Heco vs BSC, possibly the best Ethereum Layer 2 solution?

The Development Path of DeFi in the Ethereum Ecosystem

Friends who have heard of DeFi must know Uniswap, whose AMM model has laid a solid foundation for the development of DeFi. Over the past year, the most frequently mentioned term in the blockchain community has probably been DeFi. So, what exactly is the reason behind the rapid development of DeFi?

Returning to the essence of finance, what is the intrinsic value of crypto assets? Taking BTC as an example, BTC is defined by people as digital gold and a peer-to-peer digital currency. But this is just a concept; concepts do not generate value. Some people say, "Mining has costs!" In reality, none of these can support its value. So what underpins BTC's trillion-dollar market cap?

The answer is liquidity. The value of fiat currency is because it can serve as a general equivalent and has the best liquidity and the strongest trust endorsement.

BTC is the same; the peer-to-peer trading method is the basis of liquidity. Initially, BTC was mainly used for speculation on trading platforms, simple cross-border settlements, and various blockchain application settlements.

Currently, BTC has developed into the basic trading medium for global crypto trading platforms. With the emergence of various BTC financial derivatives and many merchants/institutions accepting BTC for payment settlements, BTC now has very good liquidity in the current global market, supporting its trillion-dollar market cap.

In the DeFi world, many early decentralized exchanges (DEX) adopted an order book model, which limited their development because it required liquidity for the order book, meaning it needed market makers. In DEX, all trading data is transparent, and market maker strategies can easily be arbitraged, so the development of DEX encountered bottlenecks.

The emergence of AMM has largely solved the fundamental liquidity problem. Various DeFi projects quickly stimulated the liquidity growth of their tokens through liquidity mining, such as COMP, SUSHI, CURVE, etc. The development of DeFi has created liquidity connections between various project tokens, building a DeFi Lego.

The development of DeFi has locked a large amount of ETH, and the liquidity of other assets is bound to ETH and various ETH ecosystem assets, quickly forming a massive influx ecosystem.

The Ceiling of the Ethereum DeFi Ecosystem

With the explosion of the DeFi ecosystem, the transaction volume on the Ethereum network has surged, and various arbitrage bots have activated AI modes in DeFi applications.

Ordinary users participating in these applications have become slow, and network congestion has increased, leading to costs of dozens of dollars for simple operations. Therefore, the enthusiasm for Ethereum DeFi has gradually begun to weaken, and the frequency of user engagement has started to decline. The development of Ethereum ecosystem applications has once again encountered a ceiling.

Layer 2 Technology Revitalizes Ethereum Ecosystem Applications

The high costs of using the Ethereum mainnet have led many projects to gradually adopt Layer 2 technology. The Ethereum Foundation is actively exploring sharding technology and Layer 2, particularly supporting some projects on ZK Rollup and Optimistic Rollup. Typical projects include Matic, OMG, LRC, Nerve, ZKS, Talon, etc., which are relatively popular Layer 2 projects recently.

The advantage of Layer 2 is that it interacts directly with Layer 2 applications through Ethereum's account system, and applications do not run directly on the mainnet. This way, issues related to performance, scalability, and costs of Layer 2 applications can be effectively resolved. The development of Layer 2 and the maturity of Layer 2 applications will continue to breathe new life into the Ethereum ecosystem.

The Fire of DeFi Continues to Burn on Heco and BSC

It can be said that the Ethereum ecosystem has laid a solid foundation for the rapid development of the DeFi field. Recently, BSC and Heco have emerged at the right time, taking on a significant portion of the overflow from the Ethereum ecosystem.

They are built on the underlying framework of Ethereum, with the main framework being completely consistent with the Ethereum network, only changing the consensus mechanism to DPOS. This design allows Ethereum's DeFi ecosystem to be quickly deployed onto these two networks, significantly reducing the cost for developers to create projects (almost only requiring the design of a new front end to create a new project).

For example, PancakeSwap on the BSC network and Mdex on the Heco network have contracts that are modified from Uniswap. Currently, the market capitalization of PancakeSwap and Mdex has reached hundreds of millions of dollars.

Compared to the Ethereum network, the BSC and Heco networks have their unique advantages. First, there is a natural influx of funds into trading platforms, second, the trading platform teams provide incubation support for ecosystem projects, third, the platform serves as a natural cross-chain bridge for various mainnet assets.

The layout of these two platforms not only attracts and retains assets on trading platforms but also builds a DeFi Lego within their own ecosystem networks. Recently, after a flurry of operations, the prices of BNB and HT surged rapidly, with BNB officially ranking third in global crypto market capitalization.

In summary, from the current development perspective, Heco and BSC seem to be the best Ethereum Layer 2 solutions. Perhaps in the near future, projects that build decentralized cross-chain bridges for Heco and BSC will become another new hot sector in the industry. Let's wait and see!