Smart Contract Platforms: Part Two

Market Recap

Bitcoin Back as a Trillion Dollar Asset

Smart Contract Platforms: Part Two

Last weekend we outlined concepts regarding decentralisation and how assessing it requires an investigation into the nodes of a network. We also touched on the different network architectures, consensus mechanisms and the performance resulting from these design choices. This week we will focus not on where the ball came from or where it is going but instead on what it looks like today.

We realise that last week's article wasn't the easiest of reads, so this week, we will let our collection of charts, tables, and metrics do most of the talking.

Year to Date Performance

Solana stands out as the best performer YTD, and this is on the back of various upgrades and general growth the network has experienced this year, from financial services to NFT marketplaces. Whilst Solana's growth has been incredible to witness, we are still waiting for genuinely unique use cases to emerge on this high throughput blockchain.

Avalanche comes in second. Avalanche differs from Solana in that it is compatible with the Ethereum Virtual Machine (EVM), meaning that developers can build applications on Avalanche whilst maintaining the option to port over to Ethereum. It also makes it easier for existing applications on Ethereum to spread their service to Avalanche's blockchain.

The Battle for Liquidity

Total Value Locked is an excellent metric for tracking how much value is being locked in a platforms smart contracts. This is an excellent signal from the market that users are comfortable putting such large sums into these networks. TVL also tells us a lot about the health of a platforms financial services sector and whether their versions of trust minimised financial applications are gaining traction over competitor platforms.

Ethereum remains the clear market leader and best bang for buck on a relative basis. It makes sense that exciting new platforms like Solana and Avalanche command a premium over the more mature Ethereum ecosystem.

Native Token Metrics

Ethereum, Polkadot, Binance and Cosmos offer positive real yields on staking, whereas Solana, Avalanche and Algorand post negative real yields. This might be worth thinking about before putting your Layer 1 tokens to work by staking.

Native Token Use Cases

Ethereum stands out here as the only smart contract platform that doesn't utilise on-chain governance. This is an interesting approach, and many have issued concerns over Ethereum's off-chain governance model; see the video here. Vitalik makes his case against on-chain coin voting here

Another interesting difference is found on Polkadot and Cosmos, which both have multichain systems where transaction fees can be paid in the native token of various chains instead of the main chains native token, in this case, DOT and ATOM. This may lead to dampened demand for the network token relative to other networks that require payment of gas fees in the native token itself.

Lastly, we look at how all of these platforms handle fees. Fees can either be directed straight to the validator who proposed a valid block as a reward, it can be burned and removed from the existing supply, or recycled in the network. When fees are "recycled", they are temporarily removed from supply and added to validator/staker rewards at a later stage.

Ethereum recently approved EIP- 1559, which burns the majority of fees paid for transaction requests; EIP 1559 was implemented on 5 August 2021 and has resulted in 438600 ETH ($1,5 billion) being burnt to date.

It sometimes feels like these platforms couldn't be more different from one another. However, their core value proposition remains the same. They are settlement systems for contractual agreements for both financial use cases and non-financial use cases.

The future will be a multichain, one where these networks interlink to create a secure and low-cost internet of value. This won't be achieved by projects copying one another but instead through granularisation and specialisation in niches where security to cost trade-offs make sense.

Notable Articles and News Stories This Week:

US FDIC Said to Be Studying Deposit Insurance for Stablecoins

The Federal Deposit Insurance Corp. (FDIC), a key U.S. banking regulator, is studying whether certain stablecoins might be eligible for its coverage, five people familiar with the agency's thinking said.

The discussions are preliminary, and it's not clear what the timetable would be for making any policy decisions or how such changes would be communicated. The agency is trying to analyse what so-called pass-through FDIC insurance might look like for the reserves that stablecoin issuers hold at banks, the sources said. Such coverage would insure holders of the tokens against losses up to $250,000 if the bank holding the collateral were to fail.

Read the full story here

Morgan Stanley Europe Opportunity Fund Reports Doubling Bitcoin Holdings

Morgan Stanley Europe Opportunity Fund reported holding 58,116 shares of Grayscale Bitcoin Trust (GBTC) as of July 31, according to an SEC filing on Monday. Earlier this year, the fund reported holding 28,289 shares.

The filings reveal that Morgan Stanley has owned sizable amounts of GBTC across multiple institutional portfolios. Morgan’s Insight Fund reportedly has the largest amount, holding 928,051 shares, equivalent to roughly $31 million, as of June. This isn’t the $4 trillion-asset manager’s first foray into crypto. The news comes after Morgan Stanley confirmed in April that it was offering clients exposure to bitcoin and previously announced that it was one of the participating investors in NYDIG’s $200 million fundraising round. 

Read about it here

SEC Chair Gensler: A Ban on Crypto Would Be ‘Up to Congress’

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler told Congress on Tuesday that the SEC has no plans to ban crypto.

When asked by Rep. Ted Budd, a longtime crypto supporter and member of the Congressional Blockchain Caucus, if the SEC had any plans to follow China’s lead in banning cryptocurrency in favor of a prospective central bank digital currency (CBDC), Gensler said, “No, that would be up to Congress.” Gensler’s assertion that the SEC does not plan to ban crypto mirrors similar remarks made by Federal Reserve Chair Jerome Powell last week, when the central bank head told the House Financial Services Committee that the Fed had “no plans to ban” the $2.2 trillion asset class.

See the full story here

Whilst we all have the option to look, to seek to understand, it’s often easier not to. Bitcoin, Ethereum and distributed ledger technology are complex systems that require significant due diligence. At Etherbridge, we aim to lower the barriers to understanding this fast-growing digital economy.

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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments.