Author: Chen Jian Jason, Institute of Everything Research
Author: The views in this article may be controversial, are personal opinions, do not target any project, do not represent any investment advice, do not represent any official position, and welcome discussions.
This year, whether it’s a new public chain or Layer2, they have fallen into a state of a hundred-chain war, especially Layer2. As of now, only 18 Layer2 have been counted by L2beat, and there are many Layer2 that are in the process of launching and development, conservatively estimated to be 30+; and yesterday, the Layer2 taiko, which focuses on equivalent ZKEVM, also announced that it had completed a $22 million financing round, setting off another frenzy among the wool-pulling army.
Currently, only Arbtrum’s daily TPS is approaching Ethereum, and there are still many Layer2s that have not even reached 1 and are in a ghost town state. However, even so, a large number of empty ghost towns are still being built, the first carriage is crowded, and the next 10 carriages are empty. L2 has been established, 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 taken off. Of course, the current low TPS is to a certain extent related to the bear market.
Previously, I posted this picture on Twitter. Many people mocked and said, “These Layer2s claim to have the highest TPS of over 10,000, but the actual TPS cannot even surpass Ethereum.” In fact, this sentence is not accurate. Maybe the experimental data really can support TPS over 10,000. It’s like building a new city, and the theory can accommodate 10,000 people, but in fact, no one goes there, and only one person lives there. The new city becomes a ghost town. The actual TPS is not a problem with these Layer2s boasting, but the current problem is not how high TPS can be pulled, but that there is no application that requires such a high TPS. It’s like purchasing a batch of 8-core 32G gaming laptops in a cybercafe, but everyone is playing candy crush.
But it cannot be said that high TPS has no value for Layer2. Now all chains that are the main high-TOPS are gambling that there will be applications that really require such high TPS in the future. If they bet right, it will be 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 great demand. But as a practitioner, I sincerely state that the day when Web3 scale applications will appear will definitely come.
However, the prevailing argument in the market is that “the reason why users are not coming now is because the infrastructure is not good enough, so we should invest heavily in Layer2.” First of all, I think this argument is not entirely valid, or it is a kind of psychological avoidance and laziness in pursuit of certainty. Infrastructure and large-scale applications are a two-way arrow relationship, not a one-way arrow. Layer2 is a resource-driven race for big capital with high certainty, so at this stage, investing in a very powerful layer2, not a powerful application that explodes Layer2, is very powerful.
Now let’s go back to the current Layer2. As you can see from the screenshot at the beginning of the article, no chain’s TPS activity exceeds that of Ethereum. From the public chain war in 2017, it can be seen that the chain itself has a head effect. Which chains will eventually win out? How should other chains that are cannon fodder end up?
Chains are not the same as applications, and they can be acquired like the Hundred Regiments Battle. Users eventually aggregate to one application, but once the chain has no projects or applications, it becomes a zombie chain. Of course, before this, the investors who should have exited have also exited, and who should bear the cost of the remaining mess? You can refer to who paid for those public chains in 2017.
Now many Layer2 chains are focusing on EVM equivalence, such as the Bedrock upgrade that OP has just conducted and Taiko’s focus on equivalence advantages. First of all, it is important to note that EVM equivalence is important, making Layer2 and Layer1 more and more similar, thereby reducing the threshold for developers and increasing security.
However, it is worth considering whether the project’s real cost is development cost. I don’t think so. How much is the development cost? It’s just the labor cost of a few R&D personnel. The real cost is the liquidity cost that the project pays to maintain the application.
An application will not automatically have users come to 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 play. Now that so many chains have emerged, the development cost is low, and even one-click migration is possible. However, there are only so many resources in hand. Every time a chain is deployed, a certain amount of liquidity must be diluted. Not deploying means giving up the ecology of this chain, which is a dilemma.
So, after the mouse pulls the shovel, the area that needs more thought and value is how to solve the large liquidity cost rather than the small development cost. This liquidity cost is not only for the project party but also for the users, because the user’s assets and data are also scattered across various chains.
How can the resources on various chains be aggregated to both the project party and users without feeling it? This is a very valuable issue.
For users, can they not feel the existence of the “chain” anymore, and can they let users have only one ETH in their wallets and use it wherever they want to use it, and automatically route it to the corresponding chain behind it, including automatic conversion of gas fees? I also saw some projects doing this direction, which belongs to the category of account abstraction.
For project parties, whether it is defi, games, or social media, etc., the same is true. Don’t let them queue up and choose a certain chain, but it is to deploy multi-chain applications, and multi-chain users, data, and assets can also be unified and aggregated into a large pool. I only need to pay attention to this pool.
Ultimately, users and project parties do not need to perceive the existence of the chain.
In addition, talking about the large-scale outbreak at the application layer, this is indeed a matter that needs to be resolved with ingenuity. Last week, when I communicated with the Wanchain community, I thought about how I crossed the threshold from the PC Internet to the mobile Internet? It’s Fruit Ninja.
At that time, I just started junior high school, and smartphones had just started. Every time I finished class, there were several people in the class who took out their newly purchased Nokia N95 to cut fruit, and a group of classmates surrounded them, feeling fascinated.
So I convinced my mother to buy me a smartphone that could also cut fruit every day under the pretext of “conveniently looking up information.”
Fruit Ninja, a native game that fully adapts to touch-screen smartphones, has made a significant contribution to making a large number of people truly aware of the uniqueness of smartphones, and to some extent, it has helped the early breakthrough and promotion of the mobile Internet.
Therefore, breaking through the mobile Internet is not about moving things from the PC Internet to it, but about native applications that adapt to the characteristics of the mobile Internet. Think about what WeChat relied on to open the gap with mobile QQ, which was a shaking feature.
Following this line of thought, I believe StepN is the Fruit Ninja of Web3. Although it ultimately cannot escape from masturbation and death spirals, it has really made a great contribution to a large number of users starting to understand, accept, and use Web3. I previously discussed with a friend from a certain fund, and he said that he started playing Web3 because of StepN. Because he has two children at home 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 were very happy, so the whole family went out for a run after dinner.
So, continuing along this logic, what other products fit 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 still remember the AR game of Pokémon Go during the Spring Festival in 2016? At that time, many people were scanning around with their mobile phones. There was a map positioning in the phone, and you could go to the corresponding location to catch the Pokémon. It was very interactive and became very popular. I have always been thinking that this game is very suitable for Web3. I feel that it can even be bigger than StepN in terms of breaking the circle and business.
The general logic is to use AR to show users a map with the locations of the little monsters marked on it. The user walks over there with their phone, and they can see the little monster on the screen. Each little monster is an NFT. Users need to buy a monster ball to catch monsters. This monster ball is similar to the nature of running shoes. Then the user can go and catch this little monster, follow the logic of upgrading and fighting monsters, and increase the probability of catching it by some mechanisms such as parameters such as the level of the monster ball. Users can also feed their little monsters, follow the route of developing monsters, have babies, or fight with other people’s little monsters. There will be many things to do and economic models to integrate into it.
This can also effectively break the circle. Remember that in 2016, many media outlets reported that many young people rushed into restrooms, restaurants, and other people’s offices with their mobile phones to catch monsters and were kicked out. This strange behavior of this group of people is very attractive to the media and society. Imagine a group of young people gathering on the street with cameras scanning around, it will be much more extraordinary, and it can also achieve strong social interaction. Going out to fight monsters together on weekends is very social, after all, StepN can only run by itself. There are also many channels for commercialization. In the later stages of StepN, it must seek external income, such as cooperation with Adidas, but the effect is minimal. However, this little monster model can be completely cooperated with brand merchants, such as putting a few Chanel little monsters at the door of Chanel and letting everyone gather at the door to catch them. The captured little monsters can even be held to buy Chanel at a discount and so on. It is a good opportunity to cooperate with brand merchants. The imagination space is much larger than StepN. Please note that this is just an example and does not represent any advice.
So back to the title question.
Do we really need so many Layer 2? Not compared to the number that has already appeared, no.
What is the singularity of the large-scale application of Web3? It lies in the appearance of the next product that natively adapts to Web3 features, to a certain extent has higher sustainability, solves the death spiral, and can break the circle.
Like what you're reading? Subscribe to our top stories.
We will continue to update Gambling Chain; if you have any questions or suggestions, please contact us!
