A Battle Royale: Layer 1s Vs. Ethereum and Layer 2s
The contest between Layer 1s versus Ethereum and Layer 2s was a big story in 2021.
By: Owen FernauDeFi 2021
Big Story 2021: This article is part of our Year in Review series.
The contest between non-ETH Layer 1s vs. Ethereum and its Layer 2s, was a major plotline in 2021.
Non-ETH Layer 1s are, like Ethereum, smart contract platforms that developers use to deploy DeFi protocols, NFTs, and games. Examples include Solana, Avalanche and Terra, all of which offer faster transactions with lower fees than Ethereum, albeit sometimes making concessions in security and or decentralization.
Layer 2s also offer similar benefits to non-ETH Layer 1s, namely cheap and fast transactions. Unlike the likes of Solana, Avalanche, and Terra, Layer 2s inherit their security from Ethereum, instead of having to establish it independently as non-ETH Layer 1s do.
The similar capabilities, smart contract readiness, cheap and fast transactions set non-ETH Layer 1s up to battle in the market with Layer 2s as web3 builders strive to bring the next iteration of the internet to billions of people.
Most Layer 2 projects don’t have tokens, leading to non-ETH Layer 1s largely taking the stage in 2021 with eye-popping price action for their tokens.
What is DeFi? The Ultimate DeFi 101 Guide to Ethereum, Layer 2s, Yield Farming, and More
Solana, Avalanche, and Terra hit all-time highs last year as investors sought to reproduce the legendary 100x returns of early Ethereum. Solana’s SOL did just that, starting the year trading at $1.61 and hitting a high of $256.79 on Nov. 6. Terra’s LUNA also increased a hundredfold, starting the year at $0.65 and hitting a high of $75.82 on Dec. 9.
At its highest point of $143.78 on Nov. 22 Avalanche’s AVAX was more than 45 times higher than its New Year’s Day price of $3.84.
Other platforms like Cosmos, Fantom, Harmony One, Cardano, and Polkadot, saw their tokens post all-time highs.
ETH also hit an all-time high of $4,878.26 on Nov. 10. The token’s previous all-time high of $1,396.42 which came on Jan. 12 2018 came at a time when ETH was the new kid on the block, fighting to gain legitimacy in the face of Bitcoin’s torrid growth.
This time, Ethereum is the incumbent, entrenched in discussions about crippling gas fees in the face of the platform’s extreme success and race to scale with Layer 2s.
Read The Defiant’s Crypto Markets 2021 Report.