Deciphering the Public Blockchain Game: Ethereum's Spillover Demand is a Good Thing! The ultimate goal remains decentralized public chains and DeFi.

The future landscape of public chains will be multi-chain, layered, full of possibilities, and diverse. Ethereum's congestion is leading to the overflow of DeFi, which is a phenomenon that is currently happening.

(This article is authorized to be reprinted from Lanhu Notes, the original title is "The Great Game of Public Chains," original article here)

The originally anticipated path was the migration from Layer1 to Layer2, but the reality is that the overflow is moving from Ethereum to chains such as BSC, Heco, ATOM, Polkadot, etc.

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Now everyone is concerned about questions like: Will Ethereum be surpassed? What does the development of BSC and Heco mean? ... From the perspective of Lanhu Notes, the future is dynamic but also predictable. How to understand the grand game of public chains?

Explanation of Strong Demand in Congestion, Strong Demand is Always Better Than No Demand

Aside from Bitcoin and Ethereum, the most fitting area in the entire crypto world for products and markets is DeFi. This is why Blue Fox Notes has been focusing on DeFi for over two years. Blue Fox Notes previously mentioned in 2019, "Why is DeFi the Second Breakthrough in Crypto History?"

You can also see from Ethereum's congestion that there is a prominent contradiction between the continuously growing demand and inadequate infrastructure preparation. In essence, it is a good thing; strong demand is always better than no demand.

Overflow Occurs When Demand is Not Met, a Natural Result

Ethereum's congestion is due to strong demand. When demand cannot be fully met, it is natural for demand to seek alternative ways to resolve issues. The overflow of DeFi from Ethereum to BSC, Heco, ATOM, Polkadot, and other chains is a natural result.

DeFi is also a Progressive Development

DeFi is a long-term development process, and it is unrealistic to expect it to fulfill all demands from the beginning. It is also unrealistic for DeFi to be fully decentralized from the start. Currently, both DeFi projects themselves and the chains they rely on have certain trade-offs in decentralization. The degree of trade-off varies.

If demand surges but performance cannot keep up, certain trade-offs will inevitably be made. There will be temporary trade-offs in security and decentralization, while improvements will be made in performance and user experience.

In terms of DeFi's development process, it is gradual and involves trade-offs. Both DeFi and blockchain itself are dynamically developing, and it is not a black-and-white situation.

It is not a case of "either decentralized or centralized."

On the path to true DeFi, one of the stops will inevitably be semi-decentralized. This is a scenery on the journey that provides better user experience, attracts more new users, and ultimately leads to decentralized public chains and DeFi. This is a long-term process.

Ethereum's Congestion is Not an Insoluble Problem

With the implementation of Layer2, Ethereum's congestion issues will be greatly alleviated. Of course, there is a time window of at least a few months to half a year for this to happen.

The Prosperous Development of Other Chains Benefits Ethereum

In the short term, there may be competition for Ethereum, such as user migration, business overflow, especially for DeFi projects on high-frequency chains like DEX, as seen in the development of Cake and MDEX. Whether you like it or not, these chains are developing.

In the long run, with the scalability solutions for Ethereum, and as chains like BSC, Heco, Polkadot, etc., bring in more new users, some of these users will switch back, ultimately forming a stratified user base. The arrival of new users is also beneficial for Ethereum.

Currently, there are more and more projects on BSC and Heco, developing rapidly. In the end, Ethereum will also benefit. This issue can be viewed from two perspectives:

1. The Big Picture of the Crypto Sector

The entire crypto sector is still relatively small compared to Wall Street, and there is a long way to go. DeFi is the digital era's subversion of Wall Street by humans. Just as in the internet era, online media disrupted newspapers and magazines, this is a major historical trend. Players from Wall Street will shift their battleground to the crypto sector in the next five to ten years.

From this historical trend, the development of any chain is beneficial to the entire crypto sector. Whether it's BSC, Heco, ETH, DOT, ATOM, or other emerging chains, they are essentially on the same boat. The cake here is big enough that several chains cannot carry it all, perhaps dozens of chains will be needed in the future?

2. The Ultimate Path of the Crypto Sector

Currently, the crypto sector has more or less compromised on the decentralized nature, and no chain dares to claim it is completely decentralized; it's just a matter of degree. However, Bitcoin and Ethereum are far ahead in terms of decentralization and security. This achievement is not something that can be reached overnight.

When other chains achieve a certain level of decentralization through compromise, and significantly enhance performance and user experience, they will attract more users, especially new users in the industry. These chains will expand the user base of the entire sector, bring more talent to DeFi, and continue to expand the market.

As the market grows to a certain extent and reaches a balance, people will start weighing their own needs and make choices regarding security, decentralization, and performance.

This will lead to differentiation among different chains, with some chains carrying higher-value activities like Bitcoin and Ethereum, while others will handle lower-value but higher-frequency activities. This will ultimately create a multi-dimensional market structure.

As more users enter the world of DeFi through other chains like BSC and Heco, some of them will also have a demand for DeFi on Ethereum, naturally bringing more users and traffic to Ethereum.

Moreover, with the development of Layer2, even if Ethereum is more expensive than BSC and Heco, the differences between them will not be significant. If there is a higher demand for decentralization and security, a reverse migration trend will form.

The Scarcest Resource in the Crypto Sector is Security, Not Performance

The scarcest resource in the crypto sector is not performance, low fees, or speed, but security. This security is not easily obtained; Bitcoin and Ethereum have withstood historical tests, formed social consensus, and penetrated the entire crypto world through token incentive mechanisms, value changes, liquidity, and network infrastructure. This is the most valuable asset in the crypto sector.

With Layer2 and sharding solutions, especially the gradual implementation of Layer2 solutions in the next few months to half a year, the advantage of security will become particularly precious. Performance is a problem that is easier to solve, while security and decentralization are not. In the long run, Ethereum's advantages will gradually become apparent.

The Major Race of Ethereum-based Layer2

When DeFi protocols on Ethereum build their own Layer2 and achieve interoperability between Layer2s, Ethereum's Layer1 will continue to be a valuable resource.

• Continue to provide higher security on Layer1. Layer1 is more suitable for important transactions that require higher security and are not very cost-sensitive.
• DeFi will primarily run on Layer2, without disturbing Layer1 unless necessary, which will significantly free up space on Layer1; in the future, Ethereum DeFi, whether it's lending, trading, asset management, insurance, payments, etc., will run on Layer2.
• Layer2 can essentially achieve security comparable to Layer1, as seen in solutions like ZK Rollup.
• Layer2 is also a transitional process; early solutions like Optimistic Rollup can address urgent needs and expedite the progress of Layer2.

After the competition on Layer2 ends, one or two giants will likely emerge, becoming the ultimate solution for the entire Layer2, fundamentally solving the interoperability issues of DeFi. This scenario means that future Layer2 projects will be extremely valuable, potentially approaching the value of Layer1. It would not be surprising if future Layer2 projects reach a billion-dollar level. In Blue Fox Notes' race rankings, Layer2 ranks fourth, following BTC, public chains like ETH, stablecoins based on algorithms, etc.

The Development of Layer2 Will Increase Ethereum's Value

Some may argue that when the main activities of DeFi move to Layer2 and transaction volumes decrease, will the capture of transaction fees also decrease? The key here lies in the size of the cake.

If projects based on Ethereum's Layer2 are very active, Ethereum's position as a secure base will be further strengthened. The more assets carried on Layer2, the more important Ethereum's position will become. As the assets on Layer2 increase, the value of ETH will also rise. The value capture of ETH lies not only in transaction fees but also in the value of its underlying assets.

The Great Chess Game of Public Chains

Future public chains will form a layered structure based on the needs of user groups. Ethereum will have a greater advantage for users who require higher security and decentralization, especially for users with larger transaction amounts. Other chains may have a greater advantage for users who demand lower transaction costs and faster speeds, especially for high-frequency traders, and these users will be dispersed among different chains.

BSC, Heco, ATOM, Polkadot, and other chains are not only attracting users from Ethereum but also bringing more new users to Ethereum. Among the new users brought by their respective chains, some will convert to Ethereum users. The development of BSC and Heco is fundamentally beneficial to Ethereum. Just as Ethereum's development benefits Polkadot, ATOM, BSC, Heco, etc.

With the development of Ethereum Layer2, even if it can significantly improve performance, but chains like Polkadot, ATOM, Heco, BSC, etc., also have their relatively fixed user bases, and ultimately a certain balance will be reached, allowing each to have its own survival space.

In the final public chain structure, Ethereum still holds the most advantageous position because it possesses the ace that all smart contract platforms dream of: the scarcest security. This advantage is irreplaceable, but other chains also have significant room for development. By solidifying their user bases through advantages in performance and user experience, they can consolidate their positions.

The future public chain landscape will be multi-chain, layered, full of possibilities, and exciting.