Blockchains, Smart Contracts and Interoperability

*Disclaimer: this is not financial advice and should not be viewed as recommendations to buy or sell any asset, this is purely educational and the information below is solely my opinion, please do your own research and develop your own conviction*

2020 was a crazy year that sent us through a wormhole and into a ridiculous world where every asset went up and to the right. That’s changing now in 2021, but there are still plenty of opportunities to take advantage of thanks to volatility. Crypto is a nascent industry, most people don’t understand it and that lack of understanding leads to a high beta market that generates a lot of alpha for those in the trenches trying to figure things out. 

This is why we created this Substack and plan to try and share the research that we are compiling ourselves with the world. We’re not looking to give any investing advice at all, but when you look into a project and share your view with people, it forces you to really synthesize what you’re reading and own your conviction. 

We decided to focus first and foremost on the themes we think are most prevalent in crypto today and we look forward to sharing our findings with people. This might seem a little redundant to some, but there are a lot of people that still think crypto is a scam full of shitcoins and ponzi schemes. Fortunately, that’s where we find our opportunities to create alpha. 

For the first theme I plan on discussing, I figured it would make sense to start at the top and work my way down. You can’t get into DeFi or synthetics or NFTs without talking about the ecosystems that power those novel ideas. 

Blockchains, Smart Contracts and Interoperability

Ethereum

Anyone reading this should obviously know what ETH is and why it’s important, so I won’t get too into detail on its functionality, but it is a necessary place to start this discussion. 

Ethereum is the blockchain and smart contract platform that started the entire DeFi revolution and is responsible for crypto’s explosion into the mainstream thanks to the ICO craze of 2017-18. The easiest way to summarize and understand ETH is to view it as the iOS of crypto due to the network effects that have developed. Many will tout low TPS as reasons for ETH being a terrible platform that is ripe for replacement, but the reality is, Ethereum possesses an impenetrable moat due to the amount of developers that have flocked to its ecosystem and continue to build on it. This doesn’t mean ETH will always be the top chain out there, but the odds are in its favor as long as developers continue to immerse themselves in Solidity and innovate new creative use cases and solutions. 

The appeal for ETH traditionally has lied in its ability to build dapps on its blockchain and create smart contracts that can be fulfilled autonomously; this has evolved slightly due to the introduction of DeFi that became widely accepted in the summer of 2020. As a result of the rise of DeFi, more ETH has been locked up in smart contracts and pulled off of exchanges than ever before. This decrease in floating supply is what we’re interested in primarily.

With EIP-1559 and ETH 2.0, we’re looking at the asset evolving from an inflationary proof of work token into, potentially, a deflationary proof of stake token. We say potentially deflationary because technically, there is the chance that more ETH enters the market than removed. We’ll have to see exactly how everything works out to fully understand the dynamics that lie ahead of us. 

The part that interests me, however, is the combination of DeFi continuing to grow, and the move to PoS. With validators now encouraged to hold their tokens rather than miners being encouraged to sell them to make ends meet, we could have a potential supply-demand shortage that can further drive the price of ETH higher than it is today. When we factor in fees that are burned, we start to see a deflationary flywheel develop that can really spin the price of the asset higher. These are not guarantees, but this is where you start seeing some people refer to ETH as ultrasound money and a potential $10-20,000 token in the near future. Will we get there, I’m not sure, but I’ll take the ride as long as developers are building awesome products. 

Solana

When it comes to blockchains and smart contract platforms, for some reason we need to identify ETH killers that are going to take over the world. I personally don’t subscribe to this notion and think it’s overrated and overblown, but the reality is, there are some platforms that exist out of need, rather than greed. 

ETH is a pretty amazing piece of code, and its network effects are legendary in nature, but it does have its limits. Primarily, in order to interact with Ethereum, a developer needs to learn Solidity and immerse themselves in only writing that particular language. This really isn’t that big of a deal considering where we are today, but it does place certain limitations that can, in some ways, stymie growth. Each of these languages bear some similarities at their root, but there are preferences that people develop and this could prevent a developer from writing a program on Ethereum when they’d rather use Rust, C or C++ instead. 

In addition, ETH has its own scaling issues that lead to only 30 TPS. This hasn’t been problematic yet, but it’s allowed some to start considering stronger alternatives, like the Solana ecosystem, for instance, which touts 65,000 TPS and offers developers the ability to code in one of the three more popular, traditional languages that they are already familiar with. 

This is where Solana carves out a niche that I look at in the same light that I view Android as an operating system. SOL has the potential to be the more creative, higher performance, liberating blockchain that gives devs the ability to do anything they want with complete autonomy rather than being pigeonholed into a rigid environment. 

At its core, SOL could represent, as an L1, everything ETH is claiming to be in L2. There are some severe differences of course, ETH will have the token burn mechanism in play where Solana will not, but there is a lot to like here for SOL, especially once we see Wormhole, their cross-chain bridge, come to fruition. 

The future of crypto will not be a winner take all endeavor, anyone trying to sell you that narrative should probably be questioned and even ignored. If that was the case, we wouldn’t see devs working on Wormhole, and we definitely wouldn’t see interoperability and multichain emerging as thematics of interest for us. Part of the reason we have no problem possessing a position in SOL (with buys in the 30-34 area) is this potential bridge here between ETH and SLP. We don’t want to own a killer that’s only hope for success lies in stealing market share and taking EVERY USER AND DEVELOPER away from Ethereum. That would be a disaster. Instead, we want to own projects with amazing technology that can help improve the user’s experience.

The potential of Solana isn’t something to blindly trust, however. It is still a very young ecosystem with a limited amount of dapps being developed. Although there are some cool features like Fusion Pools on Raydium.io and the potential of a one stop shop like Step.Finance that acts as a data aggregator to streamline the DeFi process, we are still in the zygote stage of SOL’s existence and we shouldn’t get too far ahead of ourselves. 

There are also potential centralization concerns that exist with the Solana ecosystem, which kind of explain why we are able to see so much raw power exhibited by an L1. Personally, we are putting those concerns to the side for now and accepting that 150 validators for a fertilized ovum is understandable (quite frankly it could be worse, just take a look at Thorchain if you think I’m being facetious). Part of the reason we are able to bypass centralization concerns is a direct result of the backers supporting the project, primarily SBF and a16z. 

As retail investors we have limited resources available to us, and a lot of our DD relies on reading and listening to other people talk. One of the ways I personally like to try and create alpha is by following a select group of people or funds I trust based on track record, work ethic and mindset. Being in the same company as SBF and a16z allows me to have some comfort in understanding that the data I’m synthesizing might have some credence to it after all. 

For the sake of being transparent, Solana is around a 1% position for me at the moment and I own it because of the potential value I see present in relation to Cardano. Solana can see a 3.5x from here (currently trading at $34.65 at the time of this article being written) and still trade at a fully diluted market cap that is less than Cardano despite having better technology and, well, actually deploying smart contracts. 

Polkadot

So when people hear DOT, they think ETH killer founded by the guy who created Solidity. They’re partially right in their assumptions, but there is nothing about Polkadot that makes it a titan that is dethroning Ethereum and becoming the defacto place developers go for their dapp and smart contract needs. 

But DOT is a really interesting project because of what they are trying to accomplish: interoperability. Polkadot basically works by allowing people to connect the blockchains they create using the Substrate framework into their ecosystem. This enables them to exchange data and communicate which will make it possible for business to be conducted cross chain. In essence, if business A wants to utilize a service that business B offers, but both A and B exist on separate blockchains, the services being rendered may be too difficult and cumbersome to be exchanged. But when we have interoperability, we have the potential to bridge over information and conduct business. 

Think of it as engaging in international trade. 

You need a canal built to enable the ability for your ships to easily travel from one country to another, and without that canal, you have to take a much longer, more indirect, less value driven route to receive the product you want. This may be your course of action if you are desperate for the goods being offered, but the reality is, you will probably just forego the transaction altogether because of it being too costly and burdensome to pursue. 

DOT functions in a way that allows you to easily create a canal to facilitate trade which opens up business opportunities that otherwise may not have existed. 

Why do we need multi chains, though? Why can’t we all just work with ETH or SOL and call it a day? Because there are different features and benefits that come from working with certain blockchains. DOT is one of the solutions that enable this process, the other that we’ll talk about later on is the Cosmos Network. 

But before we get into ATOM, we need to discuss parachains and the role Kusama plays in the Polkadot ecosystem. 

Kusama functions as the canary chain for Polkadot, basically, it’s the testing ground for new ideas before they get deployed on DOT. This works in a way to prevent any functionality issues that may arise from new innovations and is a feature to work out any kinks or bugs that may exist beneath the surface. 

The kind of ideas that typically occur here are meant to be the ones that are pushing the limits of innovation and taking major risks that may be too disruptive for the main chain due to their fast paced nature. Kusama doesn’t want you to have to deliberate over every painstaking detail, instead, they want to give you a platform to get after your ideas as hard and fast as possible to enable rapid progress and intense growth. This is basically the hyperbolic chamber of blockchain, getting to the end goal as quickly and aggressively as possible, and worrying about the potential ramifications along the way. 

This brings us to the idea of parachains which is what separates Polkadot from its competitors and offers it to carve out a niche for itself in the ever growing blockchain and smart contract space. Parachains are basically the DOT version of side chains and they work parallel to the Relay Chain. The difference between parachains, however, and side chains on the Ethereum network, is that parachains are secured by the DOT network and not their own process. Parachains must be verifiable by validators from the Relay Network which, in theory, should give users more of a sense of security. 

Parachain auctions function as a unique way to bring new protocols to market, rather than through IDO or ICO’s. If a project wants to be on the Relay Chain, it has to compete for one of the 100 available spots which means projects need to have stake tens of millions of dollars that they received through crowdloans. 

Users who want to support projects can stake their DOT or KSM and receive an airdrop if the auction is won. This is an interesting and unique way to bring projects to market that allows DOT and KSM to be insulated from volatility and dilution. 

Users NEED those tokens to be airdropped the projects they want to support, which is a more efficient and supportive way than the ICO bubble of 2017-18. Back then people bought offerings with ETH and the ETH was in turn dumped by the project they were buying into. That led to dilution for Ethereum holders which decreased the security of the network and damaged every other project that was being built and relied on the money from their ICO sales to fund their growth. 

Conducting business this way should act as a supportive mechanism for the Polkadot and Kusama networks, as well as supporting token holders who are a necessity to preserving the ecosystem. This in part drives value for the token, offset inflation somewhat, and creates utility that goes beyond just staking for security purposes. 

I personally do not have a position in either DOT or KSM at the moment, but the concept of parachains does entice me to become a token holder if we see a move to $10 or less in the future. 

But like Solana, parachains are only as valuable as the projects being created on the networks and we need to see developers being creative and innovative to rationalize an investment opportunity here that goes beyond just mere speculation. 

Cosmos Network 

The Cosmos Network is an interesting project that is facilitating the creation of other blockchains through its Cosmos SDK. Projects like Terra and Thorchain, which we will get into later, wouldn’t exist without the framework that easily allows you to build application specific blockchains. This isn’t something innovative and necessarily exciting, though, when you stop to think about it. Can’t you just build on top of ETH, SOL or DOT? 

What makes the Cosmos SDK so impressive is the ability to create a blockchain from scratch that has the ability to interoperate with other chains. That means you don’t need to figure out bridges and ways to get different chains to interact with each other after they are built, we can solve that problem right away and address any concerns about interoperability before they even come up. 

This is what gives Cosmos its edge and defensible moat amongst the other main platforms. If a developer has an idea that can benefit tremendously from interoperability, it would behoove them to work elsewhere when they can quickly and easily implement their ideas here and have the cooperation their project needs to excel. 

While Ethereum is an awesome platform that enables lots of creativity and freedom through its ability to deploy smart contracts, building on top of that platform could be too cumbersome for devs who are looking to deploy complex decentralized platforms rather than single use applications. Utilizing the Cosmos SDK allows more functionality for those that need to create an application specific blockchain which gives them more freedom and potentially better sovereignty and security. 

The Cosmos SDK relies on Tendermint which is a BFT consensus engine and is viewed as one of the best tools to use in the industry when it comes to developing POS systems, which is what has allowed us to see the development of the Terra ecosystem and the Cosmos Hub which is what we want to get into next. 

So when it comes to Cosmos, we don’t just have the ability to create blockchains fairly easily, grant them the freedom and security needed to see their application specific blockchains to thrive, we also have something called the Cosmos Hub and IBC which is where we see a ton of alpha available here for ATOM holders (note I am long a small position in ATOM from the 13.xx and could potentially add more at some point). 

IBC stands for Inter-Blockchain Communication and it is the protocol that we find most interesting about Cosmos and where we think the most amount of value for the ATOM token can be derived from. The IBC layer is a part of the Cosmos SDK and it acts as a relayer to connect two blockchains so data and assets could be transmitted between them. 

The key for transacting between two chains comes down to this idea of bonding. Basically, if I want to send ATOM to chain B from chain A, they get locked up on chain A and a bonded version gets minted on chain B. When the tokens are set to be bridged back to chain A, the bonded versions are burnt while the original version is released from its bond. This is important because it allows DeFi to exist in more than one place with people not restricted to one particular blockchain. 

All of this exists because of the concept of Hubs and Zones that the Cosmos team created. Zones are basically just regular blockchains and Hubs are blockchains that act as bridges that connect them together. But what’s cool about Hubs and Zones is that they’re basically little mesh networks. If I want to connect my Zone to a Hub, I can access every other Zone that has been connected to that Hub and can transact with them. This allows me to build a network with a limited amount of connections, as well as protect the network from potential double spending by trusting the origin Zone and the Hub involved. 

In addition, if I wanted to instead go outside of the Cosmos Network, I can do so due to the bridges built to ETH and Bitcoin which is a nice way to expand the network’s reach and allow interoperability to function on a much wider scale. 

The ATOM token not only acts as a spending mechanism for gas fees when transacting across the IBC, but it can also function as a staking token to secure other networks which in turn increases the amount of staking rewards available for delegators and validators. 

Thorchain

While we’re on the subject of interoperability, we might as well talk about Thorchain which is a decentralized liquidity provider that enables cross chain swaps. Right now, if you want to exchange an erc20 for bitcoin, you have to either complete the transaction on a CEX or settle for the wrapped version which, to hardcore bitcoiners, is not ok since you’re not owning the native asset. 

RUNE takes us away from this problem and allows us to operate on a DEX, without the need to KYC, and complete a native swap of any assets it supports.This means, I can swap native ETH for native Bitcoin without going through any hoops to get it locked in my wallet. Over time, RUNE should grow to incorporate many chains and coins with the potential to have its liquidity pools deployed across other wallets and DEXes.

This idea has, sort of, existed before under the guise of atomic swaps, but according to Erik Voorhees, the edge Thorchain’s protocol has is that it’s more efficient at scale than atomic swaps. This ability to exchange any two assets at their native form on the decentralized level is very alluring and a great front door to the opportunity that is present, especially once we see coins like Monero integrated into the network.

When diving into RUNE, we have to talk about the tokenomics to start to understand the value that exists here, beyond just a protocol for cross chain swaps. Thorchain nodes are required to hold at least two times the amount of RUNE that the asset is paired with. Nodes are also required to own at least one million tokens in order to compete for a node, with the potential to see those holdings increase to two-two and half million down the road due to operators competing for limited real estate. This presents an interesting economic opportunity for token holders (while also raising centralization concerns that we will get into later). 

If you talk to a long term RUNE holder, they’ll mention deterministic value, and this is what allows them to begin salivating. The formula to understand what deterministic value is for RUNE is deterministic value is (3 * Non-RUNE TVL) / RUNE Circulating Supply. This relies on the token being locked up to reach its potential apex of 80%. If the protocol can have 80% of its float locked up, its market cap is expected to be three times the TVL of non-RUNE assets. Currently, at the time of writing this article, 7% of the supply is locked up, which can be viewed either as a criticism, or an opportunity, based on the protocol’s age and current levels of demand. 

This isn’t the only criticism people have for Thorchain. The ones I have struggled with are the number of validators, 59, posing potential centralization risks, the amount of capital needed to run a node pricing out average people and leaving the protocol to the mercy of whales and institutions, and the reliance on AWS with 50% of the nodes utilizing them. 

While interacting with members of the Thorchain team, centralization has not been a concern of theirs, with them claiming that validators will eventually increase over 100 and the price to run a node eventually coming down. While this is a major issue that would normally lead me to passing on a project, the potential saving grace for Thorchain comes down to the bonding requirements for nodes: in order to operate, they need to lock up twice as much capital as they are in control of, which means any bad actors are at the mercy of losing money, rather than making any if they tried to rip everyone off. So although the network could be centralized (spoiler, it is), it’s not as bad since you’re economically incentivized to operate appropriately, rather than selfishly (in this case, being selfish is being selfless). 

The one thing that really convinced me, however, was multichain lending: bringing DeFi across borders. This hasn’t been enacted yet, so of course, the potential for this idea to be vaporware exists (but we’ll give the team the benefit of the doubt based on what they’ve delivered so far), but what’s really cool about it is people will be able to lock up their collateral in one-sided liquidity pools without any impermanent loss and use the fees generated in the pool to pay down their loan.The combination of LP’ing without IL and having your loan get paid off by LP fees is a unique opportunity that has the potential to create a defensible moat for RUNE, while also attracting people to their ecosystem. 

More people to the ecosystem means more trading which means more fees which means higher prices for token holders, it’s the ultimate flywheel to create token holder value and reward those for providing liquidity and securing the protocol while generating yield and creating wealth for its users. 

But that isn’t the only thing that excites me about Thorchain, it’s the idea of them creating synths that you will be able to use anywhere across the Cosmos Network thanks to IBC. I can turn my ETH into Thor.ETH and now utilize it as collateral or to generate yield in other places while collecting fees from the LP that it’s locked in.

We also have a proposal that may get approved to create interest bearing RUNE. This will allow token holders to earn yield without being a node operator and act as another mechanism to limit circulating supply. iRUNE will derive its value from pooled capital and function as an interest bearing savings account for holders who do not want to become liquidity providers. In order to mint iRUNE, it is swapped against the balance of all the pooled RUNE and the yield comes from the difference between the input and output and diverted to the reserve. Basically, whatever is left over from pools would go to iRUNE holders. It’s an idea that is still in development, but does function as a unique way to continue increasing value for the holders, while also decreasing supply and bringing the network closer to its 80% goal. 

There is a lot of potential here for Thorchain, as evidenced by their incorporation into ShapeShift. The market seems to be undervaluing the potential of multichain lending, one-sided LPs without IL, synths and interest bearing RUNE by focusing solely on RUNE as a liquidity provider for cross chain swaps. If these other use cases develop and are delivered as the Thorchain claims, this will drive much more demand to the protocol than simply allowing people to swap any asset for bitcoin  or Monero and vice versa, which in part, increases the runway and opportunity here for token holders.

Of course, there are risks: the biggest catalyst of my bull thesis has yet to come to fruition, so as always, one needs to understand the potential drawbacks of delays, or internal issues. For that reason I am a holder of RUNE, but it is a position size I’m completely ok with going to 0 and on the lower end of my account’s weight. It is possible that I will eventually DCA and build this position into a larger holding, but for now, I want exposure and proper risk management. 

Terra

The Terra ecosystem is another project that has benefited from the Cosmos SDK and Tendermint consensus. When going through the projects I wanted to touch on for this article, it made me realize how bullish I am starting to become on ATOM because of the Cosmos ecosystem that is developing and the really cool protocols we see coming to market. 

One of the biggest contributors to this list of awesome ideas is the Terraform Labs team, which is responsible for the LUNA and UST tokens, Mirror Protocol and Anchor Protocol, which we will only touch on briefly for now. I have plans to get more into detail on the specifics in another article, and I honestly thought about saving this entire section for its own piece, but thematically it made too much sense here to ignore. 

So the cool thing about the Terra ecosystem is the desire to bring blockchain to everyday life while keeping it in the background of its existence. The team brought Chai to South Korea which is basically a payment tech company that utilizes the Terra blockchain to provide merchants and users immediate settlement and lower fees. It’s basically the purest form of what we all wanted to see out of crypto in terms of product market fit. 

We won’t go into detail about Chai since it’s not really something that impacts us personally here in America, but it shows you the kind of attention the Terra team dedicates to this industry. The three projects we want to quickly touch on are the ones we can personally deal with most tangibly here in the states: Luna/UST, Mirror and Anchor. 

Luna acts as a stabilizing mechanism for the UST stable coin which is the foundation of the entire Terra ecosystem. UST has quickly risen to become the fifth largest stablecoin in crypto, and although it’s still a fetus in relation to Tether and USDC, it’s in the process of becoming a valuable asset to the bankless thematic that DeFi revolves around. 

Unlike Tether and USDC which are pegged to fiat reserves, UST is a decentralized stablecoin that is stabilized algorithmically by the supply of LUNA. Basically, in order to maintain its peg LUNA is burned or minted based on the demand for UST. 

During the most recent crypto crash, UST briefly lost its peg, but unlike the Titan/Iron Finance disaster that blew up completely, the Terra team had a plan and process to address the issue immediately and make accommodations to hopefully avoid any pegging issues in the future. 

This brief moment of chaos, however, was directly linked to mass liquidations from the Anchor Protocol. Without going too much into detail, because I want to give Anchor plenty of attention when I discuss other DeFi products in a separate article, Anchor acts as a savings account that delivers roughly a 20% yield to those who lock up UST in its protocol. They are able to deliver this insane yield as a result of them requiring borrowers to over collateralize and staking the coins that are locked up. 

Nonetheless, mass liquidation events are a concern and should be looked at as a potential risk for the Terra ecosystem, but there is some faith that was restored based on the way it was handled, so we at least have that to stay level headed with. 

Another interesting protocol that we won’t get too far into detail about is Mirror which is a synthetic asset trading platform. Users can mint synths, like mAAPL or mFB, that can be traded on their decentralized exchange. It’s an interesting idea that is gaining market share overseas in areas like Thailand where FAANG stocks aren’t readily available to trade. 

Mirror runs on the Terra ecosystem, benefits from the adoption of UST, and is one of the main reasons we are bullish on what is being built by Terraform Labs. Although there are many other projects currently being built and coming to market, LUNA/UST, MIR and ANC are the big dogs that are most popular at the moment. I currently have a small LUNA position from an entry in the 5.70s that I plan on holding and potentially adding in the near future if we break beneath $5. 

Avalanche 

AVAX is a blockchain and smart contract platform that I have rarely heard about and seen very little publicity surrounding it. While the founder of Solana finds himself pumping his bags on Jim Cramer’s Mad Money, the Avalanche team is very silent, with little marketing at its core. 

Avalanche touts a revolutionary consensus system that makes this a platform that is the go to place for developers looking to specialize in one particular area. The protocol is composed of three chains, X-Chain, P-Chain and C-Chain. The X-Chain mints new digital assets, the P-Chain coordinates validators and creates new subnets, and the C-Chain is used to create smart contracts. Each of these chains are interoperable and bring the ecosystem together as one giant platform capable of focusing on its speciality services. 

Subnets function as a unique way to allow anyone to create their own Layer 1 chain in the AVAX ecosystem. Subnets and the three layers that piece this entire project together utilize the Snowman form of consensus which many holders claim to be revolutionary and the key to the puzzle that optimizes smart contracts and enables high throughput.

AVAX touts interoperability between its subnets and also offers a unique ability for developers to easily port over projects due to its ability to support multiple virtual machines such as EVM and WASM. Devs are also free to use Golang rather than Solidity, which could be enticing to some; this was part of our bull thesis for Solana, and as a result, we’ll list it as a potential appeal for the Avalanche ecosystem.

While Ethereum exists as a platform to attract every and anyone, Avalanche claims to specialize in serving financial markets. This level of speciality is a selling point for developers, but also a potential limitation for the ecosystem as it’s relying on carving out a niche in an area that ETH has already dominated and created network effects. AVAX could, in theory, attract developers to ditch the lindy effects that are being created on ETH, but it will be a very difficult process to upend. 

Like many of the hyped up L1s, AVAX claims to have the ability to achieve 4500 TPS with the potential to scale up to at least 10,000 TPS. The difference between Avalanche and its peers, however, is the amount of validators they can handle. Decentralization is a legitimate focus here with the protocol capable of handling tens of thousands of validators with the potential to one day reach the millions. That’s an attractive component that could give the protocol an edge over Solana which is much more centralized at the moment. 

AVAX is capable of finality within three seconds with the ability to have any VM communicate with any other within the ecosystem. This is an attractive part of the interoperability aspect that we’ve been happy to write about. The main difference is with AVAX, we see a much slower path to market than what’s already been established by Cosmos, which could hinder some of the benefits since we’re looking at a budding ecosystem vs one of the brink of cascading. 

Avalanche has only basically had a mainnet for about a year at this point, and as a result, the projects are far from the quantity and quality you see on Ethereum, but there are some cool dynamics like Initial Litigation Offerings which allows individuals to litigate or arbitrate a civil claim when they otherwise wouldn’t have the funds. This potentially could bring a $10B asset class to the market, which brings AVAX to the forefront of the specialty thematic as one of the ways investors can see themselves involved in projects that, at the moment, don’t exist anywhere else. 

Aside from ILO’s we see AVAX following the same path as other ecosystems with a focus on DEXes and NFTs. Pangolin at the moment acts as their version of Uniswap and allows users to trade all tokens on the ETH and Avalanche ecosystems. Polyient Games, which is their NFT platform, functions as a DEX for NFTs to allow users to host auctions and offer P2P trading. In addition to these two components, we have an introduction to derivatives on the platform as well in the form of Arrow Decentralized Financial Markets, which allows users to trade cash settled options and synthetics. There are a few other products in development, including an AVAX-ETH bridge, but for the most part, everything that you see existing already on the Ethereum network is being replicated here for Avalanche. 

While the technology looks appealing, and the amount of validators encourages hardcore decentralization fanatics, there doesn’t seem to be much of a moat here to attract users or developers more than the platforms that already exist. If we see ETH 2.0 fail, or get delayed again, and roll ups and L2 solutions fail, then there is a possibility that AVAX can steal market share and become a big player in the blockchain and smart contract platform world, but for now, we’re more interested in the idea of the protocol, rather than the protocol itself. That isn’t to say that we are not impressed by AVAX and what they are accomplishing through their three main chains, subnets and extensive number of validators, we just don’t see much of a reason to a buyer of the token when we can get the same ideas on other ecosystems that are more established and possess stronger branding power, network effects, and, by proxy, moats. 

AVAX could become a great project in the future, the concept of ILO’s is unique and there could be an opportunity for them to penetrate niche markets, but that’s just it, a niche protocol for a niche market, rather than something that can be in the backyard of everyone’s digital home. I don’t dislike Avalanche, but I don’t love it enough to consider it as a token I want to own. At some point, I hope to change our mind because great tech doing great things is great for society, but for now, I wait and leave this as a protocol to watch. 

Intrigued, but not Excited

There are a few other protocols that I looked into, like Fantom, Algorand and Elrond, but on a quick glimpse, none of them excited me enough to consider them as potential investment vehicles. As crypto potentially enters a bear market, it’s more important now than ever for me to be investing in ideas that are more than just ideas, but projects with real use cases, developer attention and user adoption. 

Of the protocols that I listed, each of them is starting to fit that bill, with some being better suited than others. We have a long way to go for a lot of these projects, even Ethereum as it figures out how to scale and complete the transition to POS, but history has told us that these projects have the potential to continue growing and improving, and therefore, they are where my interest is currently positioned. 

Please do not follow myself or anyone blindly, the goal here is to inform and learn.