This two-part article explains why we like layer 1 networks/blockchains, and why so many of our investment choices consist of them. Layer 1 tokens bring utility to the user, utility brings value, which eventually leads to increase token prices.
Advanced Discussion
Hopefully you arrived on this page from Part I, if not please give it a quick read to get you up to pace on Layer 1 [here]. With that short read out of the way lets dive into how we built our thesis on layer 1. As we discussed before layer 1 tokens bring utility to the user. Your Apple stocks provide value, but generally very low utility, possible some low interest rates as a dividend. These stocks potentially provide voting rights if you own certain classes of the stock or enough to declare yourself substantially wealthy.
Most popular layer 1 tokens not only provide Ethereum like utility, but they provide voting rights through on chain governance. Ethereum is often referred to as “ultra sound money”. The reason for this is the beautiful mathematically based tokenomics. ETH has an unlimited supply; however, a portion of all ETH is burned from this supply as transactions are made. As the network effect grows, ETH can potentially become deflationary with enough activity. Deflationary tokens have potentially better price action when all other metrics are equal.
Ethereum can also be staked for a yield over time. Staked tokens are removed from the available supply to trade. This chart below shows ETH available on exchanges dropping [1]. So you have a potentially deflationary token, that has immense utility for users. This value is exponentially increased with its ever-expanding network effect, and it is becoming scarce. You can apply this logic to many other layer-1 ecosystem tokens such as AVAX for the Avalanche network.
Favored Four
Using the thesis above, we have identified four strong layer-1 networks we are likely to continue dollar-cost-averaging into. Do remember none of this is financial advice, this is our research and market analysis to hopefully assist your in your own research.
- Avalanche: Avalanche and the AVAX token is our largest market cap of the four, and has a burning mechanism similar to Ethereum. AVAX boasts Ethereum compatibility from the ground up which makes using the network with Metamask a breeze. AVAX is now available on most American and worldwide exchanges. Avalanche is one of our largest investments because of their impending subnet upgrades. We have been farming AVAX by playing Crabada, an NFT play to earn game that is incredibly lucrative. We simply take our TUS rewards and trade them into AVAX whenever AVAX has a red day, dollar-cost averaging in for free.
- Fantom: Fantom and the FTM token has been a very popular layer 1 ecosystem. Fantom has some of the best rewards for developers of any emerging network. Developer rewards attracts developers, having many developers on a network is one of the key correlators to price action. These funds are typically raised during private funding rounds which means that FTM has institutional and venture capital support. This also means that FTM will be able to sustain itself during a bear market if it were to occur because the capital has been raised and is not pegged to a volatile investment. FTM can be found on Kucoin.
- Moonbeam: Moonbeam and the GLMR token are the Ethereum of the Polkadot ecosystem. GLMR can be found on Kucoin and sent directly to Metamask. GLMR still has a very high staking APR since it is a newer smart-contract enabled blockchain. GLMR is about 400 times smaller than Ethereum, this means it has tremendous upside, especially if it starts to nibble at the Ethereum market share. Polkadot itself has had tremendous institutional interest throughout the past couple years. Investors can potentially get in early on the smart-contract main play for all of Polkadot.
- Oasis Foundation: Oasis Foundation and the ROSE token provide a privacy enabled, Ethereum like network. Oasis separates consensus from execution which increases speed. Since privacy is key to the network it was built from the ground up for this feature. ROSE is one of the most common assets held by institutions, is there something they know that we do not? Oasis has a very sparce network currently which minimal applications meaning we are potentially VERY early. As privacy becomes more important to investors, ROSE will potentially approach the top 20 by market cap.
For more in-depth analysis, we have begun writing thorough research whitepapers to offer to our clients individually or institutionally. On our blog we aim to provide digestible, easy to read, and uncomplicated material for the everyday reader. Thank you for reading, and stay safe out there!
[1] https://cointelegraph.com/news/ethereum-balance-on-crypto-exchanges-falls-to-lowest-levels-since-2018
