Hot Cross Research: Will Multi-chain be the new future
September 2021 Updates - New Products - VIE
August 2021 Update - 3 Months Review
There is a huge debate that has been going on all the time in financial circles as well as governments around the world: Is Blockchain and Cryptocurrency a scam - a big ponzi, or will it become a part of mankind?
This controversy has been going on since 2008 and it’s getting more and more intense every time the Crypto market goes through a bull or bear season. Until now, this problem seems to be unresolved. The only thing we know is that haters still hate, and builders still keep building.
The 2020-2021 period is a strange bull season, which is different from all the other bull run seasons of the Crypto market. The biggest difference is that this bull season of the market has a great contribution from the real demand of market participants. Despite the ups and downs of the market, or Shiba’s or Doge’s price increases in accordance with the crowd effect, Total Locked Value in the Ethereum ecosystem is still increasing rapidly. On May 12, 2021, the total amount of assets locked in DeFi applications on Ethereum reached an all-time high with over $85 billion. At the time of writing, after a big market correction, TVL on Ethereum is still at $80 billion.
And of course, Ethereum is not the only growing platform. There are ETH’s competitors that are growing as well in the context of ETH’s network congestion and high transaction fees problems are still unresolved.
A typical example of this is Binance Smart Chain, a Blockchain that has only been in development for 9 months, has quickly acquired a daily transaction volume of up to $10 million at the time of writing, which is 8 times higher than Ethereum. Moreover, despite being developed later, TVL on PancakeSwap is reaching $10 billion. Or like Solana, a new name that is emerging recently, also reached TVL of up to $1 billion on both Raydium and Serum despite its small ecosystem.
With that being said, in the 2020-2021 bull season, the demand of users participating in the market is real. And as the demand increases, the competition also heats up. For example, Ethereum, Binance Smart Chain, Cardano, Solana, Near, Avalanche, etc., all of them are well-known Layer 1 Blockchains and they are competing with each other to attract more capital.
Unlike 2017, the bullrun season in the 2020-2021 have seen Single Chain Maximalism becoming a lot weaker. Although Ethereum is still king, liquidity is still flowing heavily to Uniswap which makes new blockchains stop calling themselves “Ethereum Killers”. Instead of trying to “subvert” Ethereum by a cheap marketing attempt (calling themselves “Ethereum usurpers”), Layer 1 Blockchains have realized that they will grow faster if they can develop together and find their own way since not every project has the same needs.
For example, many projects that require high processing speed will probably choose scalable Blockchains like Solana or Near, while DeFi projects are keen on building on Ethereum to easily connect to the ETH’s diverse ecosystem. With others, perhaps they will want to be on multiple chains to satisfy multiple users at the same time.
However, this also causes some problems. With DeFi and DEXs with AMM ‘’ascending the throne’’ for a long time, the liquidity of projects, especially new projects, is no longer concentrated on centralized exchanges (CEX) such as Huobi, OKEx, or Kucoin. Currently, after TGE (Token Generation Event) takes place, projects will face the question of where and how much to add liquidity.
Obviously, if the project is built on Ethereum, its token will be based on ERC-20 standard, which allows the project to be listed on Uniswap and so is the project’s liquidity. Similarly, if the project is built on Binance Smart Chain with BEP-20 token standard, it will be listed on PancakeSwap and the liquidity is also there. When a project with ERC-20 wants to transfer a part of its tokens to BSC (due to high transaction fees on Ethereum, for example), it will face a lot of problems. If the project issues tokens on two chains at the same time, users will have trouble switching back and forth their tokens between two chains, because there’s no tool allowing them to do that, not to mention other issues like Swap, Farm, Liquidity, etc.
With that being said, Cross-chain is gradually becoming a real need of users, not only retailers, institutions but also projects. And where there is a need and a problem, there will be problem-solvers. HotCross is a typical example.