A key step in the development of NFT games by Solana in 2021 is the merger between Solana and Arweave, an industrial solution that continues to retrieve Solana data stored on its own blockchain on the SONAR inter-chain bridge.

As for the NFTS, arweave performs significant duties because it is a simple solution to all nfts created by Metaplex. In fact, one way to see no value of the Golara is to see the history of the Arbashi industry.

The number of transactions on the Arweave network also increased as day-to-day operations in the non-functional areas of Solanart and Digital Eyes started to increase at the end of August. Daily volume also increased on October 7, as did the slowdown in the Solana industry, which has seen a drop in consumer spending since mid-October.

Overall, the unique symbiotic relationship between Arweave and Solana networks should be noted in the future, as L1 networks need to be interconnected in time.

The significant growth of the Solana ecosystem in 2021 can be attributed to a combination of several factors, including the overall growth of the crypto industry, timely product development and development, housing, and finance. However, rapid growth throughout 2021 is not difficult.

One of the biggest problems with the Solana network in 2021 occurred in mid-September. Mainnet went through a long period of downtime, which started to disappear after about 17 hours of broadcast. Preliminary reports of the incident were quickly revealed in the bot industry during the initial Grape protocol IDO, which overloaded the network bot industry and consumed a lot of memory, resulting in weak several packages.

Finally, the node validators vote to restart the network, but until then Solana's DeFi protocol faces a significant risk of failure, which can result in a significant loss of money for users. Solana's network intervention in 2021 responds to the unique challenges of developing a new blockchain ecosystem, especially during rapid growth.

One of the problems was centralization, and Solana was too successful to be marketed for distribution, as users used more devices than other L1s. During power outages, consumers are able to come to an agreement to resolve key issues, but some argue that the integration creates an important base in the network.

While the main goal of L1s like Solana is to achieve greater distribution over time, blockchains are driven by individuals, groups, and control systems who continually innovate and improve their system. For the new L1 chains, this means that certain intermediate functions must be made more efficient.

The fact that blockchains today mark the end of network transformation is especially true in the case of network transformation, where developer decisions can have a major impact on the network in the future. These innovations can help improve many things including performance, development, and safety. For example, Ethereum's hard fork in London in August 2021, with the implementation of EIP-1559, made all the changes to the network's exchange rate and financial policy.

The September avalanche update also introduced a new value blocker for the c-chain, including a new control system designed to prevent MEV terrorism in the network.

As we saw in the example of the Granada mainnet upgrade from Tezos in August 2021, changes were sometimes made to improve development. Unlike most other L1 platforms, the Tezos blockchain is upgraded through process changes that don't require a fork.

Granada modified changes Tezos' approval algorithm, reduced blocking time from 60 seconds to 30 seconds and introduced the concept of "liquid crystals" on the network. With this peculiarity, the management of Tezos effectively used the following techniques to conduct and draw water into the network.

To carry out the complete decontamination process, Tezos has developed Intensive Product Management Contracts (CPMM) which act as pools in MAs like Uniswap. This agreement encourages tzBTC to join the tzBTC-XTZ pool, which additionally creates XTZ rewards, just as tzBTC offers XTZ rewards to Tezos bakers (stakers).

As XTZ joins the CPMM pool, the price of tzBTC in the pool is artificially inflated, encouraging arbitrage traders to add tzBTC on top of their contracts in exchange for a cheaper XTZ price.

As of November 30, the deal had generated total revenue of around $ 20.2 million since its announcement, but growth has also slowed in recent months.

As mentioned recently, the problem with special support for the tzBTC promising simplification is that it is more difficult for users who want to access the Tezos ecosystem while remaining fully integrated in the chain to receive the tzBTC. To do this, the inheritance must be connected through a wrapper process and then converted to tzBTC.

Instead, users can choose to easily connect which normally uses WBTC with wWBTC. As of November 30, the WBTC was roughly double the tzBTC of Plenty. In practice, users have little reason to exclude fluids from CPMM contracts, which may limit the benefits of financial support.

However, Tezos' unique approach to direct support through changes in the mainnet is a testament to how today's flexible blockchain architectures can adapt to their changing needs.

In this fast-paced crypto industry, the design process needed for an L1 ecosystem a year ago will become obsolete as it reaches a new stage of development or adoption. Therefore, for new or growing blockchains, the ability to quickly implement necessary changes can be crucial to achieving and achieving growth.

The L1, which became the major overhaul last year, also includes the Terra, whose main upgrade was Columbus-5 on September 30. Terra's latest update to Columbus-4 is scheduled for October 2020, and this update brings CosmWasm smart contracts to Terra, allowing developers to develop Rust apps for the Terra ecosystem for the first time. In less than a year, this new update brings a number of changes that affect the needs of the now more recognizable Terra ecosystem.

In the original Columbus-4 Terra protocol, a portion of all LUNA etchings for the UST issue were returned to the community pool that funded the LUNA stakes and ecosystem startup. These initiatives began to help kick-start the development of Terra's youth ecosystem, but the result of initial support such as Terraform Capital and the $ 150 million Ecosystem Fund ultimately reduced the need for movement. community lakes.

As a result, Columbus-5 developed a new strategy for LUNA tax evasion, and when UST was released, the 100% tax deduction was removed, establishing a direct and direct relationship between LUNA and UST requested.

In the long term, these changes are expected to have an additional impact on LUNA as demand for Terra's UST securities further increases. Similar to Ethereum's EIP-1559 upgrade, Terra's 2021 Columbus-5 upgrade represents how L1 is rapidly evolving into a rapidly growing exchange industry.

5. Make more connections in the multi-channel world

One of the main goals of the Terra platform is to expand the distribution of UST Stable Coins throughout the crypto ecosystem, regardless of blockchain or specific protocol. In the Terra model, USTs were issued when demand increased, and everyone was able to improve the UST supply by burning LUNA in exchange for their UST equivalent at market value.

During 2021, UST supplies increased from around 182 million at the start of the year to around 2.7 billion as of November 10, affecting demand. The coins remain stable throughout the year.

As of November 22, UST commodities had reached 7.2 billion, up 4.5 billion in 12 days. The recent increase in demand is not the result of a natural phenomenon, but the result of the crossing of Terra Proposals 133 and 134 on November 9, carrying the Terra pre-Columbus-5 community pool. 000 LUNA ($ 4.5 billion in about two weeks).

The UST developed by the LUNA Combustion Plan is expected to be used for a number of start-ups, including the underlying financial Terra insurance scheme (called Ozone), the purchase of insurance for the UST, and the UST Financial Path for more details.

Fortunately, another new thing that has been made with the Columbus-5 update is the change of the LUNA / UST exchange rate to LUNA stakes rather than the same engraving as in the previous version. In fact, we can see the impact of LUNA's recently burnt giveaway issues.

LUNA's annual revenue has more than doubled since November 10, and as of this writing, the estimated annual return is around 10.4%. This revenue increase will also benefit Terra's two largest TVL DeFi protocols, Anchor and Lido, with $ 12.7 billion of TVL in the $ 9.9 billion Terra ecosystem as of November 30.

Anchor's TVL contains most of the bLUNA guarantees provided by Lido. This means that the recent increase in LUNA on Terra will benefit both personalized users and directly translate into further development. In addition to development and regulatory oversight, Terra's Columbus-5 upgrade will be available for IBC transport on October 21, unveiling a new level of network connectivity.

Terra is a blockchain developed using the Cosmos SDK, which theoretically allows on-chain communication with all chains of the Cosmos ecosystem of the IBC (Inter-Blockchain Communication Protocol).

Now, with the ability to transform assets, Terra is taking another step forward in expanding USTs that already exist in other L1 ecosystems such as Ethereum and Solana. For the Cosmos ecosystem, enabling Terra's IBC transport brings us closer to the IBC vision of the interconnected connectivity that supports the network.

As of this writing, there are currently 25 IBC-backed blockchains in the Cosmos ecosystem. As reported by the number of patients before IBC, Osmosis is now active in the active area of ​​the Cosmos network, according to Cosmos Hub and Crypto.org. Following IBC's announcement at the end of October, Terra rose to number 5 on Cosmos' list of commonly used blockchains in November.

Perhaps the most obvious sign of Terra's expansion into the Cosmos ecosystem is the potential for further increase in Terra's resources in Osmosis. As the most commercial and liquid DEX in the IBC network, Osmosis can be considered the cornerstone of how the Cosmos ecosystem works.

As of November 30, UST and LUNA had raised approximately $ 89 million in water to Osmosis, just behind OSMO and ATOM, representatives of Osmosis and Cosmos Hub.

This new improvement makes UST and LUNA one of the largest osmosis suppliers, bringing Terra's new ecosystem into the Cosmos ecosystem.

So far we have limited ourselves to Osmosis, which has seen remarkable growth since the beginning of June. Since then, TVL at Osmosis has raised around $ 615 million since November 28, thanks to an initial airdrop for ATOM holders and OSMO reimbursement to financial service providers.

Support for Osmosis performance are some of the main differences between Osmosis and Cosmos Hub, and AMM DEX was designed as a model.

Finally, Osmosis began to become a single DEX of the blockchain supported by IBC, fulfilling the need for faster recovery that might be limited by the slow management of Osmosis Hub stakes. In fact, signs of this restriction can be seen in Gravity DEX, Hub's own implementation of DEX.

Announced on July 13, DEX is less profitable than Osmosis, and at the time of this writing, the TVL company is worth around $ 34 million. Although DEX itself was technically operational in July, access to the exchange at the front of the Emeris hub was not released until a month later, reports the need for the Cosmos when restricted by hub consensus and voting procedures. Difficult to use ecosystem design.

At the time of writing, there was no other incentive to offer Gravity Fluids DEX, one of DeFi and Osmosis DEX. It was only on November 9 that Cosmos Hub recently made an agreement to increase investment and agriculture that would allow the allocation of ATOM for specific purposes, and this can be done through agricultural processes. However, actual use of this model is not expected until early 2022.

As you might expect, with OSMO tokens, Osmosis's financial backing outperforms gravity in the preferred product market, once again proving the effectiveness of the donation in supporting defi specialist users. Going forward, the role of the Cosmos Hub in the larger Cosmos ecosystem will be clearly defined as the primary gateway to interact with the IBC related chain.

For example, the Hub is overseeing the construction of the Earth Bridge, a bridge that allows users to connect Ethereum's ERC20 assets to the Cosmos. Like any other ecosystem, this chain bridge is central to the culture of the Cosmos ecosystem, providing a direct means to transfer value through mature L1 ecosystems.

In future Vega upgrades, the Cosmos hub will also add IBC router functionality, allowing it to provide routing services for IBC-enabled channels for a fee.

One of the major improvements to the Cosmos ecosystem is the introduction of the Cosmos Hub cross-chain security system.

Importantly, this allows parent chains like Cosmos Hub to build blocks for minor chains (eg IBC-backed chains like Osmosis). Although not expected to start until Q2 2022, networks connected to the Cosmos Hub could become more secure, reducing the overall security costs of the IBC-enabled chain.

In keeping with this shared security model, the Cosmos ecosystem will kick off similarly to the Polkadot network, which uses traditional chains to determine which blocks Parachains connect to. In 2021, the Polkadot ecosystem looks like a field experiment trying to establish a network of interconnections protected by interconnected chains.

Many of these projects will take place on the Kusama network, which is working on testing for the Polkadot version, allowing theoretical concepts to be quickly completed in production before Polkadot is delivered. One of the most significant improvements to the Polkadot ecosystem in 2021 will be the first Parachain auction in Kusama in June.

The unique Parachain slots auction system in which Parachains such as Karura and Moonriver are designed allows users to see in real time what the network ecosystem first gives the appearance of substrate to. Throughout the second half, the Kusama Parachain Auctions brought excellent returns and investments to the winners, allowing them to choose the best financial and commodity markets.

A large audience has raised hundreds of millions of dollars in KSM to support their favorite Parachain project. It outlines the overall publication of the project in the ecosystem and shows the interest that evolves over time during the competition.

So far, the design of the Parachain Polkadot slots resembles the story of Kusama. The first two sites were owned by sister networks Acala and Moonriver, Acala and Moonbeam respectively.

In fact, the use of EVM was so prevalent when designing L1 networks in 2021 that even DeFi ecosystems like Algorand seem to have learned from Ethereum from a slightly different perspective. The announcement of the Tinyman DEX in October 2021 is the biggest setback for DeFi in the ecosystem. Most importantly, it introduces algorithms and virtual machines (AVMs).

By developing AVM enhancements to Algorand's protocol, the network clearly hopes to replicate the success of Ethereum EVM at the start of its smart contract.

As is the case in other L1 ecosystems, the ability for developers to create DeFi primitives on the Kusama connected network based on known Ethereum devices enables faster product delivery and customer acquisition. The most popular proof of user experience is Moonriver, which hit the $ 350 million mark on TVL within five months of launching in June.

Almost a third of Moonriver's TVLs are now closed on Solarbeam DEX, a platform that provides high-quality products and gifts for its iconic brand, SOLAR. An important feature of the Solarbeam protocol is that it combines the bridge over Ethereum and Moonriver powered by the Anyswap protocol.

At the time of this writing, Anyswap: Moonriver Bridge has a TVL value of approximately $ 284 million and is currently the largest investor in the Ethereum and Kusama ecosystem. This important link was illustrated by the partnership between Karura and Bifrost on October 19, giving BNCs the possibility of raising funds via the KaruraSwap DEX. Users can use the simple XCMP interface in two applications to create BNC bridges between the Bifrost and Karura chains.

In some ways, the collaboration between Bifrost and Karura is reminiscent of the mix that is at the heart of today's DeFi protocol and the difficulty of saving tokens on the different channel. At the same time, the introduction of new technologies, like the XCM brand acquired by Polkadot and Kusama, comes with unreliable and often difficult to predict risks.

For example, the ecosystems of Karura and Kusama were hit hard on October 12, when protesters stole 10,000 KSMs worth up to $ 3.2 million from Kusama's Parachain account. This inconvenience could be due to the modification of the Kusama network in v2 on the XCM protocol, while Parachain still used XCM v1.

In response, authorities rejected a request for an upcoming ban on XCM trading and forced the funds to be transferred to Kusama's Parachain account. These events, along with the strict actions taken by Karura and Kusama's management, indicate that the level of risk remaining in most of the undiagnosed areas is becoming critical.

6. Major improvement of the cross chain

The chain crossing phenomenon in 2021 is one of the most significant improvements that has resulted in the diversity of L1 ecosystems and many existing habitats. Based on the principle of turning the assets of different chains into a single chain, pearls have become an important gateway to maintain capital flows in the crypto ecosystem. Likewise, recreational trails around the bridge are now a good way to measure the use and enjoyment of a particular ecosystem in the short and long term.

Perhaps the biggest example of the important role of connected cryptocurrencies today is where cryptocurrency is the rapid growth of Bitcoin assets wrapped in Ethereum. From the start of 2021, the value of BTC wrapped in Ethereum has increased from around 140,000 today to 3,166,000. At the current market value of BTC, that means an increase of around $ 10 billion in assets. BTC in Ethereum, with the potential to be used as assets in the DeFi protocol model.

Most Ethereum Bitcoin is available in the form of WBTC, which is only provided by centrally regulated organizations such as CoinList and Alameda Research. Other BTC bandwidths such as renBTC are supported by a combination of nodes, but are supported 1: 1 with real BTC.

The best way to measure the dynamics of level 1 ecosystems is not only the growth of the set of assets, but also the total cost savings in interconnecting various ecosystems. Specifically, 2021 will see significant changes from Ethereum to other L1 channels as DeFi investors invest in the early stages that emerge from other channels and reap the benefits of songs found in the vast DeFi sites. .

According to smart contract data for Ethereum, the bridge's TVL on the line will increase significantly in 2021, from $ 667 million at the start of the year to $ 32 billion by November 30. From the interconnection of multiple Ethereums to other L1s, the Binance Bridge has become the largest bridge with TVL at around $ 10.4 billion as of November 30, making BSC the second largest compact smart platform increase. . Inter-chain links will take shape in 2021, with different applications and different levels of distribution.

For example, Binance Bridge is one of the most important chain link providers because it is fully controlled by Binance. When users submit assets through Binance Bridge, the assets are sent directly to Binance Exchange and are also declared as BSC compatible assets.

While there are significant points of legacy failure, Binance Bridge is not fully licensed, it bans users with US IP addresses, some reveal The main issue of the bridge is connected to DeFi. Other interconnects, such as the Avalanche Bridge, have used additional security measures to protect their current multi-billion assets.

In 2021, the analysis of capital inflows and outflows from inter-chain bridges has become particularly important for capital flows to specialized systems. For example, another bridge that represents our growth target for 2021 is the Ronin Bridge, where players of the popular game Axis Infinity have to cross the Ronin side chain and disrupt games.

In 2021, the peer-to-peer racing game, Axie Infinity, saw the strongest growth in the DeFi protocol. The average daily number of users in January fell from 581 to 121,000 in November. This growth can also be observed in TVL development of the Ronin side chain. It has grown from around $ 31 million at the start of the year to $ 7.9 billion as of November 30.

Most of the bridge's specifications now use a model similar to ChainSafe's ChainBridge protocol, which uses a “lock and break, disassemble and release” mechanism. In this model, the tokens exchanged by the bridge are locked in the contract bridge and an equivalent token is generated on the target chain.

When the symbolic tape is returned from the bridge, it is placed on the target chain and released from the chain's bridge link. This method works mainly because it provides an easy way to put assets in transit without exchanging token items.

The main disadvantage of this mechanism, however, is that it requires a bridge escrow for the transfer of assets, which can create a low point of failure. If the chain bridge contract is broken, it can lead to money theft and the bandage tokens can harm the bridge. One interconnected system that uses an unrestricted approach to bridge transit is the Anyswap protocol, which rose to fame in 2021 as the main bridge between Ethereum and Phantom.

Anyswap's affiliate marketplace with an advertising / burn process where medium tokens such as USDC are used to eliminate the need for escrow connections. In the example of the exchange, the user who linked the USDDC placed it on the exchange, set the USDC 1: 1 to Ethereum, and then immediately burned it by starting the USDC on Fantom.

Then use Fantom's anyUSDC: USDC liquidity pool to trade USDC packages on Fantom. According to this procedure, there is no bridge allowing the transfer of assets, but sufficient capacity is required.

A prime example is the announcement of Fantom by Geist Financial on October 6, causing an influx of capital into Anyswap's Fantom ecosystem: Fantom Bridge, with little financial backing. In just four days, Bridge received over $ 3 billion in trust funds, mostly through the Geist Finance protocol.

Two weeks after the TVL rally, Bridge lost $ 1.8 billion in TVL as revenues from the new lending process plummeted and capital was kicked out of the Phantom ecosystem. As crosslinking becomes more and more important in terms of cost and performance in the connected world, users may begin to look for well integrated crosslinking systems, especially in terms of speed, safety and delivery.

This would be similar to the AnySwap process, which recently announced support for failed login. Another cross chain bridge caused a malfunction and many chains started to gain traction. For example, the Wormhole V2 bridge uses its unique universal cross-chain messaging protocol which can allow any chain exchange.

In the future, this type of communication will allow the inheritance of one channel to be used by the DeFi protocol of other channels without having to leave the chain. In a way, keychain interconnection represents the oracle problem that service providers always seek in terms of speed, accuracy, and security.

It is therefore not surprising that oracle specialist Chainlink announced in August that it would be entering the competition with its inter-chain interoperability protocol (CCIP). With the growing demand for unlicensed asset swaps from more and more L1 ecosystems, cross-chain links are at the heart of the future of cross-chain DeFi.

In the future, it is not yet clear whether the bridges will eventually allow the transition to the most common channel. One thing is certain. The path to ultimate cross-chain interoperability is brimming with solutions in all its forms. After all, the only way to find the best solution is to let the store decide for itself.

7. Development of the Ethereum Layer 2 extension solution

While Option 1 continues to threaten the governance of Ethereum as a smart engagement, Ethereum has used its Option 2 process to improve its process. There are currently two types of competition in the market: Zero-Knowledge and Optimistic, both of which are now available on the Ethereum mainnet.

Despite the lack of an exit mark, Season 2 saw an increase in TVL and will continue into 2022. Stack will see more in 2022, with the announcement of the Ethereum 2.0 shard chain slated for 2022 and the potential. distribution of tokens.

cumulative optimists

In 2021, the bullish roll-up (ORU) will experience significant growth. Since the launch of the main Arbitrum and 0ptimistic networks on May 28 and June 22, ORU has increased in TVL and user metrics. At the time of writing, Arbitrum and Optimism have net worth between $ 2.6 billion and $ 400 million, respectively.

User metrics for Arbitrum and Optimistic have increased. Optimistic launched Synthetix first, but the main network came after Arbitrum. In other words, Optimistic and Arbitrum show almost identical growth in terms of special address, but Arbitrum has a higher exchange rate than Optimistic.

However, Arbitrum and Optimistic may be surrounded by similar exchanges, indicating that they plan to grow once Optimistic begins to allow the sending of distributed applications (DApps).

Arbitrum and Optimistic have many different DApp delivery features. Arbitrum actively searches for DApps as much as possible, while Optimistic strictly adheres to the free list of DApp submissions. This gives Arbitrum more space than Optimistic. Arbitrum has more DApps than performance (58 and not 6), so the DApp Dominance chart below only defines Arbitrum core values.

Arbitrum has seen significant growth with Curve, Balancer and SushiSwap. In particular, Abracadabra has seen rapid growth in TVL, in part due to the rise in the price of its SPELL token. These DApps govern Arbitrum TVL and will continue to do so in 2022.

Optimism, on the other hand, is ruled by Synthetix. This is partly because at the time of writing Optimistic only has 6 DApps. As many DApps have referred to Optimistic, Synthetix can seem to lose control in the end.

In addition, two major ORUs were subject to significant surveillance during the last quarter of 2021: Boba and Metis.

At the time of writing, Metis only has a DEX testnet and Boba already has a working bridge and a native DEX called OolongSwap that can be used for real business. The Boba network has dropped the default Boba tokens for the OMG token on November 12.

For this reason, many consider the value of the OMG token before the airdrop. Specifically, OMG standing contract earnings at Binance hit -2.4% every two hours, and OMG's value fell after the snapshot of the airdrop. It doesn't look like there will be another airdrop with this model.

Having said that, the increase in TVL after dropping BOBA tokens is mainly caused by the increase in TVL in OolongSwap, BOBA members in DEX. OolongSwap has the potential to provide a host of mining supports that quickly attract large sums of money to generate income. This means that a significant portion of OolongSwap funds will be like employees who can leave the ecosystem if the earnings are not attractive.

Another competitor worth mentioning is Metis DAO, where the cost of the Metis base token has increased since the BOBA drop. L2 is unlikely to repeat the same token drop as BOBA, given that it skews the market value for some future. This means that the two largest ORUs must provide a token template.

Zero knowledge accumulation

The 2021 Zero Knowledge Rollup (ZKR) went from $ 43.5 million on TVL on January 1, 2021 to $ 1.9 billion in the current ZKR. Validium, a solution that offers proven evidence of ease of use but keeps data off-chain, saw TVL grow throughout the year, albeit unlike ZKR.

One of the most important features of the ZKR site is the release of dYdX, which uses StarkEx to measure exchange rates. The exchange also announced a reduction policy, with TVL dropping from $ 96.5 million on September 8 to $ 93 million at the end of November, becoming the main driver of ZKR's TVL growth.

ZKR's other businesses include Loopring, ZKSwap V2, zkSync, Aztec, and Polygon Hermez, all of which have increased in value since the start of the year, and TVL's competitive value increased by $ 40 million at the start of the year. year. million this year. . End of november.

The lock value in Validium didn't increase as much as the ZKR version, but basically doesn't work, Sorare and ImmutableX both use StarkEx. Like dYdX, ImmutableX announced on July 22 electronic devices that can be used for administration or giveaway purposes.

This makes Immutable X the highest Validium project with TVL at almost $ 350 million by the end of the year. During the year, the ZKSwap V1 had the highest TVL rating, but due to the release and success of the V2, it was now obsolete.

In addition to the growing TVL of ZKR and Validium, investment announcements for smart contracts based on the validation certificate extension project will see usage increase further for a few days. Although different jobs grow and dates with different deposits, most jobs can benefit from the need for regular deposits.

Both StarkWare and Matter Labs are pioneers when it comes to usability. In 2021, StarkWare announced StarkNet Alpha to the Mainnet on November 29 with the goal of building a full Platform 2 that will allow users and developers to reconnect to the ZK -STARK Mainnet.

Matter Labs announced that zkEVM, an EVM compatible compiler, will be used for the upgrade from zkSync 2.0. Likewise, two companies are exploring ways to create hybrid data that users can choose to store their data on-chain or off-chain, and are developing Volition. and zkPorter as solutions combining two types of archive data. .

8. Competitive outlook for Tier 1 platforms and scalable solutions in 2022

Much of the discussion on the L1 and L2 platforms in 2021 will focus on the potential. In particular, we will focus on expansion as Ethereum exchange rates and data access are higher as cryptocurrencies and NFTs become new priorities. In theory, L1 and L2 have different limitations and security guarantees.

In fact, based on past user experience, they now behave the same way. In order to benefit from the speed and cost savings of L1 and L2 chains, users must first link their accounts to L1 chains such as Ethereum.

So just like the bridge over L1 to L1, the bridge over L2 can also serve as an important indicator of the amount of money flowing from L1 to L2. For example, Optimistic Bridge's TVL fell from around $ 47 million at the start of the third quarter to around $ 517 million on November 30.

Although it has seen more than 10-fold TVL growth in recent months, TVL on the bullish bridge is still eclipsed compared to other major L1 expansions such as BSC, which has TVL live from about $ 31 billion. November 30.

Currently, L1 has the advantages of hosting a larger complete system ecosystem, including key functions such as oracles, cross-chain links, intermediary exchanges, support applications, and more. This fact is evident from the TVLs of the L1 and L2 protocols, indicating that DeFi activity now dominates L1 over L2.

At the same time, the growth of L2 also shows strong traction. Most of this growth can be explained in part by the description of the financial support that began to emerge in L2. ArbiNyan from Arbitrum, for example, launched in early September with very high inflation and APY, which allowed many workers to invest in the Arbitrum ecosystem to take advantage of it quickly but quickly.

That said, TVLs for Arbitrum and Optimistic continue to grow. Arbitrum's TVL has continued to increase since early September despite the immediate impact of ArbiNyan and later Arbitrum funding. Although there are currently only a few apps in Optimistic, it is likely that more DApps will run on this L2 in 2022, giving Optimistic the same development as Arbitrum.

Another thing to consider is the base token capacity for L2. Basically, L2 was not meant to compete with L1, but there is good reason to believe that it will compete with L1 in 2022. A combination of entry-level DApps, capable of making more money , at a lower cost, with a faster exchange rate, Ethereum- safe level, and the resources are always sufficient to go from L1 to L2.