Do we really need so many Layer 2 solutions? Where is the singularity of Web3’s mass adoption?
Do we need many Layer 2 solutions for Web3's mass adoption?
This year, whether it is a new public chain or Layer2, it has fallen into a state of a hundred-chain battle, especially Layer2. As of now, only 18 Layer2s have been counted by L2beat, and there are still many Layer2s in the queue for online and R&D. Conservatively estimated to be more than 30. Yesterday, the Layer2 taiko, which is mainly equivalent to ZKEVM, also announced the completion of a $22 million financing, setting off another carnival for the hair-raising army.
Currently, only Arbtrum’s daily TPS approaches Ethereum, while there are still many Layer2s that have not even reached 1 and are in a ghost town state. However, even so, there are still many ghost towns that no one lives in. The first car is crowded, but the last ten cars are empty. L2 has been produced, but users are still unwilling or have no motivation to migrate. Arbtrum’s Defi ecology has made great contributions to user migration to L2, and ImmutableX’s game ecology has not yet started, of course, the low TPS is to a certain extent related to the bear market.
Previously, I posted this picture on Twitter, and many people sneered and said, “These Layer2s often claim that the highest TPS is over 10,000, and the actual TPS can’t even run Ethereum.” In fact, this sentence is not accurate. Perhaps the experimental data can bear the highest TPS, just like a new city can theoretically accommodate 10,000 people, but in fact, no one goes to the city, and only one person lives there. The new city has become a ghost town. The problem of low actual TPS is not that these Layer2s are bragging. The current problem is not how high TPS can be pulled, but that there is no application that requires such high TPS. It is like a cyber cafe purchasing a batch of 8-core 32G gaming laptops, but everyone is playing candy crush.
But it cannot be said that high TPS has no value for Layer2. All the chains that are currently promoting high TPS are gambling, gambling that there will really be applications that require such high TPS in the future. If they bet correctly, it will be like Shenzhen Special Economic Zone. If they bet wrong, it may be a certain XX new area. Before it is finally built, no one knows whether there will really be such a large demand. However, as a practitioner, I deeply state that the day when Web3 large-scale applications will appear will definitely come.
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But the more common argument in the market is that “the reason why users don’t come now is because the infrastructure is not good, so we have to invest heavily in Layer2.” First of all, I think this argument is not entirely true, or it is a kind of risk avoidance and laziness for pursuing certainty. Infrastructure and large-scale applications are a two-way arrow relationship, not a one-way arrow. Layer2 is a resource-driven track for certain big capitals, so at this stage, it is very powerful to invest in a Layer2 that is powerful or an application that can support Layer2.
Returning to the present Layer2, as can be seen from the screenshot at the beginning of the article, none of the chains have a TPS activity exceeding Ethereum’s. From the public chain war in 2017, it can be seen that the chain itself has the effect of head impact, so which chains will eventually win? How should other chains that serve as cannon fodder end up?
Chains and applications are not the same thing and can be acquired like the Hundred Regiments War. Users eventually aggregate to one application, but once there are no projects or applications on the chain, it becomes a zombie chain. Of course, investors who should exit before this have already done so, and who should bear the cost of the remaining mess? You can refer to who paid the bill for those public chains in 2017.
Nowadays, many Layer2 chains are targeting EVM equivalence, such as the recent Bedrock upgrade by OP, “What You Need to Know About the Bedrock Upgrade for the OP Mainnet on June 6th,” and Taiko, which also emphasizes equivalence advantages. First of all, we need to make a statement that EVM equivalence is very important, making Layer2 more and more similar to Layer1, thus lowering the developer threshold and improving security.
But what is worth considering is whether the real cost of the project is development cost. I don’t think so. How much is the development cost? It’s just the cost of labor of a few developers. The biggest cost is the liquidity cost that the project pays to maintain the application.
An application does not automatically attract users to come and use it after it is deployed on a chain. The project needs to inject liquidity into the application, including funds, traffic and other resources, so that users can afford to use it. Now, so many chains have emerged, the development cost is low and even can be migrated with one click, but there are only so many resources in hand, and every deployment of a chain will dilute a certain liquidity. However, not deploying it means giving up the ecology of this chain, which is a dilemma.
So, while EVM equivalence solves this small development cost, how to solve the big liquidity cost is a more valuable and thoughtful field. This liquidity cost is not only for the project, but also for the user, because the user’s assets and data are also scattered across various chains.
How to aggregate the resources on various chains in an imperceptible way for both the project and the user is a very valuable topic.
For users, can we stop them from feeling the existence of the “chain” again, and let users use 1 ETH wherever they want in their wallets, and automatically route them to the corresponding chain, including automatically converting gas fees? I have also seen some projects working on this direction, which belongs to the category of account abstraction.
For project parties, whether it is DeFi, games, or social media, do not make them choose a certain chain. Instead, deploy a multi-chain application, and users, data, and assets from multiple chains can be aggregated into a big pool, and I only need to focus on this one pool.
Final users and project parties do not need to be aware of the existence of the chain.
Returning to the large-scale outbreak of the application layer, this is indeed something that needs to be tackled with ingenuity. Last week, when I was communicating with the Wanwu Island community, I recalled how I crossed the threshold from the PC Internet to the mobile Internet. It was Fruit Ninja.
At that time, I had just started junior high school, and smartphones had just emerged. Every time after class, there were a few people in the class who took out their newly bought Nokia N95s to cut fruit, and a group of classmates surrounded them. I was envious.
So I persuaded my mother to buy me a smart phone that could also cut fruit after class because it was convenient for looking up information.
Fruit Ninja, a native game that fully adapts to touch screen smartphones, made a huge contribution to making a large number of people truly aware of the uniqueness of smartphones, and to some extent realized the early breaking of circles and promoting the outbreak of the mobile Internet.
Therefore, breaking the circle of the mobile Internet is not about moving things from the PC Internet to the mobile Internet, but about adapting native applications to the characteristics of the mobile Internet. Think about what WeChat used to widen the gap with mobile QQ, which was just a product transfer? Shake it.
Following this logic, I think StepN is the Fruit Ninja of Web3. Although it ultimately cannot escape from the circle of hair-raising and death spiral, it has really made a great contribution to a large number of users beginning to understand, accept and use Web3. Earlier, when I communicated with a friend from a certain fund, he said he started playing Web3 because of SetpN. Because there are two children in the family who don’t exercise much, he bought running shoes for the children and said that you can earn pocket money by running downstairs every day. The children are very willing, so the whole family goes for a run happily after dinner every day.
So continuing to break down along this logic, what other products meet this logic? I’ll give you an example. Please note that this is just an example and does not represent any investment advice. Previously, I was thinking about an idea. Do you all remember the AR game of Pokemon Go during the Spring Festival in 2016? At that time, many people were scanning around with their phones. The phone had a map location, and you could go to the corresponding location to catch Pokemon. It was very interactive and was once very popular. I have been thinking that this game is very suitable for Web3, and I feel that it may even be greater than StepN in terms of breaking circles and business.
The general idea is to use AR. Users will have a map on their phones that shows the location of the small creatures. They can go to the location and see the creature on their screen. Each creature is an NFT, and users need to buy a “creature ball” to catch the creature. The ball is similar to running shoes in that it increases the chance of catching the creature. Users can level up and fight creatures, and there are mechanisms, such as the ball’s level, to increase the chance of catching them. Users can also feed and raise their creatures, breed them, and battle with other users’ creatures. There are many possibilities for economic models and gameplay.
Additionally, this can effectively break the mold. In 2016, many media outlets reported that young people were going to the bathroom, restaurants, and other people’s offices to catch creatures and were being kicked out. This strange behavior is attention-grabbing. Imagine a group of young people gathering on the street, scanning cameras back and forth. It would be a very unusual phenomenon, and it would enable strong social interactions. On the weekends, groups of people could team up and go fight creatures. The idea has great social potential. After all, StepN can only be done alone. There are many commercial possibilities as well. In the later stages, StepN had to look for external income sources, such as partnerships with Adidas, but the results were minimal. The creature model could easily be combined with brand partnerships, such as placing Chanel creatures outside the Chanel store, causing people to gather outside the store to catch them. And if they catch them, they can get a discount on Chanel products. This is a great opportunity to collaborate with brands. Keep in mind that this is just an example, and not a recommendation.
So, back to the title question. Do we really need so many Layer2s? No, we don’t need as many as we currently have. What is the singularity of web3’s large-scale application? It lies in the emergence of a product that natively adapts to web3 features, has a higher degree of sustainability, can break the mold, and can solve the death spiral problem to some extent.
The above content was written by Chen Jian Jason of the Institute of Everything, and does not constitute investment advice or represent the official position.