Written by: Asher Zhang
Recently, Solana's strategic adjustment to Layer2 has caused heated discussions. What far-reaching impact will this move have on Solana? Why did Solana do this? Compared with Ethereum, what kind of difficulties will Solana face?
The application chain is exploding, and Solana cannot stop the escape of applications
Blockchain is maturing, and the most important thing in the next stage is the breakthrough of blockchain applications. We have mentioned in previous articles that the two main application breakthrough directions in this round of bull market are Meme platform and DePin. One is to go a step further on the basis of DeFi, which has the significance of integrating DeFi functions. The reason why such platforms are still mainly Meme projects is mainly due to the limitations of current blockchain applications. In addition, the author is also very optimistic about DePIN related to Ai, which is a major trend of future development. DePIN builds the underlying infrastructure, and the Meme platform builds a unified DeFi upward. In the future, the breakthrough of blockchain applications may not be far away. So, what kind of phenomenon will appear after the blockchain application goes out of the circle? What impact will this have on the public chain?
The author believes that the initial development of blockchain applications mainly relies on public chains, but as it develops to a certain stage, it accumulates a huge user base and forms a huge wealth accumulation, and it is likely to develop towards application chains. After blockchain applications accumulate a large number of users, user transactions will generate a lot of on-chain fees, but it is difficult for blockchain applications to capture these values. Driven by interests, blockchain applications will consider building their own application chains, so that blockchain applications can capture these values and empower them to their project tokens, thereby providing value support for project tokens and increasing user stickiness.
It is not a fantasy for blockchain applications to build their own application chains. This reality has actually been happening. dYdX is a decentralized exchange (DEX) that focuses on derivatives trading, especially perpetual futures contracts. However, due to the needs of its own products, dYdX decided to build its own dedicated chain and chose Cosmos SDK as its blockchain framework. In addition to dYdX, more blockchain projects use L2 to build their own dedicated chains. NFT brands Azuki and ApeCoin use Arbitrum to build their dedicated chains. Currently, Layer2 built with Op Stack includes Base, opBNB, Zora Network, DeBank Chain, etc.
As mentioned above, in the early stages of development, blockchain applications mainly rely on the strong foundation of public chains. However, when the development reaches a certain stage, building dedicated chains driven by interests has become a trend. Although Solana has attracted a large number of users to join the Solana ecosystem with its excellent performance, as blockchain applications mature, building dedicated chains driven by interests will become the first choice for most projects. If Solana only maintains the current model, it will be difficult for it to retain most projects in the future. This is why it may be time for Solana to consider the Layer2 strategy.
Is Solana Layer2 feasible? SOL may have to follow Ethereum
Although Solana has better performance than Ethereum, it has also experienced downtime many times. Therefore, relying solely on the performance advantage of Layer1, it is still difficult to bear the huge performance challenges brought by the influx of many applications in the future. For blockchain projects, for the sake of interests, blockchain projects need to ultimately empower project tokens, and their demand for dedicated chains is difficult to stop. In addition, for new developers, modular blockchains save huge development costs to a large extent. Overall, Solana's Layer2 and modularization shift is inevitable in terms of trend, but this will also bring huge challenges to Solana, causing it to fall into the same dilemma as Ethereum again.
Since the beginning of this bull market, many projects have begun to transfer or choose to migrate to Solana in order to improve performance, which has also led to Solana's crazy rise. At the same time, Ethereum has performed poorly in this bull market due to performance issues. In addition, the Layer2 strategy has greatly reduced Ethereum's value capture ability. Even the passage of the Ethereum ETF has not brought strong support to ETH. However, with the development of Layer2 and modular blockchains, it has become more and more convenient for developers to deploy applications, and the value capture ability has continued to increase. The advantages of modular blockchains have gradually become apparent. Another point worth noting is that Layer2 has exploded before, which has led to liquidity fragmentation. However, cross-Layer2 interoperability projects have made great progress recently, which is expected to break the island effect. This will invisibly attract more developers and projects, which is why few well-known projects have migrated to Solana recently. This is also the challenge and dilemma that Solana has to face.
Regarding Solana's consideration of the Layer 2 strategy, DeFi analyst Ignas said that Solana is facing a critical turning point, and it is trying to shift from a monolithic blockchain to a modular architecture. This shift may affect Solana's positioning in the cryptocurrency community. The key lies in whether the concept of "network expansion" can be recognized. During this bull market, ETH is between BTC and SOL. If Solana adopts an L2 expansion model similar to Ethereum, SOL may become the new ETH. If Solana faces problems such as liquidity dispersion, its position may become uncertain. In addition, speculators may turn to chasing "network expansion" tokens in the Solana ecosystem rather than SOL itself, which may hinder the price growth of SOL.
The offensive and defensive situation will change, and Ethereum may explode
In this bull market, Solana clearly outperformed Ethereum in the first half; however, as modular blockchain matures, the offensive and defensive momentum of Ethereum and Solana will change dramatically.
I have previously proposed that Ethereum’s explosion may come in the first half of next year. The reason for this is:
First, the cross-chain interoperability problem is about to be solved. For example, Optimism is integrating ERC-7683 to allow interoperability between the super chain and the rest of Ethereum L2 through the application layer; Polygon is building an AggLayer to achieve cross-chain one-click transactions; in addition, there are Caldera's Metalayer, Avail Nexus and Hyperlane. Vitalik himself also said that people will be surprised that cross-L2 interoperability is no longer a problem.
Secondly, the Ethereum Pectra upgrade is expected to be launched in the first quarter of 2025. It merges the Prague (execution layer) and Electra (consensus layer) updates. This will also be something to look forward to for Ethereum. One of the biggest changes in Pectra is the way it handles accounts. In the upgrade proposal, EIP-3074 allows traditional wallets (externally owned accounts or EOA) to interact with smart contracts, such as batch transactions, etc. These will help Ethereum pave the way for wider adoption.
If Solana shifts its strategy to Layer2 at this time, it means that Solana has achieved a change of offensive and defensive positions against Ethereum. Solana's previous leading position will undergo a huge change; at the same time, Ethereum will usher in its own spring.
