In the bull and bear markets, savvy cryptocurrency investors know that the main focus should be on the longevity of the project rather than on any short-term price movement. As the crypto ecosystem expands and new sectors emerge, protocols that offer the most value to the community have the best chance of long-term survival and price increases.
The aim of this newsletter is to create a more thematic macro view of the niche subsectors of the cryptocurrency market and to identify projects whose signal they will be successful within the space.
It’s not about the token price; It’s about the technology, the fundamentals of the project and how each one must contribute to take the sector to the next level.
In a recent interview with Cointelegraph, Élie Le Rest, partner at digital asset management company ExoAlpha, said: “Industry trends and crypto are big and persistent, but idiosyncratic risk must be taken into account when weighing portfolios.”
According to Le Rest, the “crypto market tends to operate according to comparable principles,” a repetitive trend that has been observed several times in its history.
With that in mind, let’s take a deeper look at the current market cycle rotation that is happening in the broader crypto market to better understand where new money and participants entering the market are attracting their attention.
Layer One projects continue to attract users
Layer-One is a term used to describe the main underlying blockchain architecture of a network, while Layer-Two solutions are protocols that work on top of the underlying L1 blockchain and will not work without the framework they provide can.
Bitcoin is by far the dominant L1 solution in terms of value, while the Ethereum network has played a fundamental role in reshaping the crypto market landscape in recent years thanks to smart contracts and the rise of sectors like decentralized finance and non-fungible tokens.
While Ethereum has received much of the attention in smart contract platform discussions, several projects have recently gained prominence as high fees and a low number of transactions per second on the Ethereum network have tempted projects to build emerging networks.
Ethereum’s success has shown the world that smart contract platforms are capable, but the ongoing fighting has opened the door for protocols like Polkadot, Solana, and Cosmos, which offer a similar value proposition along with solutions to the underlying problems mentioned in terms of growth to grow by price and relevance over the past year.
In addition to Ethereum, Polkadot has developed into one of the best-known and most successful L1 projects in the crypto space in 2021. This is in large part thanks to the project’s interoperability and collaborative approach, as opposed to the previous “Ethereum killer” approach of many.
The Polkadot network was developed in part by Gavin Wood, who was also instrumental in creating Ethereum. It has taken a more complementary approach than open source sharding multichain protocol that enables cross-chain bridges so projects and developers can choose the network that best suits their needs and easily carry their protocols when needed.
The multi-chain functionality of Polkadot is not just limited to tokens, but also enables the cross-chain transfer of data or asset types, which enables a wide range of interoperability between separate blockchain networks to be established.
The Polkadot ecosystem is one of the largest and most active in space. There is a rapidly growing list of projects starting on the log trying to get one of the limited parachain slots in the upcoming parachain auctions.
As can be seen in the graphic above, the Polkadot ecosystem has rapidly expanded to include key sectors of the cryptocurrency ecosystem, including DeFi platforms, non-auditable token protocols, oracles, and decentralized autonomous organizations.
The network also has a growing list of applications that make it easier to interact with the protocol, including a variety of wallets that support Polkadot’s DOT and Polkadot-based assets, as well as several network explorers, including Polkascan.
Popular projects currently running on the Polkadot test network that are set to win a Parachain slot include the DeFi ecosystem Acala Network and the decentralized Polkaswap exchange, both of which are available for testing now and via the Polkadot wallet browser extension -js can be called.
Once the Parachain auctions are over and the projects go live on Polkadot, the launch of the network will be officially complete. While there is still no final date set for the start of the parachute auctions, enthusiasm for DOT has continued to grow, leading to a price increase of more than 800% in 2021.
With the prospect of full networking capabilities to be rolled out within weeks to months and increasing mainstream attention, many investors believe Polkadot is well positioned to see further price and adoption growth as a key player in the future of interoperability see over blockchain networks.
Solana is a fast, secure, and censorship-resistant blockchain network that, according to the project’s website, “provides the open infrastructure required for global rollout”.
The project’s association with the FTX cryptocurrency exchange and its CEO, Sam Bankman-Fried, who was also involved in creating and operating the decentralized serum exchange that operates on the Solana network, has had a positive financial impact on the protocol Background and media exposure.
Aside from these positive associations, the underlying technology of the Solana network has drawn the attention of a wide variety of projects interested in starting or bridging a high-speed environment at a low cost.
The rapid expansion of the Solana ecosystem over the past year began with an emphasis on decentralized funding and was aided by the success of the serum, which allows users to support multiple wallets that support Solana, including Sollet, Ledger, and Math Wallet.
While much of the tools and supporting infrastructure on the network are geared towards DeFi, recent additions to the network, such as the Audius decentralized music sharing and streaming protocol, show that the protocol is gradually branching out and attracting the attention of other types of Projects interested in his skills.
The Solana protocol uses an innovative hybrid model that consists of a proof-of-history consensus combined with the underlying proof-of-stake consensus of the blockchain to improve the overall scalability of the network.
More recently, a number of new projects have been launched on the network using some of the same tactics that increased activity and excitement on the Ethereum network in 2017, including airdrops and copycat projects.
While some may view this as a negative, it shows the increasing adoption and attraction of a low-cost environment, and shows that Solana is a developer-friendly network.
These influences, along with a host of other factors, helped raise the price of Solana (SOL) by more than 3,200% in 2021.
Given that DeFi and other key sectors of the cryptocurrency sector are still in their infancy, Solana is well positioned to see its ecosystem expand and token value increase as the global adoption of cryptocurrencies increases.
Cosmos describes itself as the “Internet of Blockchains”, consisting of “a constantly growing ecosystem of interconnected apps and services that were created for a decentralized future”.
The network emerged from the Tendermint project, which is considered the “gateway to the Cosmos ecosystem” and was started in 2017 via a token sale. The protocol uses a PoS consensus algorithm that allows token holders to wager their coins to secure the project’s flagship Blockchain Cosmos Hub while generating a return that is paid out in Cosmos (ATOM) tokens.
The momentum for the 2021 project was increased even further in February after the Stargate update, which included the inter-blockchain communication protocol, an interoperability layer for Cosmos blockchains.
The IBC allows projects created with the Cosmos software development kit such as Kava and Band Protocol to easily interoperate with and bridge other blockchains in the Cosmos network, which currently hosts more than 240 apps and services.
The functions of the IBC will potentially interconnect with other blockchain networks such as the Binance Smart Chain, thus helping to improve interoperability across the cryptocurrency ecosystem.
With a transaction speed of 7 seconds and an average fee of $ 0.01, transaction on the Cosmos network is a welcome experience for users fleeing high fees on Ethereum.
May 10th completion Gravity’s decentralized exchange testnet trading test reveals that the protocol is geared towards offering solutions similar to Uniswap for a fraction of the fee, suggesting a bright future for this growing ecosystem.
Layer-One projects are bullish, but there are some hurdles to overcome
Growing ecosystems and the planned development and integration of interoperability features are strong indicators of the longevity of Layer-One projects in the rapidly growing cryptocurrency space.
Potential threats to the success of L1 solutions include projects like Polygon and Fantom, which provide cross-chain bridges to other more powerful networks, and L2 solutions, which remove the scaling issues that plague the Ethereum network.
While these threats are real, at some point each network or protocol will encounter its own challenges that will affect its capabilities and open the door for competitors to offer a better solution.
Ethereum introduced the world to smart contracts and expanded the scope of L1 solutions beyond what was previously achievable with Bitcoin.
Limitations in the original and current design of the Ethereum network have opened the door to newer L1 solutions such as Polkadot, Solana and Cosmos to establish themselves as viable competitors thanks to faster transaction times and an already established consensus mechanism for demonstrating use.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading step is associated with risks. You should do your own research when making a decision.