The protocols that allow the creation of decentralized applications are based on the use of smart contracts. This innovation was at the origin of the upward movement of 2017, in particular through the possibility of carrying out ICOs. This sector uses the level of security offered by blockchain technology to enable the execution of contracts, autonomously, transparently and automatically. Here, conditions are recorded within a computer code, which once fulfilled, lead to the automatic execution of the underlying contract. This allows the development of applications in law, finance, health, real estate, video games, logistics, art, etc.

First generation protocols

Ethereum is the second cryptocurrency in terms of valuation: 500 billion dollars. This valuation places it between Tencent and JP Morgan Chase. This crypto-currency, which appeared in 2015, was intended to extend the scope of the blockchain through the use of “smart contracts” or intelligent contracts. Originally, this blockchain operated via the proof-of-work consensus mechanism but is now transitioning to proof-of-stake, a mechanism with a reduced carbon footprint and higher transaction speed.

Following the announcement of this long transition (2017), new competitors appeared to compete with the Ethereum blockchain, which is slow and costly in transaction fees. We can name those who have used a derivative of proof of stake, delegated proof of stake, such as EOS, Tron and Binance Smart Chain and those who have used proof of authority such as VeChain. These blockchains have the merit of offering a speed of execution and much lower costs compared to Ethereum, but here it will be necessary to sacrifice the decentralization of the protocol. When with Ethereum we speak of more than 10,000 validator nodes, we speak for EOS and Tron of only a few dozen nodes or even less.

Projects like VeChain assume the sacrifice of decentralization by clearly identifying the nodes (companies) that participate most in resolving their consensus. This type of protocol is aimed at the traditional business world (Baas: blockchain as a service).

Second generation protocols

From 2018 to 2020, other projects have emerged in view of the difficulties of Ethereum to make its transition and the inefficiency of delegated proof of stake and proof of authority to offer a real alternative to the proof of work, combining transaction speed, decentralization and security.

This is how projects like Tezos, Cardano, Avalanche, Solana, Algorand, Icon, etc. have entered the race to dominate the decentralized applications sector.

Here are flourishing different consensus mechanisms (PoS, dBFT, PoSA, POH, PPOS, NPoS) which are all intended to offer mechanisms adapted to the new use of the blockchain brought about by smart contracts. Transaction fees and the speed of execution of these are at the heart of the battle, with a less diligent look at the level of decentralization of these protocols. While these projects have emphasized the first two factors, they have laid the foundations for mechanisms that open up to gradual decentralization in the near future.

These projects have been able to obtain considerable strike force and accelerated development through the emergence of decentralized finance (DeFi) and the market for non-fungible tokens (NFT). These sectors, where speed of execution and low transaction costs are central, have brought them a very large number of users in a short time.

Today, these different protocols are boosting the adoption of their own ecosystem through subsidies of up to several hundred million euros.

Interoperability protocols

Some actors want to be a bridge, a meeting point between the different protocols and consensus mechanisms. In view of the growing number of players in this sector, it is worth asking how it would be possible to take advantage of the various operations and developments carried out within all the protocols presented above.

Polkadot wants to allow each of these blockchains to sync with a central blockchain.

The goal is to bring together in a single blockchain the information contained in all the other existing blockchains. Such a protocol would greatly streamline the exchange of information and operations that are carried out on separate blockchains.

Cosmos, on the other hand, offers a set of tools accessible to developers in order to encourage them to integrate their ecosystem and make it evolve within its protocol. All the blockchains established within “zones” are then able to communicate with each other. The approach is therefore different here, because it is a question of offering an environment for the development and deployment of blockchains, which can then communicate with each other without being able to integrate blockchains built on other protocols.

Second layer protocols

Faced with the difficulties encountered by first-generation protocols such as Ethereum, particularly with regard to the number of transactions per second supported or high costs, some projects have taken up the challenge of filling the gaps of Ethereum through the development of “sidechain” or blockchain. secondary.

These blockchains are intended to process information upstream and to share with the Ethereum blockchain only the final result, with the aim of unclogging the latter. These protocols, using a second-generation consensus mechanism, offer an interesting alternative to projects like Solana or Avalanche, while benefiting from the security of Ethereum. Here we can cite Arbitrum, Optimism or Polygon.

Our position toward this sector

Protocols carrying decentralized applications will be at the origin of a major revolution in the way we operate. They will form the basis of thousands of applications that will impact all the layers and sectors of activity of our society, including finance, digital property, the identification of individuals, the traceability of our exchanges, etc.

Unlike the Internet, which is a technology incapable of monopolizing any value from the information it transmits, and which lets the companies creating applications on its network derive all the benefit from it, blockchain protocols capture all the value of by their cost of use.

All Google users have access to this service free of charge, because Google's business model is based on the resale of data and its exploitation. We can therefore see that here the value is captured by the Google application and not by the Internet network itself. On the other hand, Ethereum users pay to use the protocol and access their data stored on its blockchain, but applications built on the Ethereum blockchain capture little of the value.

This state of affairs leads to very strong competition to offer the most efficient protocol, which will be able to attract the most users. Ethereum, with its large network of applications and smart contracts available, is undoubtedly one step ahead of its competitors, but we can see that competitors have quickly emerged who have taken advantage of the expansion and maturity of smart contracts to energize and promote their own solution. The development of tools also allowing better interoperability as well as the use of the EVM (Ethereum Virtual Machine) which offers the possibility of easily transposing contracts developed on Ethereum to another protocol has further accentuated this phenomenon.

In order to detect the best players, it is therefore essential to obtain a holistic view of their actions, financing and developments, in order to know who takes a real advantage over the others through their strategic positioning. The example of Solana, Avalanche, Algorand and Tezos is striking. Each of these players spent tens of millions in 2021 to boost their ecosystem, particularly within decentralized finance, but only the first two have experienced real growth in their number of users and their TVL (Total Value Locked).

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