Analysis of Diamond Hands and Public Chain Projects by Amber Group Analysts: Part Two

Amber Group analyst Lao Bai @Wuhuoqiu shared on Twitter his insights on the Diamond Hand project, as well as potential projects in the public chain space that are still being updated. From mid-December to the present, Lao Bai's views are as follows: Disclaimer: Not investment advice, for informational purposes only

Note: Diamond Hand refers to holding long-term without fear of volatility and risk

Public Chain Series

Lao Bai's Statement

Lao Bai: "From the comments last week and the current market trends, I know that most people are speculating SOL, AVAX, LUNA. However, I might disappoint you, as it's not any of those three. As for the reasons, I will talk about it separately after the last public chain sharing - of course, don't get me wrong, it's not that I don't see potential in them, it's just like the Diamond Hands series: there are too many good projects, and I'm running out of bullets..."

1. Polkadot DOT Post on 12/22

Lao Bai stated that despite many people thinking that Polkadot is mostly "Chinese projects" with Chinese development teams, the slot auction is similar to EOS's super node election from years ago, and the coin price can't compete with SOL, AVAX, etc. However, he believes these are all emotional and market conditions. If the timeline is extended, from the evolution and technical aspects of blockchain, he still has great confidence in DOT.

The reasons include:

• More Abstracted Underlying Logic - Currently, most emerging L1 and Ethereum L2 projects are essentially faster versions of Ethereum. But Polkadot is a more "abstract" Ethereum. This level of abstraction has occurred in the development from Bitcoin to Ethereum: from a "peer-to-peer cash system" to a blockchain for services beyond payments, such as lending, gaming, on Ethereum. Polkadot abstracts even further from Ethereum's smart contracts. On Polkadot, you can deploy blockchains similar to Ethereum, blockchains with multiple native tokens, or even non-smart contract chains without Gas and account systems. In other words, what Ethereum can do, Polkadot can basically do, but not the other way around. Although this level of abstraction is not as extensive as that from Bitcoin to Ethereum.
• Industry Contribution - Polkadot's most significant contribution to the industry is not itself but the Substrate SDK software development kit. With the increasing number of blockchain projects developed through Substrate, even if they don't ultimately connect to the Polkadot ecosystem, it's still good publicity. This is more impactful than just being a "faster Ethereum."
• Founder's Prestige - Gavin Wood, who co-created Ethereum with Vitalik, Ethereum's technical lead, author of the Ethereum Yellow Paper, inventor of the most popular programming language Solidity in the blockchain space, founder of Parity, and even the earliest proponent of the term Web 3.
• Pioneer of Heterogeneous Sharding and Cross-Chain - Ethereum 2.0's homogeneous sharding has been indefinitely delayed, taken over by Near. The extreme form of heterogeneous sharding is Polkadot's parallel chain model. Lao Bai believes sharding is one of the holy grails of blockchain scaling, and currently, hopes are pinned on Polkadot and Near. Polkadot's XCMP Cross-Chain Message Passing is a top-notch technical implementation.

However, he believes Polkadot is currently unable to surpass Ethereum because the industry paradigm is still stuck in "smart contract public chains + dApps." The real value will be evident in the application chain era, especially the heterogeneous application chain era. As dApps may no longer meet demands in the future, people will need various customized application chains to achieve functionalities that are currently unimaginable, and that's when Polkadot's opportunity will arise.

Regarding the timing, Lao Bai cannot predict. He can only say that Terra and Ronin have already set a good start for application chains. However, in most cases, the difference between dApps and application chains doesn't make a big impact on user experience. Just like in the Bitcoin era, it was difficult to imagine the emergence and explosion of DeFi, NFTs, and GameFi on Ethereum. Therefore, foresight and imagination are necessary. Even though such an era may come, it may not.

2. Near NEAR Post on 12/24

Lao Bai first shared his performance entering Near's decentralized exchange Trisolaris in the past two weeks, followed by explaining his optimism towards Near based on sharding technology:

• Sharding is the Holy Grail of Blockchain Scaling - Lao Bai stated that there are many ways to increase TPS (transactions per second), such as larger blocks, fewer nodes, stronger hardware, cooler consensus mechanisms... However, they all struggle to fundamentally solve one problem - state explosion. There are simpler practical solutions for state explosion, such as Nervos' "payment"; there are more fundamental logical solutions, like the academic research-level "stateless client." However, from the scalability perspective, the only solution currently capable of increasing TPS, solving state explosion, and maintaining relatively strong decentralization is sharding. Polkadot represents an extreme embodiment of heterogeneous sharding; homogeneous sharding mainly focuses on ETH 2.0 and Near.
• Sharding is More Challenging - Since it's considered the Holy Grail, it's certainly not easy. Otherwise, why did Vitalik temporarily abandon sharding and focus on Roll-ups in the past two years? Transaction sharding is manageable, but to address the aforementioned state explosion, true state sharding needs to be achieved, which is genuinely challenging. L1's impossible triangle may not always hold, but if sacrificing a bit of one angle while keeping the other angle unchanged and significantly increasing the last angle is cost-effective. Sharding retains decentralization essence, sacrifices some security, and greatly enhances scalability. Solana's popularity is partly due to its POH history, which appears to have made minimal sacrifices in security and decentralization while significantly improving scalability. However, recent outages have raised more doubts about POH. Additionally, L2's layering approach is another good strategy to avoid the impossible triangle of a single layer. However, as seen with Ethereum currently having five or six L2 solutions, sharding doesn't lead to such a scenario, which is why Solana has always emphasized the composability advantage of a single layer.
• Strongest Competitors - Lao Bai mentioned that currently, there are only three projects recognized in the industry for implementing state sharding: Harmony ONE, Elrond EGLD, Near NEAR. Harmony might be driven by DeFi Kingdoms JEWEL, as mentioned before, while Elrond currently lacks significantly popular protocols. Near, on the other hand, has a relatively complete ecosystem with DEX, lending, Launchpad, cross-chain bridges, and recent collaborations with Terra. Lao Bai believes that in early December, Ethereum co-founder Vitalik mentioned in his "Endgame" article: "adding a second tier of staking. Transactions in the block are split into 100 'buckets,' and each second-tier staker is randomly assigned one bucket to verify the state root of the Merkle tree. Each bucket requires 2/3 verifiers to sign before a block is accepted..." This description is remarkably similar to Near's sharding design, Nightshade.

• Grassroots Reversal, Making Waves - Lao Bai believes that compared to star projects like Polkadot, Near is relatively straightforward and less known. However, it reacts quickly, supports EVM, switches to PoS algorithm, increases node quantity, and follows market demands. The key is having sufficient engineering capabilities to deliver what's needed.

Lao Bai mentioned that Near's first sharding phase will go live in January currently in phase zero, with 400 nodes officially embarking on the sharding journey. However, this is just a simplified version of the Nightshade protocol, with further stages scheduled for implementation in 2022 to enhance decentralization, reduce hardware requirements, increase the number of shards, and more. The future development is promising.

In addition, dForce founder Yang Mindao also shared his views in a tweet, stating that he doubts whether L1 can truly succeed based on technical routes. Eventually, L1's growth will likely involve a mix of compatibility, with technologies like sidechains, L2, heterogeneous sharding being non-monopolistic and absorbed by other chains. Technology itself is anti-finality and anti-deterministic.

3. Internet Computer ICP Post on 12/28

"To be honest, I'm very conflicted because ICP itself is a very conflicting project. It opened at its peak, the foundation sold coins causing a slump, trapping countless people, with the strange 8-year lock-up option, over half a year since launch, no relation to DeFi, NFT, GameFi, not even basic lending or SWAP..." Lao Bai starts by addressing criticisms towards ICP.

However, he still outlined several reasons:

"The first two projects, Polkadot represents a more abstracted half-layer of innovation in the technology stack compared to Ethereum, Near represents the pioneer of exploring the 'Holy Grail' of smart contract chain scalability. What does ICP represent? It represents a possibility of a new paradigm. Note, just a possibility. Because compared to Polkadot and Near, its failure probability is much higher. But regardless of size, at least it represents a new possibility, or rather a new hope, and not just a simple 'faster and better Ethereum.'"

He mentioned that ICP isn't like a typical blockchain project but more like a public cloud platform. It incorporates blockchain consensus and governance but operates asynchronously between containers rather than synchronously. While this significantly increases computational power, it also leads to a lack of atomicity in interactions between containers, preventing ICP from achieving complex interactions between DeFi contracts on Ethereum, which rely on atomicity.

Furthermore, ICP nodes require specially customized server hardware with only memory, no hard drive, making it challenging for non-computer professionals to understand. Lao Bai noted that theoretically, ICP is best suited for the front end of Web3, such as a decentralized TikTok, decentralized Facebook, Reddit, or even front-end web interfaces for many blockchain platforms like Uniswap, AAVE, which can all be realized using ICP for decentralization.

"In other words, ICP isn't actually targeting Ethereum or Solana; it's meant to 'eliminate' AWS and Alibaba Cloud." However, due to its advanced concept, mismatch with current trends, and technical complexity, it's challenging for people to fully grasp.

Lao Bai highlighted two areas to look forward to:

• The ICP Foundation will propose 25 initiatives for the next year and relinquish voting rights, allowing the community to decide via voting. These include: EVM compatibility, seamless integration with Web 2 via HTTPS, changing token economics, accelerating DeFi, developing storage subnets, etc.
• Currently priced around $20, many loyal community members have locked their tokens for eight years, only claiming slightly over 20% annual interest.

Lao Bai concluded with a warning: Do Your Own Research. ICP may have the highest risk among public chain projects, but it's listed due to its favorable odds and potential. After all, Ethereum also grew from various doubts until the prosperity of DeFi and NFTs.