Who Will Win the L1 Wars?
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The Wars is a reference to competing proof-of-stake () blockchains such as Near Protocol (), Solana (), and Fantom () vying for the top position to replace Ethereum ().
To understand why this matters, we have to rewind history. The proof-of-stake revolution was a response to the high power requirements of the original proof-of-work (PoW) consensus protocol, which the first two cryptocurrencies Bitcoin () and Ethereum run on.
Ethereum, the first-ever programmable blockchain that enabled to be built on top of its network, soon became a victim of its own success. The network wasn’t built to scale, and as transactions piled up, users had to pay outrageous to trade on-chain.
With the benefit of hindsight, new protocols such as Near Protocol, Solana and Fantom started building blockchains that were more scalable and energy efficient; transacting on any of these costs less than a cent.
There are slight variations in the speed and toolset required for users. However, the difference between NEAR, SOL and FTM is miniscule compared with other earlier blockchains such as Bitcoin and Ethereum.
Near Protocol is an L1 blockchain that first emerged in 2018 and was initially designed with the intention of providing higher throughput, faster speeds, , and compatibility.
NEAR was one of the first chains that implemented the '' technique, which is a revolutionary PoS method for blockchain scaling. Using sharding, all transactions on the blockchain are split into chunks known as 'shards'. This ensures that blocks reach finality in less than two seconds. The consensus mechanism on NEAR is called 'Nightshade'.
The development of NEAR is spearheaded by a called 'Near Collective' comprising a sizable community of developers and researchers. The sharding-based consensus mechanism allows NEAR to scale to infinite levels without becoming congested. One of the main advantages it has is that the network is constantly stable and rarely experiences downtime.
NEAR was initially not EVM () compatible. An EVM-compatible network can interact with existing Ethereum tooling such as and users only have to change the RPC settings to use it. This was changed with the introduction of 'Aurora', which provides EVM compatibility and faster finality. Developers can now port over their tokens to the NEAR blockchain using Solidity programming language and the fees are over 1000x lower on average compared to Ethereum.
Near Protocol has a maximum supply of 1 billion tokens, of which close to 700 million are circulating –– an advantage for investors due to little future dilution. Over 44%, or $3 billion worth, are currently staked on the protocol. It stood out for being one of the first L1s to implement sharding and will likely remain among the top 20 largest projects in the crypto industry.
As these blockchains are based on proof-of-stake consensus protocols, there is a higher degree of centralization in all of them compared to Bitcoin where miners from all over the world pool in to decentralize the network by contributing .
The two reliable indicators we can use to measure the decentralization of a PoS chain are the percentage of the total supply staked and the number of validators. If more people are staking their coins, they are decentralizing the network.
In this regard, Solana has an edge over both Near and Fantom with over 75% of the total supply staked. Fantom follows at 47% and NEAR is last with 44% staked.
In terms of validators, Solana wins again with over 2,000 validators compared to Near with 100 and Fantom with 60. Fantom has received criticism that it’s the most centralized chain as a few whale wallets own the vast majority of FTM coins –– even more so than on Near and Solana.
Near Protocol, Solana and Fantom are all promising projects that aim to become the dominant L1 in the DeFi sphere, and to date, have been delivering on speed, efficiency and cost-effectiveness.
Compared to Ethereum, these blockchains have a clear advantage in scaling and speed because of newer technology implemented in their protocols, but they are still lacking in user adoption.
At the end of the day, comparing Solana, Fantom and Near is like comparing Pepsi to Coca-Cola. Some people prefer Coke, while others prefer Pepsi. These chains use the same tooling and work with similar staking algorithms; the only materially different blockchain here is Solana with its more unique toolset.
Performance-wise, all of these L1s have provided excellent ROI for investors over the last two years. It will be a close match as these chains continue competing with one another to shape and power the overall DeFi ecosystem.
The L1 wars involve more blockchains than Near Protocol, Solana, and Fantom. For example, coins such as Avalanche (), Cardano () and Tron () also participate in the L1 wars and offer similar features. One metric that can help us measure the success of a blockchain is the TVL (), which represents the sum of all money deposited in a network and its applications.
According to , Solana has the edge over the two with $1.4 billion TVL, followed by Fantom at $536 million and Near Protocol in last place at $295 million at the time of writing. We should note that all of them are down in recent months as a result of Bitcoin’s downturn. The TVLs were much greater when Bitcoin was at its peak.
Despite that, they all pale in comparison to Ethereum’s $34 billion TVL, which leads many to conclude that Ethereum is really winning the L1 wars. The TVL rank list can change overnight; Terra () was the second largest chain after Ethereum by TVL, and then it dropped out of the top 10 in a mere few days following the TerraUSD () crash.