2021 Public Chain Sector Review: A Flourishing Ecosystem of Coexisting Chains

2021 will undoubtedly be recorded in the annals of crypto history. The dual tailwinds of the previous year's Bitcoin halving and the Federal Reserve's quantitative easing reached full effect, catalyzing an unprecedented bull market. The total market capitalization of cryptocurrency surged from $779.5 billion at the beginning of the year to a record-breaking $3 trillion by November.

As new concepts and trends such as DeFi, NFT, meme coins, GameFi, Metaverse, and Web3.0 emerged, the pace of industry hotspots far exceeded previous years, with landmark events such as Coinbase's listing on Nasdaq too numerous to mention. Keeping pace with this excitement, the public chain sector—serving as the foundational infrastructure that hosts on-chain applications and connects everyday users—demonstrated significant growth across all metrics in 2021.

The DeFi boom that began in the second half of 2020 delivered a steady stream of users to major public chains. DeFi Pulse data shows that as of December 27, the Total Value Locked (TVL) in DeFi protocols across all ecosystems exceeded $24.32 billion.

Dune Analytics data indicates that the number of unique addresses that have interacted with DeFi protocols surpassed the 4 million milestone for the first time at year-end. This massive incremental dividend allowed a cohort of emerging public chains positioning themselves as Ethereum competitors to gain prominence in the first half of the year, such as Solana, Avalanche, and BSC. In the second half, as industry focus shifted from DeFi to NFT, vertical public chains targeting the NFT niche like Flow and Tezos garnered significant attention. Additionally, Ethereum's London upgrade and Polkadot's parachain slot auctions launched as scheduled this year, developments that will profoundly shape the future of the entire public chain sector.

Looking back, this article attempts to provide readers with some insights by梳理出 several important threads in the public chain sector throughout 2021.

I. Ethereum's Dominant Position Remains Unshakable

The market's substantial dividends provided ample room for emerging public chains, but closer examination reveals that among public chains with TVL exceeding $10 billion, only Solana is not Ethereum-compatible. It can be said that these so-called Ethereum challengers have almost all benefited from Ethereum's success. Despite the multitude of competitors, Ethereum's king status remains difficult to shake.

Data shows that ETH price rose from $750 at the beginning of the year to a peak of $4,860 (November 10), and is currently trading at $4,050, representing a 50% increase from the start of the year; Ethereum's market dominance also rose from 11% at the beginning of the year to the current 21%, a 10 percentage point gain.

Although gas fees remain persistently high and transaction speeds are slow, Ethereum's powerful network effects and first-mover advantages still lead the majority of dApp developers to view it as their first stop, migrating to other "high cost-performance" public chains only after their application logic is proven, completing a "multi-chain deployment." Of course, users have long suffered from high gas fees, and if Ethereum fails to address this, it risks significant user attrition. Therefore, the EIP-1559 proposal was implemented in the August London upgrade, burning a cumulative 1.243 million ETH (approximately $5 billion), transitioning Ethereum from an inflationary to a deflationary model and providing substantial tailwinds for subsequent price performance. According to Coindesk report data, if the EIP-1559 proposal is implemented, transaction fees could consume approximately 4% of Ethereum's current annual supply increase. Market data shows ETH prices reached an all-time high of $4,870 in November.

Beyond cost reduction and efficiency improvements, Ethereum also focused heavily on Layer 2 scaling solutions this year, with the four major Rollup scaling solutions completing financing rounds ranging from tens of millions to hundreds of millions of dollars. Currently, Optimism and Arbitrum have launched on mainnet, while zkSync and StarkWare have also achieved certain development milestones. L2BEAT data shows that as of December 27, the Total Value Locked (TVL) on Ethereum Layer 2 was $5.6 billion. Among them, the scaling solution with the highest TVL is Arbitrum, with approximately $2.52 billion locked, accounting for 44.99%.

Despite bearing the halo of Ethereum Layer 2, these four solutions have all faced partial criticism due to technical limitations, and their subsequent progress remains to be seen.

Currently, Ethereum remains firmly seated at the head of the public chain sector, with its market capitalization and price rising alongside the industry's growth, and its approach to technical iteration and ecosystem development increasingly becoming a bellwether for the industry. However, the old pattern of dominance no longer exists—Ethereum must adapt to the pursuit and challenges from latecomers.

II. Intense Competition for Second Place Among Public Chains

Defi Llama data shows that Terra currently ranks second among public chains in terms of DeFi TVL at $20.89 billion. The top 5 public chains by TVL are currently Ethereum ($159.84 billion), Terra ($20.89 billion), BSC ($17.27 billion), Avalanche ($12.27 billion), and Solana ($12.25 billion). Ethereum holds an absolute lead, with total TVL nearly 8 times that of the second-place chain.

A public chain that doesn't aim to replace Ethereum is not a good public chain, even if it's just wishful thinking. Driven by the bull market, a cohort of new public chains in 2021 positioned themselves against Ethereum, targeting the pain points of high gas fees and low transaction speeds to absorb overflowing projects and developers. Of course, they know they cannot shake Ethereum's position, and are more focused on fierce competition for the number two spot among public chains.

The first to capture Ethereum's overflow dividend was undoubtedly the BSC public chain. The platform strength and resource advantages behind BSC need no elaboration. Although established only in September of the previous year, with the加持 of platform traffic, BSC's TVL consistently ranked second in the public chain sector in Q2, pointing directly at Ethereum.

Ultra-high TVL implies more abundant liquidity pools, larger user bases, and greater storytelling potential in the capital markets. In the first half of the year, various public chains engaged in an arms race around TVL rankings, with Solana coming from behind to successfully take the baton from BSC. Unlike BSC, Solana's user acquisition strategy involved attracting seed users through hackathons with substantial prize pools, then leveraging superior performance to generate powerful word-of-mouth effects for viral growth. Statistics show that the Black Card Marathon in May alone brought 326 new projects to Solana. Additionally, when discussing Solana, one cannot overlook the major backer SBF and the CEX FTX that continuously provided funding. As of this writing, Solana's open-source code repositories number 5,985, and its on-chain wallet Phantom has 1.6 million users.

Avalanche, which rose alongside Solana this year, similarly emphasized cost-effectiveness and high-reward strategies. On July 29, Avalanche upgraded its previous cross-chain bridge Avalanche-Ethereum Bridge (AEB) to Avalanche Bridge (AB). The new cross-chain bridge is built using Intel SGX Enclave technology, addressing the pain points of previous asset transfers and improving performance and security. Currently, Ethereum cross-chain confirmation times are approximately 5 minutes, while Avalanche can complete them within 10 seconds, with gas fees at 1/10th of Ethereum's.

In September, the Avalanche Foundation announced the launch of the $180 million liquidity mining reward program Avalanche Rush, encouraging more applications and assets to join the Avalanche DeFi ecosystem, pushing the Avalanche ecosystem to new heights. Additionally, Avalanche's economic model resembles Ethereum's 1559 protocol, incorporating a transaction fee burning mechanism, creating the possibility of deflation for its token AVAX, thereby triggering user buying sentiment and driving up AVAX prices.

Fantom adopted a similar approach to Avalanche, building cross-chain bridges and offering liquidity rewards to attract a significant portion of developers and players focused on short-term returns. In just a few days in late October, TVL volume exploded 50-fold to a peak of $5.78 billion. Yearn (YFI) founder Andre Cronje (AC) also repeatedly endorsed it on social platforms.

Admittedly, the short-term stimulus effect of massive bonus incentives is evident, but in the long term it is unsustainable and透支 the entire project's potential. The result can be参考 to the burn-rate model of the internet sector, potentially ending in complete collapse.

As the year drew to a close, Terra suddenly exploded onto the scene, claiming the crown among emerging public chains. Unlike ETH, BSC, and Solana, Terra was founded with the goal of creating stablecoins that balance price stability with decentralization, with its representative product being Terra USD, or UST. Terra's vision is ambitious, aiming to use blockchain technology to build a payment system, issuing price-stable crypto tokens in a decentralized manner, ultimately achieving large-scale cryptocurrency adoption. This startup born in South Korea already has a complete on-chain financial ecosystem prototype, with over 70 dApps covering DEX, lending, and derivatives. Additionally, its payment application Chai had nearly 50,000 daily users as early as last year, connecting to over 10 banks while issuing physical cards. As of press time, Terra's token LUNA has entered the top 10 crypto assets by market cap, and UST has surpassed DAI to become the largest decentralized stablecoin by market cap. Over the past week, Terra has averaged 3,199 new registered accounts per day.

While these public chain newcomers have captured Ethereum's spotlight and dividends, they have to some extent alleviated congestion on the Ethereum network. However, widely criticized is the fact that behind high performance and low costs lies a compromise in decentralization, which clearly contradicts the philosophical ethos of the crypto world.

III. Cross-Chain Bridge Demand Explodes, Yet Cross-Chain Giants Underperform

According to statistics from Dmitriy Berenzon, partner in charge of data research at Zenith Ventures, the number of cross-chain bridge projects exceeded 40 as of September 8. Latest data shows that by year-end, cumulative cross-chain bridge projects exceeded 100. It is not difficult to judge that wealth effects combined with the prosperity of major public chain ecosystems have awakened users' long-dormant cross-chain asset needs. Currently, cross-chain bridges, with their advantages of versatility and flexibility, are gradually becoming the mainstream method for users to transfer on-chain assets.

According to the latest Dune Analytics data, Ethereum cross-chain bridge total value locked reached $25.23 billion. The top 5 cross-chain bridges by TVL are Ronin Bridge ($6.776 billion), Polygon Bridges ($6.658 billion), Avalanche Bridge ($6.14 billion), Arbitrum Bridges ($2.584 billion), and Fantom Anyswap Bridge ($1.424 billion).

Worth noting is that focusing on the specific operation of cross-chain asset transfers, two more细分赛道 have emerged: one is native cross-chain bridges led by the original underlying development teams, such as Arbitrum Bridge, Avalanche Bridge, and Optimism Gateway; the other is third-party cross-chain protocols such as Multichain (formerly Anyswap), cBridge, and Hop Protocol. Among them, Multichain recently completed a new $60 million funding round, with participation from top-tier institutions including Sequoia Capital and Three Arrows Capital, hinting at the prospects of this赛道. Additionally, cBridge has made significant achievements in reducing asset interaction and transfer times, keeping transfer confirmation times within 20 minutes. It currently supports cross-chain transfers between major public chains including Ethereum, Polygon, Fantom, and Avalanche, as well as direct interactions between L2s and between L2s and public chains other than Ethereum such as BSC and Fantom. However, due to the technical complexity and asset concentration of cross-chain bridge projects, they are likely to be targeted by hackers, with security prospects still unclear and subsequent trends difficult to predict.

Of course, when discussing cross-chain concepts, one cannot bypass the "cross-chain双雄" Polkadot and Cosmos. Polkadot has long been regarded as Ethereum's most formidable competitor, even a potential replacement. Polkadot CEO and founder Dr. Gavin Wood was previously Ethereum's CTO, and his earlier proposed Web3.0 concept became a phenomenon-level topic at the end of this year. This year, the parachain slot auctions for Polkadot and Kusama launched as scheduled after long community anticipation,被视为 milestone events in the cross-chain赛道, as projects that have been preparing for years can now接入 the Polkadot ecosystem through successful slot auctions, enjoying quality technical infrastructure and ecosystem dividends.

However, user expectations seem not to have materialized. Currently, Polkadot's total market cap ranks only tenth, and its TVL is far behind emerging public chains like Solana. The reason lies in the fact that the slot auction mechanism requires projects to stake substantial amounts of DOT, which is a huge burden for developers who have yet to generate commercial value, thereby inhibiting the vitality of on-chain projects. Therefore, it is not surprising that DOT value continuously declined from early November when parachain slot auctions began. At the end of last year, Phala CEO Tong Lin publicly stated that the annual interest cost for each Polkadot parachain slot alone was as high as $30 million, not including the cost of locked DOT.

Nevertheless, for projects, successful auction bidding is undoubtedly a symbol of status or a validation of strength, providing strong assistance for subsequent fundraising and operations. Whether Polkadot can leverage its powerful technical advantages and完善的 ecosystem system to fully empower successful bidders and emerge from its current slump remains to be seen—after all, this is a veteran project with deep foundations.

In contrast, the other member of the cross-chain双雄—Cosmos—appears much dimmer. In 2019, Cosmos was severely weakened by internal team conflicts, and the 2020 bear market also dealt it a blow. However, Cosmos's strength in cross-chain transfers remains formidable. Cosmos network explorer data shows that Cosmos's native cross-chain protocol IBC has processed 5.8 million transfers, with IBC processing 1.89 million transfers in November alone, reaching an all-time high. According to official Cosmos news, in the 8 months since launch, 25 public chains have already connected to the IBC protocol, with ecosystem tokens (ATOM, OSMO, LUNA, CRO, SCRT, etc.) totaling over $60 billion in market cap, with cumulative IBC transactions reaching 5.8 million. In 2022, the IBC protocol also plans to connect cross-chain to Bitcoin, Ethereum, Polkadot, Avalanche, Harmony, and Celo public chain networks, further unlocking massive blockchain liquidity. Surprisingly, the aforementioned Terra public chain was developed based on the Cosmos SDK.

IV. Vertical NFT Public Chains Begin to Emerge

According to DappRadar statistics, in mid-July 2021, blockchain gaming wallet interactions reached 3.31 million, surpassing DeFi for the first time. During the same period, NFT avatar trading flourished on OpenSea, with floor prices even reaching new highs of thousands of dollars. Removing the speculative froth of the moment, NFT's unique advantages in entertainment and cultural work确权, circulation, and trading have garnered sustained enthusiasm from both industry insiders and outsiders. Therefore, some developers abandoned the思路 of following the trend to build general-purpose public chains, instead focusing on providing underlying infrastructure for the NFT ecosystem.

Flow is a typical representative, launched by Dapper Labs, which gained widespread attention through NBA Top Shot in the first half of this year. It is reported that only about 20% of NBA Top Shot star card buyers are crypto users, with the vast majority being ordinary basketball fans or collectors. Flow's native projects also include the massively multiplayer online role-playing game Chainmonsters and the trading marketplace for virtual avatars and周边商品 Genies.

The veteran public chain WAX also went all-in on NFT this year. The WAX public chain was developed by the founding team of online gaming virtual item trading platform OP Skins, which claims the ability to process approximately 2 million transactions per week, providing保障 for WAX's transaction speed. WAX's official homepage "unabashedly" displays the words "King of NFT" in large letters. According to DappRadar data, WAX has 27 NFT gaming projects on its chain.

Another low-key veteran player, Tezos, has also made NFT its transformation direction. This year, Tezos's on-chain art collection platform Hic Et Nunc has received widespread praise from NFT enthusiasts because its artworks are affordable, available for just a few dollars, with many even offered for free, and its gas fees are similarly low. Interestingly, Tezos主打 the concept of eco-friendly blockchain, winning favor from mainstream circles.

In a report this year, PwC consulting firm SAS stated that since transitioning from PoW mining consensus to PoS consensus, Tezos has made tremendous improvements in energy efficiency. The report emphasizes that despite increased network activity, Tezos's carbon emissions have significantly decreased. The Tezos blockchain processed 50 million transactions, yet the entire network's energy footprint is equivalent to only 17 global citizens. Network energy efficiency per transaction improved by 70%, while estimated electricity demand per transaction decreased by 30% compared to 2020.

Southeast Asia became a hotbed for blockchain gaming due to Axie Infinity, with the Merit Circle guild, positioned as a counterpart to YGG,喊出 the slogan of making blockchain gaming accessible to users in low-income countries, gaining countless fans in countries like the Philippines. Kardia Chain, claiming to be Southeast Asia's premier public chain, similarly entered public视野 in 2021 through its focus on NFT and blockchain gaming projects. The mid-year sensation My DeFi Pet was incubated by Kardia Chain, with well-known NFT applications such as THETAN ARENA, DEFILY, BECOSWAP, and SLEEPEARN FINANCE also in its project portfolio.

V. In a Blue Ocean Market, Clear Trends of Old-New Replacement

The aforementioned public chain projects have garnered significant attention this year due to their leading positions, alignment with trends, impressive data, or novel approaches. Beneath the喧嚣, many other players in the same赛道 have also conducted a series of constructive experiments:

The heterogeneous cross-chain interoperability scaling protocol BitTorrent Chain (BTTC), jointly developed by the TRON core team and BitTorrent, officially launched its mainnet around December 12, with the vision of building a distributed global financial underlying protocol;

DFINITY also launched its mainnet on May 8 with much fanfare, carrying the quite forward-looking concept of the "Internet Computer," conducting a deep exploration of public chains in underlying internet technology;

Algorand has continuously optimized and iterated against the blockchain "impossible triangle," with its TPS reaching 125 times that of Bitcoin. This year, Algorand continues to strengthen its positioning as a compliant financial public chain, echoing史诗级 events such as Bitcoin becoming legal tender in El Salvador;

The two localized public chains Near and Conflux have also continued to explore Layer 2, NFT, DeFi ecosystems, and cross-chain technology, striving to secure a place in the turbulent public chain tide.

Of course, regrettably, EOS, once regarded as blockchain 3.0, completely fell behind this year. Beyond users, funds, technology, and ecosystem, the project team, having lost BM, has even lost its ability to generate话题, evoking both sighs and感慨 about industry changes.

Overall, the public chain sector in 2021 flourished in the super bull market, its heat ignited by the DeFi explosion, gained additional romantic and狂热 artistic color as NFT gradually became the traffic core, and by year-end was regarded as the carrier of Web3.0 and the underlying infrastructure of the metaverse.

This year, Ethereum's dominance no longer exists, but its absolute advantage remains evident, firmly holding the leading position in the sector; BSC, Solana, Terra, and Avalanche each leveraged their own advantages to launch differentiated strategies, securing the throne of new public chains during different periods; cross-chain demand was stimulated by increasing user numbers and public chain counts, but the细分 market is not yet mature, though still worthy of expectation; the cross-chain双雄 were submerged in the narrative of absorbing Ethereum overflow projects and laying out DeFi+NFT ecosystems, missing strategic opportunities, though the future remains promising given their deep foundations; vertical public chains like Flow and WAX targeting the NFT sector continue to be favored, and whether NFT's破圈 effect can quickly bring these public chains into ordinary households remains to be seen. Other large and small players in the public chain sector are also actively exploring their own directions while witnessing the magnificent bull market画卷.

We look forward to the flourishing ecosystem of coexisting chains in 2021 leaving rich gifts for the future market, successors, and the crypto world to come.

◆ 2021 Year-End Review Series

|Public Chain Sector Review: A Flourishing Ecosystem of Coexisting Chains

|2021 Becomes the Breakout Year for NFT: Three Major Trends Worth Watching

|Ethereum L2: Rapid Progress and Impressive Achievements

|OKX 2021 Year-End Report: Saluting the Golden Age of Blockchain

|DAO Sector Review: Buildings Rising, Future Promising

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