What Layer 1 Protocols Must Learn From the Telecom Crash

摘要： Investments in protocols Solana, Polygon and Avalanche, among others, as well as layer 2 companion protocols, became increasingly profitable in 2021.

▲圖片標題(來源：coindesk)

One of the main investment themes of 2021 was the alternative blockchain networks, the base networks or layer 1s, competing against Ethereum for decentralized applications.

Investments in protocols @solana, Polygon, Fantom, Near, Avalanche, Arbitrum, Cosmos, Polkadot and others, as well as layer 2 companion protocols, became increasingly profitable.

These protocols are manufacturers of a particular good – decentralized computation. Such computation can power any type of software, but is particularly apt for digital scarcity, property rights and provenance. Decentralized computation has a supply, a certain amount of demand and a variable price in the cost of gas. Not dinosaur bone gas, but the digital one used to turn on the global network machines.

The other framework is a war over developers to build applications within particular standards regimes. This is the story of Betamax vs. VHS, Apple vs. Windows, iOS vs. Android as well as the Chinese super apps. There exist some number of relevant platforms – let's say more than one but fewer than five – which can provide substitute versions of a particular operating stratum. Those platforms are valuable only if gardened by third-party gardeners, i.e., the developers that make the applications.

If there are many applications, users appear and use them. Users often have the highest willingness to pay. You might think Facebook is free, but remember you paid $1,000 to Apple (AAPL) for the privilege of having a phone. Thereafter, if there are users in your platform, developers value that as a distribution channel in addition to a technology enabler. Such viral loops can create positive network effects, which allow certain equilibria to hold, and others to collapse.

So layer 1s do both – they provide the computational unit as well as the market context in which that computational unit is generated and executed.

So shouldn’t incumbents like Ethereum win this power law game? Well, not if there are ways to bribe and overpower the game. You can see that play out today in the value locked, i.e., collateral, moving around things like Terra, Avalanche, and (still) Binance Smart Chain. In September 2020, Ethereum had 90% of the assets on the market, and today it has about 50%. It is important to understand how and why.

Ecosystem playbook

Here’s an example. Avalanche is launching a $290 million incentive program to grow the applications built on its technology. The protocol’s fully diluted market cap is about $30 billion today. So we are talking about a 1% spend of the market cap on platform growth and recursive customer acquisition.

This is not a unique strategy, of course. Consider Polygon, which launched a $100 million ecosystem fund to target decentralized finance (DeFi) growth last April. FYI, it worked; there’s now quite a bit of DeFi on Polygon. We could highlight this success story for every layer 1 and foundation out there.

轉貼自： CoinDesk

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