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January 08, 2022

L1 protocols in 2021

High fees on Ethereum + DeFi liquidity wars ignited an explosion of growth on L1 protocols like Sol, Luna, and Avax.

First a few data points from where they started to where they are today, limited to accessible data:

  • Price:

  • SOL: ~$2 -> $177

  • LUNA: $0.60 -> $86

  • AVAX: $3 -> $108

  • Total Value Locked (TVL):

  • SOL: NA -> $12B

  • LUNA: $53M -> $18B

  • AVAX: NA -> $12B

Average transaction fees rose on ETH from $4 to $24, and if you were minting NFTs, potentially into the thousands. Other chains were lucrative to many investors from both a usability standpoint and enticing liquidity rewards. Anchor, one of the biggest draws for Luna, has offered a 20% yield on the chain’s native stable token UST. Avalanche kicked off their ecosystem with a $180M incentive program - starting off with lucrative liquidity rewards on Trader Joe, BenQi, AAVE and Curve (to mention a few). Solana saw launches of Raydium, Saber, and others plus almost instant transaction settlement, low fees, and the backing of FTX & SBF that helped bring it into the mainstream. SOL saw an explosion of NFTs, especially after many were tired of the fees seen on Ethereum, but more on that later. But what does this all mean?

Well, Bitcoin and Ethereum will always be the originals, but it is unclear how the market shakes out and it is unlikely to be a winner take all market. So in our opinion, it is smart to diversify across the various L1 chains as the base foundation for whatever may be built. It is analogous to the cloud market where you have a few key players like Azure, AWS, and Google Cloud.

Harsharn Singh
Investment Associate | Ember Fund

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