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Layer-1 Blockchains are vital players in Decentralized Finance’s growth, even amid regulatory Scrutiny. The modern cryptocurrency ecosystem thrives on scalable blockchains like Ethereum, Solana, and Cardano, which power notable Decentralized Finance technologies such as NFTs. Billions of dollars from investors have poured into this industry over the past five years.
However, regulatory attention has intensified due to the inherent volatility of native Layer-1 tokens. In 2023, the United States Securities Exchange Commission (SEC) has adopted a tough stance against prominent Layer-1 blockchains, except Ethereum and Bitcoin. In this report, we explore industry trends surrounding Layer-1 blockchains and analyze the potential impact of recent SEC decisions on tokens like Cardano, Solana, and BNB Coin.
The Emergence of Layer 1 Blockchains
Layer-1 (L1) blockchains serve as the backbone of the growing cryptocurrency landscape. While Bitcoin pioneered the first viable L1 protocol, its technology has been surpassed by more innovative and scalable networks like Ethereum. While Bitcoin remains a dominant and highly lucrative speculative asset, newer protocols like Ethereum, Solana, and Cardano offer various advantages.
Experts believe that blockchain technology has the potential to revolutionize finance, payments, banking, and other economic sectors. The support for smart contracts and decentralized apps by the newer Layer-1 protocols actively contributes to the blockchain’s evolution.
As of Q2 2023, over $270 billion was invested in the top 9 Layer-1 blockchains below Bitcoin. Ethereum leads the pack with a market cap of $209 billion, significantly overshadowing other L1 blockchains. Despite its vast market cap, Ethereum has only been around since 2015, whereas other major players emerged after 2017 and have rapidly attracted significant market capitalization.
The top players in descending order are Ethereum, BNB Chain, Cardano, Tron, Solana, Polkadot, and Avalanche. The emergence and growth of these L1 blockchains are reshaping the cryptocurrency landscape, paving the way for future developments.
Ethereum (ETH)
The current price of Ethereum is $1,738.55. It has an estimated annual revenue of $2.51 billion. On Twitter, Ethereum has up to 3.08 million followers and a daily active user base of 338,000.
By market capitalization, Ethereum is the second-largest blockchain, following after the Bitcoin blockchain, and it is well-known to all cryptocurrency users. The Ethereum blockchain was initially created by Vitalik Buterin and a few other programmers as a PoW (Proof-of-Work) chain.
Ethereum is very well-liked because of its excellent support for smart contracts and decentralized apps that can deal with real-world problems. The first asset on the blockchain is ether (ETH), which is the second-largest cryptocurrency by market capitalization.
Due to increasing network congestion and high transaction costs (gas), Ethereum began a Proof of Stake (PoS) shift in 2020. The final network update (the merger) was completed in April 2023.
BNB Chain (BNB)
Currently, the BNB token is priced at $237.46. The blockchain has 1.2 million active users daily, with 10.5 million followers on Twitter.
It was originally known as Binance Smart Chain. BNB Chain was launched in 2020 by Binance, the world’s largest cryptocurrency exchange. Despite Binance’s centralized nature, BNB Chain was designed as a decentralized and permissionless blockchain, positioning itself as a competitor to Ethereum and its native asset, ETH.
Starting as an ERC-20 token on Ethereum, BNB eventually transitioned to its own native Layer-1 protocol, akin to Ethereum’s network. Like its competitor, BNB Chain supports DeFi, smart contracts, and scalable Layer-2 chains, utilizing a PoS consensus mechanism where validators are rewarded in Binance Coin for transaction processing and liquidity provision.
BNB Chain has gained tremendous popularity in markets beyond the United States due to its association with Binance Exchange. However, it has faced significant regulatory challenges, particularly in the US, following a 2023 lawsuit by the SEC. This legal action has impacted Binance’s ability to serve US customers and could lead to increased operating costs and compliance burdens. Similar regulatory actions have also been observed in other countries.
Amid the ongoing uncertainty in the key US market, the long-term growth and sustainability of BNB Chain remain uncertain. The outcome of the regulatory situation will play a crucial role in determining its future trajectory.
Cardano
Currently, Cardano is priced at $0.276 and has 50,000 daily active users. It also has 844,000 Twitter community followers.
These Layer-1 protocols gained popularity as alternatives to Ethereum, which faced issues with network congestion and steep transaction fees.
Cardano emerged as a prominent contender for the coveted title of ‘Ethereum Killer.’ Named after the 16th-century Italian genius Gerolamo Cardano, its native token, ADA, pays tribute to Ada Lovelace, a trailblazer in computer programming.
Over time, Cardano introduced innovative features, including support for NFTs and smart contracts. Despite establishing a thriving Layer-1 ecosystem, the blockchain fell short of fully realizing its ‘Ethereum Killer’ status.
Adding to its challenges, Cardano has been among the cryptocurrencies labeled as securities by the SEC, which raises concerns about its future trade on US exchanges. The long-term growth potential of Cardano appears uncertain due to prevailing regulatory uncertainties.
Conclusion
Layer-1 Blockchains are vital for cryptocurrency and DeFi market growth. Despite attracting massive investor inflows over the years, the sector has experienced frequent boom and bust cycles.
The recent 2022 crash was particularly severe, wiping out nearly two trillion dollars in investor funds. High-profile collapses like Terra/LUNA and FTX have intensified regulatory scrutiny across the industry.
Outside of bitcoin and Ethereum, all other Layer-1 blockchains are under the SEC’s radar in the US and labeled as securities. Trading unregistered securities could lead to regulatory penalties.
Several US-based exchanges and platforms have already halted trades on affected Layer-1 tokens. If you’re an investor, exercise caution before investing in other L1s outside of bitcoin and Ethereum.
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