The Innovative Path of Cryptocurrency: ADA is a Zombie Chain Sustained by Hype
The value assessment of cryptocurrency platforms is based on the number of platform application projects and the size of the projects.Author: Zhu Weisha
Cardano is a blockchain platform project that uses a proof-of-stake (POS) consensus mechanism and issues the token ADA. As of September 4, 2023, ADA ranked 7th on Coinmarketcap with a market capitalization of $9 billion.
Cardano is often described as an "Ethereum killer" because it aims to have lower transaction fees, higher scalability, and faster transaction speeds than Ethereum. If their development speed were not as slow as a snail, they might have secured a place in the market. However, this has become a boast from their early days, as most of the goals they wanted to achieve have already been realized by Ethereum 2.0, and even better.
Cardano claims that they have written academic papers on their consensus algorithm "Ouroboros" and all Cardano technology products, implemented a peer review process, and allowed the academic community to conduct independent reviews. I, being somewhat uninformed, could not find their review process. Regarding the academic community, they mentioned the International Association for Cryptologic Research, but I have not seen any related review reports or detailed progress on collaborations with several well-known universities they mentioned.
They mentioned that Professor Philip Wadler has worked for them. He is a fellow of the Royal Society of Edinburgh and a co-founder of the blockchain smart programming language "Plutus." Wadler contributed to Cardano's papers, including: Extended UTXO (EUTXO); System F, which provides important theoretical foundations for languages like "Haskell," as well as contributions to blockchain smart contracts. Wadler's language is a domain-specific language (DSL) or application-level language. In various fields (such as finance, business, and medicine), there are languages designed for specific domain knowledge, but these languages can only describe application logic within their domain and do not reach a high academic level. Ethereum's Solidity language is an example. In fact, Plutus and Bitcoin's script language serve similar purposes. It should be said that they have some unique features in technical design, but users hardly feel them. The only thing users can feel is that the staking design of the coin is good, with a staking rate of about 70%, while Ethereum has a requirement of 32 ETH, resulting in only about 20% staking rate for users.
The development process of Cardano has been executed in five phases since 2015:
- Byron protocol core;
- Shelley gradual decentralization;
- Goguen multi-asset and smart contract development;
- Basho scalability and sidechain authorization;
- Voltaire governance and voting.
Charles Hoskinson, co-founder of Cardano, claimed on YouTube that the above plan could be completed by 2020, but as of 2023, they are still in the fourth phase. Evaluating technical levels should include the project's implementation capability; without implementation capability, it is just a castle in the air. Such grandiose claims, including that over 1,000 Ethereum smart contracts would migrate to them, have not been realized. Although Cardano has created conversion tools, the conversion is not difficult, but the market still does not buy it.
I am also confused about their academic level. For example, they claim to have distributed thinking but lack the ecological project incentives commonly used in distributed development, relying solely on centralized development; they claim to have peer-reviewed code but then go to the testnet, indicating that their peer review level cannot replace market review. Code review is a norm in blockchain projects; what difference do they have from other blockchain projects? They promote zero-knowledge proofs while also requiring real-name authentication; such inconsistencies are not necessarily problematic, but the lack of consistency in academic thinking is less impressive than Ethereum's adherence to its principles, showing a strong pragmatism. Boasting has consequences; let's look at its market performance.
Analysis of Cardano's Market Performance
Cardano consists of three teams: the foundation located in Switzerland focuses on promoting Cardano's applications, organizing the community, and public relations; the global Input Output team (IOG, formerly IOHK) leads technical research and development; Emurgo, based in Japan, undertook early fundraising and is responsible for regional business application development. This is where Cardano's problem lies; it is centralized development without a unified centralized institution, leading to significant management flaws and internal friction.
From the growth data of user addresses, it can be seen that all rapid increases in users occurred during technological breakthroughs. Among the three organizations, the foundation has stalled, and Emurgo has half-stalled because, apart from technology, Cardano has made almost no progress on the application projects it promotes. Emurgo's contribution is to assist in market promotion and speculation when technological breakthroughs occur. From Figure 1 (https://cn.investing.com/crypto/cardano/chart):
Figure 1
Starting from $0.00246 on December 9, 2017, to $0.997 on January 6, 2018, all early investors made a profit. However, scandals broke out, and the coin price fell sharply. In July 2020, the ADA staking was launched, and the coin price rose from a low of $0.0241 in March to $0.1463 on August 9, a perfect cycle of speculation followed by a decline. The second round of speculation was the launch of the mainnet smart contracts, reaching an all-time high of $3.099 on September 2, 2021, but the smart contract effects were below expectations, and the coin price fell to $0.2575 by September 4, 2023.
Cardano's data is dismal.
The value evaluation of cryptocurrency platforms is based on the number and size of application projects on the platform. One metric for measuring platform applications is Total Value Locked (TVL): as of September 3, 2023, Cardano's total locked amount was $159 million, about 0.65% of Ethereum's. There are no well-known decentralized finance (DeFi) projects or stablecoins migrating to it, as Hoskinson had anticipated. The following data is sourced from https://cexplorer.io/:
On September 3, 2023, its largest application Minswap - Batch Order had 18,739 users;
Minswap's liquidity pool had 18,499 users. The NFT application (jpg.store · n/a) had 18,724 users.
On September 2, 2023, the transaction count (TX Count): (44,866) corresponds with the number of active users.
Active accounts appeared in "Epoch" 315, where one epoch in Cardano is 5 days. The time of epoch 315 corresponds to when the coin price was at its highest, with 258,000 active accounts. The current epoch is 432, with 56,000 active accounts. Its block time is set at 20 seconds, with each block recording about 10-20 transactions, or sometimes none.
The mainnet smart contracts have been online for two years. Such data is not compatible with Hoskinson's 970,000 Twitter followers.
Lessons from Cardano
- Users cannot be deceived. It should be said that their community and market promotion have put in a lot of effort, achieving good market recognition and an academic image. Ethereum's spokesperson Vitalik has 4.98 million Twitter followers, and Binance's spokesperson Zhao Changpeng has 8.6 million followers, far less than their project's hundreds of millions of user accounts. Hoskinson has 970,000 Twitter followers, while they only have over 4 million accounts, many of which are due to the ADA staking policy that caters to small accounts, meaning the actual number is even smaller than 4 million. How can they compare with Ethereum?
Since 2021, Cardano has launched its proud Layer 2 scaling solution Hydra, the Lace wallet integrated with Atala decentralized identity, and a little-known stablecoin Djed, but none have made a splash. In Figure 1, a line is drawn at $0.25, above which there is a huge trapped position; without a rebirth-like positive news, there will be no upward trend. Ethereum's 2.0 merge did not lead to a rise, so what can Cardano, with no product innovation, rely on to rise? Bitcoin has a four-year halving; as long as the logic is not broken, trapped holders can break free, so in the long run, there are no trapped positions in the market. Only coins without traps can rise. Both Ethereum and Cardano face the problem of lacking a fixed upward logic, but Ethereum and Bitcoin's trends are similar, moving with the market, while Cardano's trend is downward, not in sync with the market. Looking at Cardano's data, does it look like data from a $9 billion project? Data does not lie; how will a downward trend change? It is not visible. Being in this position is already a blessing. If you cry "wolf" too many times, no one will believe you.
- Technical innovation is important, but product innovation is more crucial. The vast majority of users do not understand technology and do not care about it, but they can judge whether a product is useful. Cardano's selling point is good technology, high-end, and impressive, but good technology must translate into good products. However, which innovative application products in cryptocurrency were created by them? Smart contracts were first introduced by Ethereum; the ICO wave was first led by Ethereum; decentralized finance (DeFi) was first pioneered by Ethereum; NFTs were first launched on Ethereum; similarly, stablecoins were also first introduced on Ethereum.
Technology is merely a tool for forming products; what unique products has Cardano created that Ethereum cannot? All products are merely following in others' footsteps, and respecting product originality is the market rule in cryptocurrency.
- No matter how good the technology, timing is essential. It should be said that Hoskinson's vision is commendable, but they are completely unaware of the importance of market competition. The market has its own rhythm; by the time their products are released, the market may have entered a downturn. Timing is everything; once the opportunity is missed, it may not come again.
What to Do?
Cardano's hype has burst; as an "Ethereum killer," it has completely failed, earning it the derisive label of a zombie chain. In this series, I introduced how Sun Yuchen turned around with stablecoins, and in another part, I suggested to Ripple that XRP should be converted into a stablecoin to find its way back. The central idea is to hope that cryptocurrency can break through its original framework and move towards real commercial applications; opportunities do exist.
Zombies await their spring; originally, Cardano has two commercial application teams, which have a foundation. They should not just speculate on coins and cut down on retail investors, losing their own reputation. They need to do some solid work. Once they break through, spring will come.
