The rise of alternative layer one protocols

The rise of alternative layer one protocols

The rise of alternative layer one protocols

In the fast-growing world of crypto it’s no longer just about Ethereum. Alternative layer one smart contract platforms are catching up fast, and new investors are betting on these chains to outperform the market.


The Rise of Alternative Layer 1 Protocols

If you want to know where the growth is going to be, all you need to do is follow the money. That’s never been easier to do than now, thanks to some data from the digital asset investment company CoinShares. According to their stats, new investors are showing a lot of interest in alternative layer one blockchains.

In a recent blog post CoinShares wrote, “Recently created altcoin investment products, Terra, Tezos and Cosmos all saw inflows totalling $2.2 million, $0.9 million and $0.6 million respectively.” Furthermore, “Blockchain equity investment products saw the largest flows since mid-December with inflows totalling $69 million last week.”

In relative dollar terms these inflows are smaller than the investments we saw in 2021. However, even if the investments aren’t as large as we’d like, it’s still encouraging to see money flowing into new projects with the greatest potential for growth. The cryptocurrency analyst Altcoin Sherpa has pointed out that Near, Terra and Fantom are all trading above their 200-day exponential moving averages, and are showing bullish strength in a stagnating market.

Not to be outdone, the Ethereum fund just broke out of a 9 week trend of outflows and went net positive for the first time in 2022. Ethereum has a first-mover advantage, however, these other protocols could easily outperform the market since they have more room for growth. One emerging layer one platform is Stacks, a smart contracts platform backed up by the Bitcoin blockchain, and then there is also Cosmos, with its Vega update which went live in December and introduced a series of major upgrades to the network.

According to Cosmos’s blog, “The updates will also serve to avoid consensus errors, and improve efficiency through features like fee and voting delegation. The Vega upgrade is essential to enhance the performance of the Cosmos Hub and ensure that future upgrades occur seamlessly.”

The Interchain Foundation also just released interchain accounts on Cosmos, which will further enhance the protocol’s ability to interface with other blockchains. Even though prices are down right now there’s a lot of work being done behind the scenes and these blockchain protocols could end up doing very well in 2022.

Much of the growth in alternative layer one blockchains is due to the proliferation of NFT and DeFi projects on platforms with much lower fees. And as Raoul Pal has pointed out on numerous occasions, network effect is the best way to measure a blockchain’s intrinsic value. So as long as the network effect for Solana, Terra, Stacks, Fantom and Cosmos grows faster than the network effect for Ethereum, these alternative chains have a chance to catch up with crypto's number one smart contracts platform.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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