The big game of public chain, elaborate on the DeFi spillover caused by Ethereum congestion

The congestion of Ethereum leads to the overflow of DeFi, which is an ongoing phenomenon. It turns out that the path people envisioned was the migration of layer1 to layer2, but the reality is that the chain overflows from Ethereum to bsc, heco, Polkadot, and Astro Boy.

Now everyone is concerned about questions like this: Will Ethereum be surpassed? What does the development of bsc and heco mean? ……From the perspective of Blue Fox’s notes, the future will be dynamic, but there are traces to follow. How to understand the big game of the public chain?

Congestion means strong demand. Strong demand is better than no demand

In addition to Bitcoin and Ethereum, the area where products and markets fit best in the entire crypto world is DeFi. This is also the reason why Blue Fox has been paying attention to DeFi in the past two years. Blue Fox Notes mentioned in 2019 “Why DeFi is the second breakthrough in encryption history?” “. It can also be seen from the congestion of Ethereum that this is a prominent contradiction between increasing demand and insufficient infrastructure preparation. It is a good thing in nature, and strong demand is far better than no demand.

Unsatisfied demand, overflow is a natural result

Ethereum’s congestion is due to strong demand. When the demand cannot be fully satisfied, it is normal and natural to find other alternative ways to solve the demand. The spillover of DeFi from Ethereum to bsc and heco, Polka, Astro Boy and other chains is a natural result.

DeFi is also gradually developing

DeFi is also a long-term development process, and it is unrealistic to carry all the needs from the beginning. It is also unrealistic for DeFi to be completely decentralized from the beginning. The current situation is that both the DeFi project itself and the chain that DeFi relies on have certain trade-offs in terms of decentralization, but the degree of trade-off is different. .

If the demand soars and the performance cannot keep up, then certain trade-offs will inevitably be made, with temporary trade-offs in terms of security and decentralization, while improving performance and user experience.

As far as the development process of DeFi is concerned, this is a gradual and trade-off process, that is, DeFi and the blockchain itself are also developing dynamically, and it is not an either-or relationship. It is not: “Either decentralize or centralize”.

On the road to true DeFi, one of the stops must be semi-decentralized. This is the scenery on the journey. It has a better user experience and will allow more new users to get on the car. The destination is decentralized. Public chain and DeFi. This is a long-term process.

Congestion in Ethereum is not an unsolvable problem

With the landing of layer2, the congestion problem of Ethereum will be greatly eased. Of course, there is a time window of at least a few months or half a year.

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The vigorous development of other public chains is beneficial to Ethereum

In the short term, there may be competition with Ethereum, such as the migration of its users, business spillovers, and especially the embarrassment of DeFi projects with high-frequency chain behaviors such as DEX. This can also be seen from the development of cake and MDEX. Whether you like it or not, these chains are evolving.

In the long run, as the scalability of Ethereum is solved, as bsc, heco, Polkadot and other chains bring more new users, some of them will migrate in the reverse direction, eventually forming a layering of users and precipitation Come down. The arrival of new users is also beneficial to Ethereum.

At present, there are more and more projects on bsc and heco, and the development is fast. In the end, Ethereum will also be a beneficiary. Look at this problem from two aspects:

1. The big picture of the encryption field

At present, the scale of the entire encryption field is still small, and there is still a long way to go compared to Wall Street. And DeFi is the human subversion of Wall Street in the digital age. Just like the subversion of newspapers and magazines by online media in the Internet age, this is a major historical trend. Wall Street players will move their battlefields to the crypto field in the next five to ten years.

From this historical trend, no matter which chain is developed, it is beneficial to the entire encryption field. Whether it is bsc, heco, or eth, dot, atom… or other rising chains, they are essentially all on the same boat. The cake here is big enough that it can’t be carried by a few chains. Maybe dozens of chains can carry it in the future?

2. The ultimate road to encryption

The current encryption field is more or less weighed against the characteristics of decentralization, and no chain can dare to say that it is completely decentralized, only the degree of difference. However, the two chains of Bitcoin and Ethereum are far ahead in terms of decentralization and security. This is not something that can be achieved in one or two days.

When other chains have greatly improved performance and user experience by weighing a certain degree of decentralization, they will bring more users, especially those who have just entered this field. These chains will bring users in the entire field A larger group will bring more talents and more ammunition to the development of DeFi, and will continue to expand the market.

When the market expands to a certain level and reaches a certain equilibrium, people will begin to weigh their own needs and make their own choices between security, decentralization and performance.

This will lead to differentiation between different chains, some chains will carry higher value activities, such as Bitcoin and Ethereum. Some chains will carry lower value but higher frequency activities. Finally, a three-dimensional market structure is formed.

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When more users enter DeFi in the encrypted world through other chains, such as bsc and heco, some of them will also have a demand for DeFi on Ethereum, which will naturally bring more users and traffic to Ethereum.

Moreover, with the development of layer2, even if Ethereum is more expensive than bsc and heco chains, the difference between them will not be so big. If there are higher requirements for decentralization and security, it will also form a reverse migration situation.

The scarcest thing in encryption is not performance but security

The scarcest thing in the encryption field is not performance, low cost, or speed, but security. This security is not what you want. Bitcoin and Ethereum have gone through the test of history, formed a social consensus, and penetrated the entire encrypted world through token incentive mechanisms, value changes, liquidity, and basic networks. This is the most valuable thing in the encryption field.

Due to the layer2 and sharding solutions, especially the layer2 solution, it is estimated that it will land in the next few months to half a year, and the security advantage will be especially precious. Because performance is an easier problem to solve, while security and decentralization are not. In the long run, the advantages of Ethereum will gradually show up.

The big track based on Ethereum’s Layer 2

When Ethereum’s DeFi protocol builds their own layer2, and after the intercommunication between layer2 is realized, Ethereum’s Layer1 will continue to be a valuable resource.

*Continue to provide higher security on Layer1. Layer1 is more suitable for important transactions, which have higher security requirements and do not care about costs;

*DeFi basically runs on Layer 2, and it will not disturb Layer 1. This will greatly release the space of Layer 1. In the future, Ethereum DeFi, whether it is lending, transaction, asset management, insurance, payment, etc., will run on Layer 2 ;

*Layer 2 can basically get the same security as Layer 1, such as ZK Rollup’s solution;

*Layer 2 also has a transition process, early Optimistic Rollup and other solutions can solve the urgent need, which will speed up the process of layer 2;

*After the competition of Layer 2 is over, about one or two giants will be born. It will become the solution of the entire Layer 2 and thus fundamentally solve the interoperability problem of DeFi. This situation means that the future Layer 2 will Projects with extremely high achievement value may even be close to Layer 1. If Layer 2 projects with a level of 100 billion dollars in the future, it should not be surprising. In the Blue Fox Note’s track ranking, Layer 2 ranks fourth, second only to btc, public chains (eth, etc.), and algorithmic stable coins.

The development of Layer 2 will increase the value of Ethereum

People will say that when the main activities of DeFi are migrated to layer2, the number of transactions will be reduced, and the capture of transaction fees will also decrease. The problem here is the size of the cake.

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If the development of Layer 2 projects based on Ethereum is active, Ethereum’s status as the underlying security will be further strengthened. The more assets carried on Layer 2, the more important the status of Ethereum. As its carrying assets increase, ETH Value will also rise. The value capture of ETH lies not only in transaction fees, but also in the value of the underlying asset.

Public chain chess game

The future public chain will form a hierarchical pattern according to the needs of user groups. For users with higher security and decentralization requirements, especially users with larger transaction amounts, Ethereum will have a greater advantage. For users with higher transaction fees and transaction speed requirements, especially some users of high-frequency transactions, non-Ethereum chains may have greater advantages, and these users will be scattered across different chains.

Chains such as bsc, heco, Polkadot, Astro Boy will not only migrate users from Ethereum, but also bring more new users to Ethereum. Among the new users brought by their respective chains, some will be converted into Ethereum users. The development of bsc and heco is essentially beneficial to Ethereum. Just as the development of Ethereum is beneficial to Polkadot, Astro Boy, bsc, heco, etc.

With the development of Ethereum layer 2, even if the performance can be greatly improved, the Polkadot, Astro Boy, heco, bsc and other chains also have their own relatively fixed user groups, which will eventually form a certain balance of power and have their own survival. space.

In the final public chain structure, Ethereum still occupies the most advantageous position because it has the most coveted trump card of all smart contract platforms: the scarcest security. This advantage cannot be replaced, but other chains also have a lot of room for development. The advantages in performance and user experience stabilize its user base.

The future public chain structure will be multi-chain, hierarchical, full of possibilities, and brilliant.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.