Battle of the Blockchains
I am old enough to have watched the original Star Wars trilogy on a Sony Betamax. If you are sitting there asking yourself WTF was a Betamax, how about a LaserDisc? Microsoft Zune? These are all examples of once hyped technologies that lost out in the battle for the hearts, minds and wallets of consumers. 2022 may go down as the year of the Blockchain battle. Some will emerge with a strong use case and a legion of loyal users, while others will become the brunt of jokes of poorly written articles in 20 years (or maybe holographic archives like in Star Wars).
The good news is, I am confident in saying there will be more than one winner. Though “Eth Killer” is a popular phrase, I strongly believe Eth isn’t going anywhere, at least for the medium term. I think several block chains will be able to establish themselves as key cogs in the wheels of the crypto universe. Though not an extensive list, I will walk through a few of the chains I currently use and share a few thoughts on them.
Let’s begin with a little historical context. When you look at historic economic cycles, we go through periods of malaise where seemingly no innovation happens for a decade, then something changes and we get a decade’s worth of innovation in a matter of months. I believe we are entering another innovation super-cycle. Think back to the early days of the publicly available internet in the mid to late 90s. Web based companies were popping up out of the woodwork, ask 17 people what their favour search engine was and you’d get 12 different answers, Ask Jeeves anyone? Innovation and competition was prevalent. It was the throw mud at the wall phase, and everyone was starting on an equal footing. Fast forward past the crash of 99 and the number of players left standing was only a handful and those companies got BIG. Google, Amazon, Facebook and Apple took over and made billions. Ask Jeeves, well that became the answer to a question that may win you a free beer at your local pub trivia night.
This may surprise you, but I am going to ignore Bitcoin. I view BTC in a different light and don’t feel it belongs in this conversation. I am not saying it is unimportant, just different. Ethereum, well Eth is the elephant in the room right now. It has a dominant market position and I don’t expect that will change. So I am going to say no more about Eth in this article either or side chains such as Polygon.
So who do I think has a fighting chance? In no particular order, Avalanche, Harmony, BSC & Cardano. Solana and Polkadot could be added to this list as well, but I do not have any first hand experience working with them so I will withhold comment. If you want to hear about Dot, you can follow my buddy Yaba on Twitter. He likes to talk Dot to anyone who will listen.
The Binance Smart Chain (BSC) was the first non Eth chain I ventured onto while starting my crypto journey. Of particular appeal to me was they have both the BSC ecosystem combined with the Binance Centralized Exchange (CEX). Between the CEX and the main PancakeSwap DEX, I have done a lot of trading and yield farming on the chain. I have also dipped my toe into NFTs on the chain. BSC has a reputation for being Shitcoin central, given how easy it is to launch a coin on the network. I find an extra layer of DYOR is required when trading on BSC. Or at least be willing to bet on 5 different projects and be ok with 4 of them being rug pulls. Maybe the fifth one will moon?
Given its CEX, many retail traders are first exposed to crypto via Binance, and many coins would get a huge bump in value upon getting listed on the Binance CEX ($SHIB) comes to mind. The sheer volume of stuff on Binance works against it in my opinion. New users are increasingly likely to have a bad first impression because of this. As I write this, BNB has a $63B market cap making it the 4th most valuable crypto so clearly they know a thing or two about what they are doing.
Cardano is one of the survivors of the great crash of 2018. Its founder Charles Hoskinson was also one of the original founders of Ethereum. He has been doing this a while and clearly knows a lot about block chain technology. I wrote about Cardano and its emerging metaverse here. Despite how long Cardano has been around, it is only gaining functionality now. They have taken a very academic approach to implementing their technology and this slow approach has given them more than a few critics. It’s careful, peer review model however does provide them with a level of understanding of the technology that many of their rivals do not posses.
Both Avalanche and Harmony are newer, lesser known chains. They are battling for market share with neither first mover advantage nor big name founders behind them. Both have taken some more novel approaches to entice users to their chains. Avalanche has developed the Avalanche Rush, a $180M liquidity mining incentive program to introduce more applications and assets to its growing DeFi ecosystem. While Harmony plays host to Defi Kingdoms, a popular play to earn game that brings yield famers back to the site (and the chain) multiple times per day. My friends at NerdFT radio podcast, do a regular segment on what is new at Defi Kingdoms, so check that out to learn more.
One of the important trends in the crypto space is that of vampire attacks or vampire liquidity. Each chain depends on having liquidity available on chain to maintain a healthy ecosystem. The problem lies in degens like myself always searching for the best yield/ return on our investments. Chains and protocols end up competing with each other, essentially sucking the liquidity from one chain to the next. With sites such as Multichain, it has never been easier to move funds from one blockchain to another. Speaking from personal experience, there is very little brand or chain loyalty in the space right now. I find myself being very chain agnostic, wherever the good play exists, that is where I want to be. I will happily move funds from Avalanche to Harmony on a moments notice if I can get a better return or I find something more interesting. Because of this, crypto investing is a very hands-on endeavour right now. If all of the liquidity leaves a project and you are not paying attention, you maybe left with a big bag of Microsoft Zunes, and nobody wants that.
So, how do you choose a chain? My best advice, don’t. Be nimble. Learn how to effectively bridge funds from one network to the next. Also try to see which chains are doing innovative things that may drive customer loyalty. You also need to be ready to pull your investment from the chain at a moments notice is the vampires are circling. Many projects and blockchains will fail. It is also worth noting that regulation is coming and not all blockchains are the same in the eyes of regulators, just ask the folks at XRP.
I would also recommend paying attention to developers and influencers in the space. Is a major developer creating their DAPP for just one chain or for a whole plethora of them? If they are specializing in one chain, maybe they are on to something. Conversely, if they are diversifying, you probably should too. I am also very bullish on Metaverse projects. When Facebook changed its name to Meta, the Sandbox and Decentraland prices exploded. I believe this is just the tip of the iceberg. Like the blockchains, I am sure most metaverse projects will fail, but following which ones are gaining traction will shed some light on which chains people will ultimately gravitate towards.
A final item to consider is the total value locked on the network. Cardano for example has over 70% of its ADA tokens staked on chain, so lots of liquidity is staying on the chain. These types of metrics are something I really look for when trying to do a risk assessment.
As I wrap this up, I realize there is a lot to consider here. I wouldn’t be surprised if 1 or 2 of the chains I mentioned above are no longer around at the end of 2022. Which ones? I’lll leave it to people much smarter than me to answer that one. Just remember, as Red Green says, keep your stick on the ice.
