Why create Alt-Layer1 when ETH-Layer2 already exists?

Why create Alt-Layer1 when ETH-Layer2 exists?

Author: ArkStream Capital

The Environment of New Public Chains

If there is a law of universal gravitation in the world of blockchain, then currently, Bitcoin and Ethereum are like the two brightest stars, illuminating this brilliant galaxy. The reason why they can shine brightly and emit dazzling light among the countless stars lies in their original technological implementation (i.e., blockchain and smart contract platforms) and years of continuous iteration and upgrades, which have accumulated a huge market value, a prosperous ecosystem, and an active community.

In the cryptocurrency cycle from 2017 to 2021, we often heard the term “Ethereum killer.” Many new public chains aimed to surpass Ethereum by proposing their own technological architecture and implementation plans. For example, Solana, which introduced Proof of History, Avalanche, which adopted Avalanche consensus and subnet functionality, NEAR, which focused on sharding technology, Flow, which used consensus and computation separation, EOS, which had parallel processing and asynchronous communication capabilities, IOTA, which had a DAG transaction structure, and Polkadot and Cosmos, which had native multi-chain support. It must be said that they have all achieved success in specific time periods in terms of on-chain user activity, DApps development, and TVL data indicators. However, with their own different reasons (such as team stagnation and funding collapse) and the gradual launch of Ethereum’s Layer 2 solution Rollup, the situation has quietly changed. The most obvious change is that in the DeFiLlama’s public chain TVL rankings, Arbitrum and Optimism have surpassed most Alt L1 chains. In addition, some innovative projects have also shifted their focus to the Rollup Layer 2 network. The most representative example is the derivative platform GMX, which migrated from Avalanche to Arbitrum.

At the current point in time, the stable development of Bitcoin and Ethereum, as well as the rapid growth of Layer 2 networks, are clearly squeezing the once lively Alt L1 market. Many Alt L1 projects seem to be in a “stagnant” bottleneck period, which indicates a less optimistic future for new public chains. Taking the recent Move-based new public chains Aptos and Sui as an example, the market sentiment towards them has changed dramatically. Before their mainnet launch, people were enthusiastic about analyzing their whitepapers and technological architectures, envisioning their application scenarios, and developers were eagerly learning new contract languages and competing for ecological positions in DApps projects on the new public chains. However, after the mainnet launch, especially after token issuance, with the downturn in the DApps ecosystem and the underperformance of TVL data, everything seems to be slipping away from us.

PS: Considering that privacy-focused public chains emphasize anonymity and protecting user privacy, and storage-focused public chains emphasize decentralized storage, their design concepts and technical routes differ to some extent from general-purpose public chains. In order to focus and delve deeper into the discussion, we will temporarily not explore privacy-focused public chains and storage-focused public chains.

The Necessity of Developing New Public Chains

It can be said with certainty that nowadays, developing and implementing new public chains to challenge the two giants, Bitcoin and Ethereum, as well as the thriving layer 2 networks, is undoubtedly a challenging endeavor. This leads us to ponder a question: Is there a need to continue developing new public chains?

The answer is yes. From the perspective of Mass Adoption, the entire Web3 ecosystem has seen a wealth of new application scenarios such as DeFi, NFT, and Metaverse since 2020. The user base has also grown to millions or even tens of millions. However, compared to technologies that have already achieved Mass Adoption, such as search engines and instant messaging, the development space for Web3 is still enormous. If we compare Web3’s infrastructure public chains to traditional cloud computing, the number of applications and users of public chain services is still in the rapid development stage, far from reaching the mature stage of large-scale applications. Therefore, the size of the future market and the speed of demand changes will give rise to the emergence of public chains with excellent service capabilities and responsiveness. Currently, Bitcoin and Ethereum have taken the lead and gained widespread recognition and market share in the field of public chains. However, this does not mean that other Alt-L1 and new public chains have no room for survival or opportunities to surpass in certain niche areas. It is for these reasons that institutions are willing to invest a large amount of funds in the field of public chains, not solely for financial investment considerations, but based on their judgment of the future of Web3 and the importance of public chains.

Hard Power and Soft Power

When researching and analyzing public chains, they can be evaluated from two aspects: hard power and soft power. Hard power mainly focuses on technological innovations related to public chains, such as P2P networks, consensus mechanisms, block data structures, smart contract languages and virtual machines, token economics, etc., as well as the adaptability and adjustment capabilities of technological development routes and current situations. Soft power involves more aspects of business operations, ecosystem construction, and capital coordination. Both of these powers are indispensable in the development, implementation, and growth of public chains. If there is only hard power but lacks soft power, it is easy to fall into the dilemma of isolated innovation; if there is only soft power but lacks hard power, it will definitely not go far.

As for hard power, Alt-L1 is prone to technical rigidity and stubbornness, which is why we emphasize the adaptability and adjustment capabilities of technological development routes and current situations. After the establishment of Bitcoin by Satoshi Nakamoto, the entire network and community development were organic. When it comes to significant functional changes and new feature support, the overall progress is slow and conservative. However, it is also keeping up with the times, such as the recent hot Ordinals protocol. Ethereum’s scaling solutions once favored Plasma before officially entering the era of Rollups. Looking at the new roadmap released by Ethereum last year, we can see that the focus at the protocol level is mainly on the security of the PoS consensus mechanism and the optimization of decentralization, the combination of data sharding and Rollup, while the original goals of eWASM and state sharding have been replaced by other features.

Exploration of Innovative Technologies

When Ethereum’s Frontier was launched in 2015, it provided a basic usable network with features such as PoW consensus mechanism, transactions, account model, and the core EVM smart contract platform. Over the years, Ethereum has been continuously iterating and upgrading, such as the more stable and efficient Homestead in 2016, the Metropolis Byzantium in 2017 that supports ZK-Snarks proof on-chain verification through pre-compiled contracts, the Beacon Chain in 2020 that supports PoS functionality, the London Hard Fork in 2021 that introduces the market transaction fee model EIP-1559, and the Paris upgrade in 2022 that officially shuts down PoW and starts PoS (ETH Merge). Ethereum adheres to the spirit of openness and freedom in blockchain, starting with rich programmability and never stopping, demonstrating the continuous development of a public chain in the exploration of innovative technologies through repeated upgrades.

Because of this, whether it is a new public chain that has not yet been launched in the primary market or an old public chain that has been listed on the secondary market for a long time, those public chains that are brave enough to explore innovative technologies are worth our attention and learning.

Next, let’s temporarily ignore the pros and cons of the economic model design of public chains and the performance of market tokens, and further study some interesting public chains other than Ethereum, combining the open developer data panel provided by Electric Capital to study their unique or iconic innovative technologies.

Polkadot – Substrate

Polkadot introduces the concept of relay chain and parachains through the parallelization of blockchains, and achieves the shared security and intercommunication of multiple blockchains through the cross-chain communication protocol XCMP. The technology framework that supports these features of Polkadot is Substrate. Substrate provides the minimal development unit called LianGuaillets, which abstracts and extracts various functional modules such as assets, staking, and EVM. Based on LianGuaillets, it provides the development framework Frame and the blockchain customizable runtime. Combined with the unique asynchronous model and parallel chain sharding mechanism, Substrate provides the ability to process a large number of transactions simultaneously, improving the overall network throughput and performance. In addition, Substrate also supports pluggable consensus mechanisms, allowing developers to choose different consensus algorithms according to their needs. Moreover, Substrate has built-in Ethereum EVM and WASM runtimes, making it convenient for the migration and development of Ethereum ecosystem applications. Finally, Substrate supports on-chain hot upgrades, allowing upgrades and updates to the blockchain without interrupting the network.

Cosmos – Tendermint / Sovereign Chain / App Chain / IBC

Tendermint is one of the first PoS consensus algorithms that implements Byzantine fault tolerance and is also one of the inspirations for Ethereum’s PoS algorithm. The concepts of Sovereign Chain and App Chain perfectly embody Cosmos’ decentralized multi-chain concept, allowing each sovereign chain to have its own consensus mechanism, economic model, and governance rules, as well as allowing specific applications or services to directly build small-scale application chains through the Cosmos network. They can communicate and interact with each other using IBC, creating a multi-chain Internet advocated by Cosmos.

The two core development suites of Cosmos: CometBFT, which implements the Tendermint consensus algorithm and defines the application interface ABCI, and Comos SDK, which supports IBC and CosmWasm. The corresponding ecosystem consists of the central Cosmos Hub and various Zones connected to the Cosmos Hub. Since the launch of the Cosmos mainnet in 2019, IBC has evolved from supporting interconnection between Zones and between Zones and Hub to more rich and comprehensive features such as Inter-Chain Accounts (ICA) and Inter-Chain Security (ICS). In September 2022, the Cosmos Hub will officially transition from the first stage (Initiation) to the second stage (Integration).

Sei Network – Optimized for Trading

As a popular Cosmos ecosystem application chain recently launched, Sei has a built-in order matching engine, sub-second settlement speed, parallel processing of orders, and single-block order execution. All these customized features are implemented at the base layer, mainly through ABCI++ to optimize them. ABCI++ is an upgrade to Cosmos’ ABCI that makes each step of consensus programmable.

Solana – Proof of History

Proof of History (PoH) is an innovative time-stamping technology that can be understood as a mechanism for implementing a global clock in a distributed system, used to coordinate operations and time order between nodes in the distributed system. By embedding timestamps in each block, PoH constructs a globally shared time sequence in the Solana network, enabling nodes in the network to easily verify the order and time of transactions. This not only improves the throughput and performance of the entire network, but also effectively prevents malicious tampering and replay attacks.

NEAR – Nightshade Sharding / Beacon chain

Derived from the early sharding concept of Ethereum, NEAR also inherits the concept of Beacon chain, but optimizes the block proposers and validators for each shard. Each shard has a group of block proposers responsible for generating blocks and packaging transaction and state data in the blocks. Since each shard is relatively independent, each block proposer only needs to focus on the shard they belong to and can independently generate blocks without coordination with block proposers from other shards. Validators only need to verify transactions and states belonging to their own shard, without considering the state of the entire network. This improves the efficiency of block generation and validation, enabling the processing of more transactions and state updates.

Avalanche – Avalanche Consensus

The Avalanche protocol introduces a voting mechanism that creates an avalanche effect, allowing nodes to quickly reach consensus and form a consistent sequence of decisions throughout the network. The key to the protocol lies in the process of multi-round voting and iterative decision-making. Through continuous voting and feedback, nodes in the network gradually converge to a consistent consensus result. Since nodes can vote and make decisions in parallel, the parallel processing capability of the entire system is improved. The Avalanche protocol also allows dynamic entry and exit of nodes, as well as flexible scalability through adaptation of voting rules and parameters.

Flow – Multi-node Architecture

A pipeline-like multi-node architecture. Execution nodes are responsible for executing transactions, achieving massive transaction processing and computational operations. Validation nodes monitor and verify the computation results of execution nodes, ensuring that execution nodes correctly execute smart contracts according to the rules, and verify the accuracy and consistency of the computation. Consensus nodes are responsible for transaction ordering and block generation, with the task of ensuring network security. This multi-node architecture is reminiscent of the modular blockchain advocated by the current execution layer, data availability layer, settlement layer, and consensus layer being implemented directly at the public chain level.

Monad – Asynchronous Concurrent Transactions

Monad is an EVM-compatible L1, and transactions are also EVM-equivalent. In order to improve TPS, Monad identifies and labels transactions that do not affect each other, eliminating the common dependencies of these transactions, and then achieves high-concurrency transaction performance through asynchronous execution mechanisms.

Diem/Libra – Move

Since its inception, Facebook/Meta’s Diem (formerly Libra) has attracted attention from inside and outside the industry worldwide, whether it is criticism from traditional regulatory agencies or skepticism from the native Web3 world. The original intention of Diem is to serve billions of people worldwide, enabling them to enjoy financial services comparable to traditional bank account payment systems. To this end, Diem has designed high-performance validation nodes in terms of technology, as well as the Move language and corresponding Move virtual machine that balance asset security and smart contract execution efficiency. However, due to regulatory and policy reasons, Diem did not go live on the mainnet as scheduled. As a result, the Diem team derived three different exploration routes for public chain projects after inheriting these technological accumulations. They are respectively mentioned later: Sui Network, Aptos, and Linera.

Sui Network – Causal Order / Object Model

For transactions, Sui adopts a processing method similar to DAG, combined with a unique object model and a version management mechanism like a snapshot, so that transactions no longer need to be fully sequenced and only need to be causally sequenced, thereby naturally obtaining massive parallel execution capabilities. Of course, the technical support behind this also comes from Sui’s optimization adjustments to the object system in the Move language, adding many asset attributes related to Web3.

Aptos – Block-STM

The parallel execution engine of Block-STM is similar to the optimistic fraud proof of Rollup, directly introducing optimistic locking and concurrency control mechanisms in one layer of the public chain. Of course, optimistic locking technology has been widely used in traditional databases, but due to the high conflict rate and retry rate in scenarios with frequent write operations, optimistic locking is not as suitable for high-frequency concurrent scenarios as pessimistic locking. Here, Aptos also optimizes this through pre-processing and transaction transaction splitting.

Linera – Microchains

If Sui Network and Aptos have effectively utilized the Move language features of Diem, then Linera has effectively inherited the consensus mechanism of Diem. Even more fundamentally, Linera’s technical architecture comes from Facebook’s initial FastLianGuaiy project, and FastLianGuaiy is more like the predecessor of Diem/Libra, providing specific design concepts and in-depth technical details for fast, secure, and low-latency large-scale payment scenarios.

Linera has done a lot of research in terms of architectural scalability, mainly through the implementation of Microchains. The Multi-chain network is formed by users maintaining Microchains. Microchains can be made public or private, and asynchronous messaging is used for communication between Microchains. The entire network uses the same set of validators and DPoS consensus guarantee and execution, with validator nodes responsible for message delivery and state synchronization. In addition, validator nodes are also responsible for the operation and maintenance of public Microchains.

To some extent, Linera’s technical architecture and philosophy have a similar design to the popular cloud-native architecture. Microchains correspond to numerous mirrored containers, and Apps correspond to instances of the mirrors. This architecture performs well in terms of elasticity and fault tolerance, similar to cloud-native infrastructure. Of course, how to securely and efficiently solve the communication and synchronization between Microchains is a different core problem that Linera, as a public chain, needs to face and solve.

Just like the cloud-native architecture gradually occupying the selection of traditional application architectures in the past decade or so, the phenomenon of coming from behind and even surpassing allows us to believe that investing in Linera is our firm expectation. With the mature solutions based on Diem/FastLianGuaiy and the unique innovative technology of Linera, it will eventually surpass Ethereum in certain application scenarios in the future.

Conclusion

I don’t know if it’s an illusion, but after reviewing these innovative technologies of public chains, I can’t help but feel that the Rollup As A Service framework popular in Ethereum Layer2 and Cosmos’s SDK, and Polkadot’s Substrate are so similar (Optimism’s OP Stack, Arbitrum’s Orbit, Polygon’s zkSupernet, Starknet’s Appchains, and zkSync’s Hyperchains). Even some ideas of the new narrative Restaking are similar to Polkadot’s DOT staking slot auction and Cosmos 2.0’s ICS. The rise of Layer2 is closely linked to the power of Ethereum, but the exploration of new public chains is equally important, or even more important. The innovation and breakthroughs in the technical and solution explorations of new public chains will greatly improve the basic service capabilities of the entire Web3 industry.

As previous public chains accumulate more mature experience for the entire industry, it is more likely that more powerful new public chains will emerge in the exploration of innovative public chains. Just as Satoshi Nakamoto used the proof-of-work mechanism and the UTXO model to creatively propose Bitcoin, a decentralized blockchain network, combining public-private key cryptography, P2P networks, and chain blocks, now and in the future, we have even more reason to believe that based on the innovative technologies of the aforementioned old and new public chains, a public chain that combines the strengths of many will emerge in the Web3 world to achieve the mission of Mass Adoption. We can see that innovative public chains, especially those in the Cosmos (such as Sei Network) and Diem/Move language (represented by Linera) ecosystems, will continue to explore the possibilities of blockchain in different dimensions, challenge Ethereum’s position, and expand the ceiling of public chains.

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