ArkStream Capital: Beyond L2 landscape - the unignorable rise of new public blockchains (L1) in the Market
Ray
Current Landscape for Emerging Public Blockchains
If there exists a law of universal gravitation in the blockchain world, then Bitcoin and Ethereum would be the two brightest stars in this dazzling galaxy, illuminating the realm of stars. The reason they stand out among the many stars and shine brightly is due to their unique technological implementations (i.e. blockchain and smart contract platforms) and years of continuous iterative upgrades, resulting in substantial market capitalization, a thriving ecosystem, and active communities.
In the cryptocurrency cycle from 2017 to 2021, we often heard the term “Ethereum killer,” with many new public blockchains aiming to surpass Ethereum. They proposed various technical architectures and implementation plans, such as Solana with its Proof of History, Avalanche with Avalanche consensus and subnet functionality, NEAR with a focus on sharding, Flow with consensus and computation separation, EOS with parallel processing and asynchronous communication capabilities, IOTA with DAG transaction structure, and Polkadot and Cosmos with native built-in multi-chain support. It’s undeniable that they achieved accomplishments in terms of metrics like on-chain user activity, DApps development, and Total Value Locked (TVL) during specific time periods. However, due to various reasons (team dynamics, funding challenges, etc.) and the gradual rollout of Ethereum’s Layer 2 solutions, the landscape has quietly changed. Notably, in the public chain TVL ranking on DeFiLlama, Arbitrum and Optimism have surpassed most Alt L1 chains. Additionally, quite someinnovative projects have shifted their focus to Layer 2 networks, exemplified by the derivative platform GMX migrating from Avalanche to Arbitrum.
At the current moment, the stable development of Bitcoin and Ethereum, along with the rapid growth of Layer 2 networks, is evidently squeezing the once bustling Alt-L1 market. Many Alt-L1 projects appear to be in a “stagnant” phase, which hints at a less optimistic future for new public chains. For instance, within the last year, projects like Aptos and Sui from the Move ecosystem saw significant shifts in market sentiment. Prior to their mainnet launches, there was great enthusiasm for delving into their whitepapers and technical architectures, envisioning promising use cases, and witnessing developers vigorously learn new contract languages and compete for ecosystem positions within these new public chains. However, after the mainnet launches, especially following token issuance, a decline in DApps activity and lackluster TVL data have led these projects to seemingly drift away.
PS: Considering privacy chains’ emphasis on anonymity and user privacy, and storage chains’ emphasis on decentralized storage, their design philosophies and technical approaches differ from those of general-purpose public chains. For the sake of discussion, we’ll temporarily exclude discussions about privacy chains and storage chains.
The Necessity of New Public Chain Development
It can be affirmed that nowadays, developing and implementing new public blockchains to challenge the two giants, Bitcoin and Ethereum, or even the emerging Layer 2 networks, is undoubtedly a challenging endeavor. This leads us to contemplate whether there’s a necessity to continue developing new public chains.
The answer is affirmative. From the perspective of Mass Adoption, the entire Web3 has seen a plethora of new application scenarios like DeFi, NFTs, Metaverse, etc., since 2020. User adoption has risen to millions, if not tens of millions. However, compared to technologies that have already achieved Mass Adoption, such as search engines and instant messaging, the development space of Web3 is still immense. If we analogize Web3’s infrastructure public chains to traditional cloud computing, the numbers of applications and users utilizing public chain services are still in the rapid growth stage, far from reaching the maturity stage of large-scale applications. Therefore, the potential size of the future market pie and the rapid shifts in demand will give rise to the emergence of public chains with excellent service capabilities and response speeds. Currently, Bitcoin and Ethereum have seized the opportunity in the public chain arena and gained broad recognition and market share. However, this doesn’t imply that other Alt-L1 chains and new public chains have no room for survival or opportunities to overtake in certain specialized areas. Because of these factors, institutions are willing to invest significant capital into the public chain space not solely for financial investment reasons but due to their understanding of Web3’s future and the importance of public chains.
Hard Power and Soft Power
When analyzing public chains, evaluation can be conducted from two aspects: hard power and soft power. Hard power primarily focuses on technological innovations involved in the public chain, such as P2P networks, consensus mechanisms, block data structures, smart contract languages and virtual machines, token economics, etc., as well as the ability to adapt and adjust to the technology’s development roadmap and current status. Soft power encompasses aspects like business operations, ecosystem development, and capital coordination. Both hard and soft power are indispensable during the process of public chain research, development, and growth. Lacking either one can lead to difficulties.
While hard power is important, Alt-L1 projects often face the challenge of becoming rigid and inflexible in their technological approaches. This is why emphasis is placed on the ability to adapt and adjust the technological development roadmap to the current status. Bitcoin, not long after its inception by Satoshi Nakamoto, developed organically as a network and community. When it came to significant functional changes and new feature support, the overall progress was slow and conservative. However, Bitcoin has also begun to keep pace with the times, as seen with recent popular protocols like Ordinals. Ethereum’s scaling solutions went through phases before entering the Rollup-centric stage. Initiatives like Plasma were popular before the official introduction of Ethereum’s scaling solutions based on Rollup. Ethereum’s recent development roadmap shows a focus on improving the security and decentralization of the PoS consensus mechanism, combining data sharding with Rollup, while original goals like eWASM and state sharding have been replaced by other features.
Exploration of Innovative Technologies
When Ethereum’s Frontier was launched in 2015, it provided a basic usable network, including features like the PoW consensus mechanism, transactions, the account model, and the core EVM smart contract platform. Over the years, Ethereum has undergone continuous upgrades, such as the more stable and efficient Homestead in 2016, Metropolis Byzantium’s support for on-chain ZK-Snarks verification through precompiled contracts in 2017, Beacon Chain with PoS functionality in 2020, London Hard Fork introducing the EIP-1559 fee model in 2021, and the Paris upgrade (ETH Merge) in 2022, officially transitioning from PoW to PoS. Guided by the spirit of open programmability in blockchain, Ethereum not only started with a rich level of programmability but also continued evolving through these upgrades, showcasing a stance of ongoing development in the exploration of innovative technologies.
For this reason, whether it’s new public chains yet to be launched on the primary market or well-established older public chains with a strong presence in the secondary market, both innovative new and seasoned public chains that explore new technologies are worth our attention and learning.
Next, for the time being, we’ll put aside the discussion of the pros and cons of public chain economic models and the performance of market tokens. Instead, we’ll focus on some interesting public chains outside of Ethereum, conducting further research into their unique or iconic innovative technologies based on the open-source developer data dashboard provided by Electric Capital.
Polkadot — Substrate
Polkadot introduces the concept of relay chains and parachains through blockchain parallelism. Each parachain is a blockchain running in parallel on the Polkadot network and communicating with the relay chain through cross-chain message passing. Parachains have the same structure and consist of a set of nodes and roles. They are responsible for block production and verification and can customize their logic and state through runtime upgrades. Polkadot also introduces the concept of Substrate, a framework for building parachains and standalone blockchains. Substrate provides a set of pre-built modules for developers to assemble according to their needs. It also supports building custom modules for more specific use cases.
Cosmos — Tendermint / Sovereign Chain / App Chain / IBC
Tendermint is one of the early PoS consensus algorithms that implemented Byzantine fault tolerance and serves as one of the inspirations for Ethereum’s PoS algorithm. The concepts of Sovereign Chain and App Chain perfectly reflect Cosmos’ decentralized multi-chain ideology. They allow each sovereign chain to have its own consensus mechanism, economic model, and governance rules. They also enable specific applications or services to directly build small application chains through the Cosmos network. Communication and interaction between these chains can be achieved using the Inter-Blockchain Communication (IBC) protocol, creating a multi-chain Internet as advocated by Cosmos.
Cosmos has two core development kits: the consensus engine CometBFT, which implements the Tendermint consensus algorithm and defines the Application Blockchain Interface (ABCI), and the Cosmos SDK, which supports IBC and CosmWasm. The ecosystem consists of the central Cosmos Hub and various Zones connected to it. Since the launch of the Cosmos mainnet in 2019, IBC has evolved to support more comprehensive functions like Inter-Chain Accounts (ICA) and Inter-Chain Security (ICS). The Cosmos Hub transitioned from the initiation phase to the integration phase in September 2022.
Sei Network — Optimized for Trading
As a recently launched popular Cosmos ecosystem application chain, Sei features a built-in order matching engine, sub-second settlement speed, parallelized order processing, and execution of orders within a single block. Sei’s customized features are implemented at the foundational layer, mainly through ABCI++ optimizations. ABCI++ is an upgrade to Cosmos’ ABCI that makes every step of consensus programmable.
Solana — Proof of History
Proof of History (PoH) is an innovative time-proving technology that acts as a global clock mechanism in distributed systems, coordinating operations and time sequences among distributed system nodes. By embedding timestamps in each block, PoH constructs a globally shared time sequence within the Solana network. This allows nodes in the network to easily verify the order and timing of transactions. This enhances network throughput, performance, and prevents malicious tampering and replay attacks.
NEAR — Nightshade Sharding / Beacon chain
Derived from Ethereum’s early sharding concept and inspired by the Beacon chain, NEAR optimizes block producers and validators for each shard. Each shard has a group of block producers responsible for generating blocks and packaging transactions and state data. Due to their relative independence, each block producer focuses only on their shard, enabling independent block generation without coordination with other shards’ producers. Validators verify transactions and states belonging to their shard, without considering the entire network’s state. This increases block generation and validation efficiency, allowing for more transactions and state updates to be processed.
Avalanche — Avalanche Consensus
The Avalanche protocol introduces a voting mechanism that triggers an avalanche effect, enabling nodes to quickly reach consensus and form a consistent decision sequence in the entire network. The protocol’s key is the process of multi-round voting and iterative decision-making. Through continuous voting and feedback, nodes in the network gradually converge to a consensus result. As nodes can vote and make decisions in parallel, the system’s parallel processing capacity is improved. The Avalanche protocol also allows dynamic entry and exit of nodes, as well as adaptive adjustments of voting rules and parameters, achieving flexible scalability.
Flow — Multi-node Architecture
Flow features a pipelined multi-node architecture. Execution nodes handle transaction execution, enabling massive transaction processing and computations. Verification nodes monitor and validate the execution nodes’ computation results, ensuring correct execution of smart contracts and verifying computation accuracy and consistency. Consensus nodes handle transaction ordering and block generation, ensuring network security. This multi-node architecture resembles the modular design advocated by cloud-native architecture, directly implementing execution, data availability, settlement, and consensus layers on the public chain level.
Monad — Asynchronous Concurrent Transactions
Monad is an EVM-compatible L1, with transactions equivalent to EVM transactions. To improve TPS, Monad identifies and marks unrelated transactions, eliminating their common dependencies. These transactions are then processed asynchronously to achieve high concurrency transaction performance.
Diem/Libra — Move
Facebook/Meta’s Diem (formerly Libra) has garnered worldwide attention since its inception. Diem’s intention is to serve billions of people globally, providing financial services comparable to traditional banking systems. To achieve this, Diem designs high-performance validator nodes, Move language, and the corresponding Move virtual machine that balances asset security and smart contract execution efficiency. Due to regulatory reasons, Diem did not launch its mainnet as planned. Subsequently, the Diem team derived three separate public chain projects — Sui Network, Aptos, and Linera — after inheriting these technical accumulations.
Sui Network — Causal Order / Object Model
Sui Network processes transactions in a manner similar to DAG, coupled with a unique object model and snapshot-like version management mechanism. Transactions no longer require complete sequential ordering but only causal ordering, achieving high parallel execution capability. This is supported by optimizations in Sui’s Move language object system, incorporating numerous Web3-related asset attributes.
Aptos — Block-STM
Aptos’ parallel execution engine introduces optimistic concurrency control, similar to the optimistic fraud proof mechanism of Rollup. To optimize this, Aptos employs preprocessing and transaction transaction splitting strategies.
Linera — Microchains
Linera team’s consensus mechanism was inspired by a research article (aka “FastPay”) that the founder, Mathieu Baudet, co-authored when hewas at Facebook/Novi. Linera introduces a parallel execution engine similar to the optimistic fraud proof mechanism of Rollup. This mechanism is directly integrated into a layer of the public chain. Linera’s architecture, originating from Facebook’s FastPay project, implements a pipeline-style multi-node architecture, akin to cloud-native architecture, enhancing elasticity and fault tolerance.
Just as cloud-native architecture has gradually dominated traditional application architecture over the past decade due to its advantages, we can believe that Linera’s investment is anchored in the mature solution of Diem/FastPay while incorporating unique innovative technology. In the future, it may eventually surpass Ethereum in certain application scenarios.
Conclusion
Upon revisiting and reviewing these public chains’ innovative technologies, one might find a resemblance between Ethereum’s Layer 2’s Rollup as a Service framework and Cosmos’ SDK, and Polkadot’s Substrate (such as Optimism’s OP Stack, Arbitrum’s Orbit, Polygon’s zkSupernet, Starknet’s Appchains, and zkSync’s Hyperchains). Even certain ideas of the new Restaking narrative are reminiscent of Polkadot’s DOT slot auction and Cosmos 2.0’s ICS. While the rise of Layer 2 is closely tied to Ethereum’s strength, the exploration of new public chains is equally important, if not more so. The innovative breakthroughs and solutions explored by new public chains will significantly enhance the foundational service capabilities of the entire Web3 industry.
As past public chains accumulate more mature experiences for the industry, the public chain sector is more likely to give birth to more powerful new public chains through innovative exploration. Just as Satoshi Nakamoto creatively proposed Bitcoin’s decentralized blockchain network with Proof of Work, UTXO model, cryptographic keys, P2P networking, and chain-based blocks, we now have reason to believe that based on the innovations of the aforementioned new and existing public chains, a public chain capable of achieving Mass Adoption will emerge in the world of Web3. Particularly, innovative public chains like those within the Cosmos (such as Sei Network) and Diem/Move language ecosystems (represented by Linera) will continue to explore the possibilities of blockchain from various dimensions, challenging Ethereum’s dominance and pushing the boundaries!
Reference
https://developer.bitcoin.org/reference/
https://ethereum.org/en/developers/docs/
https://polkadot.network/development/docs/
https://docs.cosmos.network/main
https://cosmos.network/cometbft/
https://monadlabs.substack.com/
https://developers.diem.com/docs/welcome-to-diem/
About Us
ArkStream is a 50M early-stage VC founded by crypto natives from MIT, Stanford, Tencent, Google, Blackrock, with 80+ portfolios including Sei Network, FLOW, The Graph, AAVE, Polkadot, Pocket, Republic etc
