Binance Research provides key insights into the layer-1s sector in 2022, and the place this area could possibly be headed next yr.
Considering the requirements of 2022 and all that has occurred in the crypto house, layer-1s (“L1s”) can nonetheless be stated to have had a really attention-grabbing and eventful yr. Many notable events have taken place in the L1 space over 2022. From Ethereum’s transition from proof-of-work to proof-of-stake in September to the implosion of the Terra ecosystem in May. New L1s had been announced, with Aptos launching its mainnet and Sui expected early to do so subsequent year. Notable incumbent, BNB Chain, and leading layer-2 (“L2”) resolution, Polygon, gained market share in the vacuum left by Terra, while Solana had a more difficult year, being one of many L1s more impacted by the latest FTX saga. The yr was rife with materials occasions in arguably crucial sub-sector within crypto.
What has happened?
Figure 1: L1 / L2 market cap and every day on-chain metrics across 2022
Key Observations
• Market capitalization (market cap) is, in fact, decrease for a massive number of reasons that we are not going to dedicate this piece to. However, we ought to always very clearly notice that market cap does not necessarily correlate to essential on-chain metrics in terms of day by day transactions and lively addresses. As we will see, BNB Chain and Solana excel here, whereas Ethereum, regardless of the higher market cap, is evidently lower in terms of daily exercise.
• Ethereum: The Merge! Since this subject has been lined advert nauseum by everyone and their cat, rather than repeating, we wanted to speak about its impression. Data reveals that since completing the transition to proof-of-stake in mid-September, $ETH supply development is massively down (from 3.58%/y to 0.005%/y). In reality, together with its burn mechanism, $ETH spent the majority of November as a deflationary asset and presently sits very close to that level.
• BNB Chain: a commendable year for BNB Chain, with market cap down solely ~45% YTD, quite a bit higher off than main competitors Ethereum (-64% YTD) and Solana (-90% YTD). BNB Chain was one of the main L1s serving to onboard builders displaced by the Terra and FTX scandals. Daily activity metrics stay extraordinarily high, with the launch of BNB Liquid Staking and zkBNB being notable highlights. Innovation and partnerships in the NFT space are also continuing in full swing, with OpenSea just lately saying assist for BNB Chain NFTs on its platform.
• Solana / Avalanche: 2022 was difficult for the traditional “alt-L1” commerce of 2021. Solana noticed some strong traction of their NFT ecosystem, with development in collections, volumes and marketplaces. Avalanche noticed positive headlines on the again of their Subnets, which offered scalability for decentralized functions (“dApps”), significantly in the gaming house. However, each alt-L1s have suffered from poor publicity (for Solana this came through the FTX scandal, whereas for Avalanche this was a product of some not-so-flattering information that obtained leaked a quantity of months ago). Solana has also continued to suffer from regular outages, calling into query the reliability of the community.
• Layer 2s: While L2s are technically one step removed from the L1, any discussion on L1s is incomplete without no much less than commenting on the growing scaling market. Polygon is the little question leader right here, with its numerous solutions across the board. It has been a robust 12 months for Polygon, with their business growth persevering with to shine (Starbucks NFTs, Reddit NFTs, Instagram/Meta NFTs to call just some current headlines that Polygon has been behind). More pure-play L2s, Arbitrum and Optimism have additionally carried out strongly over the previous 12 months and continued to extend exercise / take market share from a number of the smaller alt-L1s. The OP token’s launch was a notable second for Optimism earlier this 12 months, while Arbitrum continued to concentrate on their core product choices with their launches of Arbitrum Nitro and Arbitrum Nova.
Expectations for 2023
Now that we have obtained some concept of how the major L1s have moved by way of the 12 months and some of their notable events, what concerning the coming year? What are our tentative expectations?
L1s (particularly some of the smaller alt-L1s) will really feel the pressure of L2s
• One of the most important narratives of the 12 months was so-called “L222” referring to 2022 being the breakout year for L2s. Did we see this? L2 whole worth locked (“TVL”) figures present that there was a rise of 118% (in ETH terms) because the begin of the 12 months. So, in a means, sure. It definitely has been the biggest year that L2s have had thus far. However, in absolute terms, total TVL locked in L2s is simply around US$4.5B. When we compare to complete DeFi TVL in Ethereum (around US$25B), and whole crypto market cap sitting close to US$900B, we are ready to contextualize how far L2s nonetheless should climb.
• Consider additionally the truth that, as proven in Figure 1, each Arbitrum and Optimism exceed Avalanche in terms of every day on-chain activity. Add to this the growing deployment of alt-L1s dApps on L2s e.g. Trader Joe of Avalanche recently introduced their deployment on Arbitrum, and it will be interesting to monitor what happens with a few of the smaller alt-L1s. There has been an idea that has been mentioned among many in the crypto area that the main L1s will merely turn out to be settlement layers, whereas execution and exercise occur on the L2s. While we are seeing a little bit of this already, 2023 would possibly very well be the 12 months that we see this occur on a a lot bigger scale.
New L1s might survive if they truly deliver one thing new to the table
• Consider essentially the most well-known new entrants within the L1 area, Aptos (who went to mainnet in Q4 of this year) and Sui (who are expected to launch in early 2023). Both of these L1s bring varied new improvements with them, together with the Move programming language. Given the background of this language and all that it promises, alongside the potential increases in transaction speed with both L1s, there’s a potential for some true innovation. It ought to be price preserving a close eye on whether both or each of these L1s are in a place to utilize their new applied sciences to convey a couple of step change in the crypto market.
This is a visitor submit from CoinMarketCap with Binance Research. The original article was revealed here and was included within the final Build part of the 2023 CMC Crypto Playbook.
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