Public Chain Lego: Connecting Layer 1 and Layer 0 Blockchains, Reshaping the Market Landscape

Author: Arain, ChainCatcher

In past cycles, whenever Ethereum faced a "performance" dilemma, "Ethereum killers" would emerge. "Ethereum killers" refer to Layer 1 blockchains, while Ethereum's Layer 2 solutions are positioned in opposition to them.

However, since Ethereum completed the Cancun upgrade this year, the narrative volume around Ethereum Layer 2 has surpassed that of Layer 1, even replacing Layer 1 as the mainstream narrative. On one hand, the competitive landscape of Layer 1 has not changed; from a market capitalization perspective, (excluding BTC) ETH, BNB, and Solana form a three-way stalemate, with ETH dominating. On the other hand, there is a question: why have we seen almost no new Ethereum killers emerge in this cycle?

Interestingly, Ethereum also seems to be trapped in the Layer 2 dilemma. Data from Token Terminal shows that ETH Layer 1 revenue has plummeted, declining by 99% since March 2024. Meanwhile, in August this year, Multicoin Capital criticized Ethereum Layer 2 on a Bankless program, and subsequently, Ethereum Foundation researchers stated in an AMA that Ethereum is still exploring Layer 1 rather than fully relying on Layer 2.

The issues obscured by the prosperity of Layer 2 are thus beginning to surface.

Public Chain Wars: A Past of Diverse Voices

Layer 1 and Layer 2 are different tiers of blockchain networks, where Layer 1 is the main chain, an autonomous chain where transactions are executed and confirmed directly, providing the necessary infrastructure for the blockchain network and interacting directly with users. Notable public chains like Bitcoin and Ethereum are at this level.

Layer 2 is an off-chain vertical scaling solution that runs on top of Layer 1 blockchains like Ethereum to enhance scalability. Popular projects at this layer include Arbitrum, Optimism, and others.

It can be said that Layer 1 exists before Layer 2. With technological advancements and market awareness updates, in addition to these two tiers, the blockchain ecosystem has also extended to Layer 0 and Layer 3. Layer 0 refers to the underlying infrastructure that can build multiple Layer 1 blockchains, while Layer 3 refers to the application layer based on blockchain, including games, wallets, and other DApps.

The public chain wars originated from Layer 1. To break Bitcoin's limitations, many public chains began to flourish. Bitcoin was originally designed as a trustless peer-to-peer electronic cash system and is also a Layer 1, with security and decentralization as its greatest advantages. To maintain these two characteristics, Bitcoin is not suitable for carrying too many applications and developments, thus having poor scalability.

Security, decentralization, and scalability are important components of the "blockchain trilemma" theory, proposed by Ethereum founder Vitalik Buterin, which states that a blockchain network cannot simultaneously achieve security, decentralization, and scalability.

Ethereum was officially launched in 2015. Shortly thereafter, several other public chains emerged, such as Cardano and Polkadot. Among them, Ethereum became the first widely recognized public chain with a Turing-complete programming language, filling the scalability gap of Bitcoin.

However, from a historical perspective, this scalability is limited. Whenever Ethereum's adoption rate rises, the network becomes congested, and to avoid the risk of "centralization creep" in the protocol, Ethereum developers are reluctant to increase throughput limits. Thus, in this scenario, Ethereum also falls into the "impossible triangle" dilemma. The most intuitive feeling is that whenever this moment arrives, using Ethereum becomes very expensive, or the speed slows down. For application creators and users, this is a disaster, but it gives competitors a chance to survive.

According to incomplete statistics, in 2018, the number of newly added public chains worldwide exceeded 100, marking the beginning of the "thousand chains" era. Among them, blockchains like EOS, TRON, Tezos, and Cardano completed fundraising activities of over $400 million, $200 million, $227 million, and $117 million respectively, becoming prominent projects in the market.

These public chains were once somewhat labeled as "Ethereum killers" by the market, and now some have been categorized into new types, with some classified as Layer 0 and others as Layer 2.

From 2020 to 2021, competition among public chains intensified, as not only did the number continue to grow, but existing public chains also engaged in a battle for market share, which can be seen from the data on developer activity:

1. Solana saw a 223% increase in developer activity in 2021, becoming a standout non-EVM blockchain with its proprietary consensus mechanism, emphasizing extreme cost-effectiveness, allowing applications on it to develop rapidly; to this day, this Layer 1 blockchain remains quite competitive in the market.
2. NEAR experienced a 100% increase in developer activity during the same period, with its Nightshade technology aimed at achieving faster transaction speeds, lower costs, and higher transaction volumes. Through Aurora, it achieves EVM compatibility, meaning developers can easily migrate their smart contracts from Ethereum to the new chain.
3. Avalanche saw a 46% increase in developer activity during the same period. This Layer 1 blockchain consists of three parallel public chains, with the C chain responsible for smart contract development, deployment, and interaction, and it is EVM compatible. The project's validators protect the network through a proof-of-stake consensus protocol, enabling fast and low-cost transaction processing. Note that this public chain is currently classified as a Layer 0 project.
4. Polygon (MATIC) experienced a 350% increase in developer activity during the same period. Technically, Polygon is a sidechain; initially classified as Layer 1 due to its experience being close to Layer 1, it has attracted a large number of developers to build on Polygon due to its Layer 1 experience and extreme cost-effectiveness. The network layer classification of this public chain has also changed, and it is now classified as Layer 2.

By the end of 2021, as the market entered severe fluctuations and leveraged funds were cleared, some public chains gradually fell behind, forming the current landscape.

According to Token Terminal data, from a market capitalization perspective, there are only four public chains with a weight of over 1%, namely BTC, ETH, BNB, and Solana, which account for approximately 70.23%, 16.92%, 4.84%, and 3.84% of the weight, respectively.

In terms of the number of core developers, currently, only Ethereum, Cosmos, Internet Computer, and OP Mainnet have over 100 core developers, followed by Cardano, Kusama, and Polkadot, which have nearly 100 core developers. More developers often represent a project's potential because, from a business perspective, public chains compete for developer resources through incentive mechanisms and visions; having more developers leads to more products and users.

From the above data, it can be seen that the top two market share holders almost monopolize the public chain market, but the rankings in market capitalization do not match the rankings in the number of developers, indicating that there is a group of undervalued public chains in the market.

The Cold Bench of Public Chains: The Embarrassment of Cosmos

Before discussing these neglected public chains, it may be helpful to summarize several mainstream public chain development models and competitive landscapes. Taking star projects as examples, the mainstream public chains currently recognized by developer communities and investment markets mainly include the following types and developments:

1. Multi-chain architecture:

• Ethereum (ETH): As the pioneer of smart contract platforms, Ethereum ranks first in security, innovation, and user numbers, but its scalability, costs, and outdated architecture are its drawbacks. It is now classified as Layer 1 + Layer 2.
• Polkadot (DOT): With advanced architecture and support from Gavin Wood, but its cost model puts significant pressure on developers, and its ecosystem is still in the early stages. It is now classified as Layer 0.
• Cosmos: Offers more advanced architecture and freedom, but has a loose organizational structure, high development thresholds, and its ecosystem is also in the early stages. It is now classified as Layer 0.
• Avalanche (AVAX): Well-funded, with integrated architecture and a comprehensive ecosystem, but lacks interactivity between subnets, and new features lack consensus in bear markets. It is now classified as Layer 0.
• Polygon: Well-funded, with a broad layout and advanced concepts, but the overall network concept is unknown, and new features lack consensus in bear markets. It is now classified as Layer 2.

1. Single-chain architecture:

• Solana: Innovates with parallel execution and minimized network communication consumption, but faces issues with decentralization and node performance. It is a Layer 1 network.
• Aptos: Uses optimistic execution and is developer-friendly, but if all transactions are linked, efficiency gains are limited. It is a Layer 1 network.
• Sui: Similar to Aptos, but requires transactions to declare their linkage in advance. It is a Layer 1 network.
• Fuel: Focuses on modularity, only doing the execution layer, abandoning consensus and DA layers, but is currently in the early stages. It is a Layer 2 network.

1. Special architecture:

• Near: Highlights sharding but has slow ecosystem development and increased system complexity. It is a Layer 1 network.
• Ar: A new paradigm public chain built on storage, but its security, decentralization, and market acceptance are in doubt. It is a Layer 0 network.
• BSC: High traffic, well-funded, and a prosperous ecosystem, but weak in technological innovation. It is a Layer 1 network.

From the perspective of some public chain practitioners, fierce competition may lead many projects to adopt conservative strategies in long-term development due to resource depletion, narrative shifts, or hot topic changes, with some even abandoning past achievements. This has resulted in a waste of continuous investment and construction in public chains that fail to align with the market. The current embarrassing situation of Cosmos can be seen as a microcosm of public chains gradually being marginalized in competition.

As a pioneer in cryptocurrency and blockchain development, Cosmos has built a concept similar to "super city clusters," pioneering the idea of "application chains." Through the Inter-Blockchain Communication (IBC) protocol, it allows different blockchains to securely and efficiently exchange information and value, having a profound impact on modular blockchain theory and the concept of blockchain sovereignty.

During the congestion and soaring fees of Ethereum in 2017, Cosmos was seen as a scalability solution, attracting significant attention. Moreover, during the cryptocurrency bull market from 2017 to 2018, the market capitalization of Cosmos's token ATOM ranked among the top twenty in cryptocurrency market capitalization.

The number of Cosmos Zones is an important indicator of the construction of the Cosmos ecosystem. Zones can be understood as application chains, which are independent blockchains built on the Cosmos SDK. These Zones can communicate with each other via IBC, allowing Zones and Hub (the central node of the Cosmos ecosystem) to interact securely and facilitate cross-chain asset transfers. According to the Cosmos browser, there are currently 91 zones, of which 84 are active, indicating the success of Cosmos in ecosystem construction.

Today, Cosmos's market capitalization has dropped out of the top 50, and with the evolution of the times, its unique technical solutions can be somewhat replaced—Ethereum and Celestia's Rollup solutions provide developers with similar customizable options to Cosmos application chains, along with more mature communities and liquidity pools.

The Cosmos ecosystem has reached a crossroads.

Complementary Advantages: "Public Chain Lego" Activates Neglected Star Public Chains

The blockchain ecosystem's network layers are variable; Cosmos is now recognized as a Layer 0 blockchain, so it cannot be measured by Layer 1 standards.

Layer 0 aims to create more flexible infrastructure and allows developers to launch dedicated blockchains themselves, potentially addressing issues like scalability and interoperability more effectively.

The core components of Cosmos include the Cosmos SDK, IBC protocol, and Tendermint consensus engine:

• Cosmos SDK, an open-source framework and toolkit for building public chains, significantly reduces the difficulty for developers to create blockchains and related applications;
• IBC protocol allows for information exchange and interoperability between different blockchains, enabling the various blockchains in the Cosmos ecosystem to form a unified network. Additionally, blockchains built using the Cosmos SDK can…
• The Tendermint consensus engine provides an efficient and reliable consensus mechanism, allowing nodes in the blockchain network to quickly and fairly reach consensus;

Among these, the Cosmos SDK plays a role in helping developers quickly build blockchains from scratch. It is important to note that Cosmos provides developers with a consensus mechanism and application development tools (SDK), rather than a traditional execution engine (EVM virtual machine), to offer developers greater freedom, allowing them to customize the operating environment and transaction types of application chains according to their specifications, or even create a completely independent blockchain. This means that even if a project is not part of the Cosmos ecosystem, it can still use this SDK, and projects built using this SDK can exchange tokens and value with other chains in Cosmos via the IBC protocol, thereby creating a "link" with the Cosmos ecosystem.

This is akin to a "traffic entrance." However, this "entrance" has encountered some issues. In fact, the Cosmos SDK relies on the CometBFT consensus algorithm, which was not originally designed for high-performance public chains but rather focused on fault tolerance. This consensus algorithm is based on the practical Byzantine fault tolerance (pBFT) consensus algorithm from the 1990s, which seems somewhat "outdated" in today's public chain competitive environment. Industry insiders have revealed that many high-performance public chains initially considered using the Cosmos SDK for construction but found that the SDK could not meet their needs during practical operations, ultimately having to turn to alternatives.

The unmet needs of the Cosmos SDK include the following aspects:

1. Limited scalability and performance. As the number of validators increases, CometBFT performs poorly in high transaction throughput;
2. Inefficient P2P network design. This leads to significantly slowed communication for block proposal voting in large networks with fewer validators;
3. Tight coupling of transaction ordering and state within the consensus engine, which actually limits performance and flexibility;
4. EVM compatibility issues. The lack of seamless compatibility with EVM effectively excludes developers hoping to use Ethereum tools or connect with the Ethereum community;
5. Limitations on validator scalability. Communication and signature aggregation issues prevent Cosmos blockchains from efficiently scaling beyond 150 active validators, limiting decentralization and network security;
6. Database performance bottlenecks, especially limiting high-performance applications and affecting transaction processing speed.

Continuing to use CometBFT will limit scalability, performance, and integration diversity, creating business obstacles for many blockchain teams built on Cosmos, which may ultimately affect the long-term development of the Cosmos ecosystem. To break through these limitations, Cosmos is seeking solutions. In the recently announced SDK v2, Cosmos announced support for a new consensus engine, Supernova Core.

Supernova Core is a consensus framework compatible with the Cosmos SDK, designed to directly replace CometBFT. It has effectively and specifically addressed the current issues of the Cosmos SDK:

1. Using Boneh–Lynn–Shacham (BLS) signature aggregation allows the network to maintain high performance even with over 150 validators;
2. A layered network architecture design replaces the P2P network design, reducing latency and ensuring efficient communication, thereby enhancing overall performance;
3. Based on HotStuff consensus. Compared to traditional pBFT implementations, the network can achieve up to three times the throughput while enhancing fault tolerance;
4. Fully compatible with EVM, allowing developers to enjoy a seamless deployment experience, enabling developers in the Cosmos ecosystem to use Ethereum tools and ecosystem;
5. Allows separation of transaction ordering and state processing, enabling EVM execution to be independent of consensus and independently scalable, optimizing performance, which may provide better flexibility in the future, leading to superior performance and higher security for decentralized Layer 2.

Meter Builds a Public Chain Lego Model House

Supernova Core is the solution proposed by Meter, a Layer 1 blockchain, to address the issues faced by the Cosmos SDK. Founded in 2018, Meter is a decentralized Ethereum network expansion solution that integrates the advantages of PoW and PoS, processing transactions based on HotStuff consensus while resisting MEV and transaction frontrunning, aiming to become a decentralized Ethereum sidechain with high performance.

Meter founder Zhu Xiaohan stated that since 2021, the Meter team has been exploring cross-chain bridges and building numerous projects, making efforts towards the future evolution and performance enhancement of "public chain Lego." It is understood that the core code of the consensus engine supported by Cosmos, Supernova Core, has been implemented on the Meter mainnet and has been running continuously for four years, with peak daily transaction volumes reaching 8 million. During peak network load periods, due to many community validator nodes using AWS resource-limited virtual machines, AWS randomly shut down about 20% of the validator nodes, yet under these circumstances, Supernova Core still ensured the integrity and performance of the network, demonstrating its robustness, security, and efficiency.

In the future, Supernova Core will support parallel EVM execution and optimize database I/O as improvement goals to further enhance throughput, efficiency, and performance, thereby improving user experience.

As representatives of Layer 0 and Layer 1 projects, the collaboration between Cosmos and Meter undoubtedly creates an excellent cooperative model for "public chain Lego." In this collaboration case, it can be seen that Cosmos still has a vibrant Layer 0 ecosystem behind it, and after integrating the Cosmos SDK with Meter's Supernova Core, it is expected to add more conveniences for members of the Cosmos ecosystem, helping to attract more new developers to the Cosmos ecosystem.

For Meter, the demonstrative effect of this collaboration case will benefit the market by showcasing Meter's proven technical capabilities, potentially promoting Supernova Core as the preferred solution for building scalable, efficient, and high-performance blockchains, thereby facilitating broader adoption and collaboration within the blockchain community, making high-performance blockchain development easier.

Whether for new Layer 1 or enhanced Layer 2 solutions, Meter encourages industry participants to use Supernova Core.

It is worth mentioning that in enhanced Layer 2 solutions, Supernova Core can address the current centralization issues in Layer 2. The current Ethereum community, besides hotly discussing Layer 1 and Layer 2 routes, is also concerned about the insufficient decentralization of existing Layer 2—centralization of sequencers poses risks of malicious behavior, transaction insertion, MEV, etc., with the severity being that it has a greater potential for a black forest than Ethereum. Existing Layer 2 projects, due to the considerable income brought by sequencers, have no intention of decentralization. Supernova Core can provide a framework for decentralized Layer 2 without impacting Layer 2 income, ensuring the long-term development of Layer 2 in the future.

The Supernova Core testnet will be launched by the end of this year, and we can look forward to it. Making high-performance Layer 1 and decentralized Layer 2 development no longer daunting—this will not just be a slogan.

Although today's market hotspots are more focused on Layer 2, it cannot be ignored that projects between Layer 2 are more about playing liquidity attraction games, lacking new value creation. The future trend will still call for several technically strong Layer 1s to lead the market, while Layer 0, as the launchpad for Layer 1, will provide this nurturing ground.

As long-term participants in the market, we still need to focus on the underlying technologies—Layer 1, and even Layer 0. There lies the future.