Author: Pavel Paramonov, blockchain researcher at Dewhale Capital; Translation: 0xxz@Golden Finance
In the 2021 bull run, we witnessed L1 blockchains fighting for the title of “Ethereum Killer.” However, there were no winners in this war. Founders realized, “If you can’t beat them, join them.” It was Solana that prompted this shift.
From the beginning of 2022 to the end of the year, the native tokens of most L1 blockchains depreciated by more than 90%.
All blockchains have tried to solve the blockchain trilemma, claiming to be faster and more secure than Ethereum. However, no one has really won this competition because it is quite difficult to compete with the giants.
Imagine you started from scratch and tried to build a wallet to compete with MetaMask. You might have a better UX/UI, better features, and better processes. But most people would still prefer to use MetaMask, simply because they are used to it.
1. Solana can become the only non-EVM blockchain that users care about.
You can’t say the same about any other non-EVM blockchain, such as NEAR Protocol, Cardano Community, Algorand Technologies, or Kadena.
The ecological landscape in 2021 is as follows:
If we talk about real users, the TPS of these chains currently does not exceed 10. Solana also has some issues that everyone is talking about:
- Multiple downtimes
- “Association” with SBF and FTX
- OKX delists USDC and USDT on Solana
- DeGods bridge to Ethereum, etc…
However, this is the only team that truly cares about users, technology, and the future. Solana Labs co-founder toly (Anatoly Yakovenko) and team members received all the feedback, were able to solve all the problems, and basically just continued to overcome difficulties. Solana did not win the L1 war, it was just an unexplored path, and thanks to Helius Labs CEO Mert Mumtaz, Superteam and other core contributors, this path was explored.
2. Blockchains cannot compete for liquidity in the L1 field, so they decide to "benefit" instead of "fight".
Why compete with Ethereum if you can benefit directly from it? Deploying L2 usually means benefiting from the Ethereum economy while having your own economic ecosystem.
If you are a rollup, it is easier to attract liquidity because you are building on hundreds of millions of TVL on the native chain. At the same time, creators have the ability to create their own native tokens and have their own small economy in this huge ecosystem.
Additionally, creating a rollup is now easier than ever: there are multiple solutions for you to choose from, such as Conduit, AltLayer, and of course Optimism’s OP Stack.
3. The fragmented and chaotic liquidity on L2 is a real social fragmentation problem.
Each L2 has different focuses:
- Optimism focuses on capacity expansion.
- Arbitrum focuses on DeFi.
- Base focuses on SocialFi.
- Metis focuses on DAO.
Is this bad? Of course not!
Each rollup is unique and has the opportunity to gain unique market recognition. But sometimes, these are the ones who are most vocal about the problem of liquidity fragmentation.
As Emmanuel Awosika noticed at ethCC, people mostly like to attend offsite events because they tend to find more like-minded people there. However, I think it’s important to not only present yourself as a zksync max, but also to be open to other cultures, perspectives, and ideas. Because we are all in the same sandbox (Ethereum).
4. On Ethereum, people create rollups. On Solana, people develop applications.
If I had to compare the current state of these two ecosystems, I would draw a picture like this:
Currently, there is no real competition between Ethereum and Solana as these blockchains simply provide different services.
Ethereum has become a big sandbox where kids (developers) build sandcastles (rollups). More and more developers are focusing on bringing the same dapp to multiple rollups. I think this could create a problem because some developers are more focused on injecting liquidity into their app than on building a really good app.
Solana is the same sandbox, but here the applications are the clay pots, and for now, they are prettier.
- There is no better swap trading experience than using Jupiter
- The best wallet experience is Phantom
- There are even native liquidity reserves for non-native assets, such as Clone
Jito is able to create the best liquid staking experience on Solana, including MEV rewards, which was not possible before. But it’s not that simple.
5. Solana’s current stage is similar to Ethereum’s previous stage.
The reason people started migrating to L2 and creating new L2s is that native links have limitations.
Some people may remember that in 2021, you had to pay $200-300 in fees to make a swap. Ethereum itself cannot handle that much throughput, so a solution that can handle more throughput and lower fees is needed to make the network usable.
Solana is capable of handling its existing activity, but there are limitations to Solana’s architecture:
- The block leader was attacked by bots, so the transaction failed.
- Failed transactions waste computing units and network bandwidth.
- The charging mechanism cannot motivate efficiency and is incompatible with the incentive mechanism.
To solve these problems, you don’t need to create L2 on Solana.
In my opinion, creating L2 on Solana makes sense in two scenarios:
- Even after all the adjustments, the network is unable to handle the high volume of transactions. Or it is able to handle the high volume of transactions, but the fees are too high.
- Create an application chain to leverage Solana’s liquidity while still being able to have your own economy within your chain.
Who knows, maybe in the future we’ll have a Solana L2 war, just like we have on Ethereum now. But there won’t be a winner. In the end, cooperation is almost always better than competition.
