What Constitutes a Mainnet? An In-Depth Look Inside the Building Blocks

Oct 18, 2022

Translated by elcreto

Summary

In this publication, we try to identify the building blocks of five blockchain mainnets deemed highly sustainable—Ethereum, Binance, Solana, Avalanche, and Polygon
We identified 19 shared components of the mainnets considered essential to operation, and divided them into five categories, namely infrastructure, DeFi, NFT, game, and others
Building a mainnet should be preceded by securing of key operational components. Additionally, given the growing importance of the role of applications, the ability to secure various apps and demand from enterprises will be increasingly important

Introduction

Primarily at the core of the world of diverse blockchain ecosystems lie mainnet and dapp—mainnets that achieved network security and scalability and dapps running on such mainnets.

Virtually, what blockchains with a mainnet services is an infrastructure for dapps running on the mainnet, providing them with scalability, security, and transparency. Aside from this, smart contract platforms or base layer blockchains are also referred to as mainnets.

Currently in the blockchain market, there is a myriad of projects that aspire to become a platform. But only a few projects ended up building a substantive and sustainable ecosystem, getting us to wonder what makes a sizable network. In this publication, we will try to identify the components key to building and running a mainnet.

Top 5 Smart Contract Platforms Considered Highly Sustainable

Of the thousands of smart contract platforms, not many networks enjoy a meaningful size of transaction and ecosystem. To find robustly active, meaningfully large networks, we chose top 10 networks, where operational components were identifiable, and assessed based on the following four criteria: whether i) the network is valued highly by investors, and such values are well maintained, ii) transactions taking place on the mainnet are diverse and robust, iii) a sufficient amount of funds exists on the chain, and iv) the network successfully onboarded enough projects.

Four Criteria to Identify Highly Sustainable Ecosystem

1. Market Cap

The total value of tokens issued on the network

2. TVL (Total Value Locked)

The total assets locked in the DeFi smart contract within the network. It indicates the level of DeFi activity within the network.

3. Number of DApps
The total number of projects built atop the network. It also indicates the level of activity within the network alongside on-chain activity.

4. Protocol Revenue
Actuals that indicate the economic values generated by the blockchain network

Based on the four criteria, we identified five highly sustainable mainnets—Ethereum, Solana, BNB, Polygon, and Avalanche. Projects, for which data were relatively less available—namely Polkadot, Tron, and Cardano— were ruled out.

With those five mainnets, we will try to identify the pillars key to their sustainability.

Identifying the Key Components by Extrapolating from the Five Networks

What are the essential components fundamentally important to the operation of a mainnet?

We examined the ecosystems of the five mainnets and identified key operational components that they shared.

First off, we divided the components into five categories—infrastructure, utility, DeFi, NFT, gaming, and others. From there, we sorted out the drivers behind the leading dapps and services on the network and put them into the following checklist:

By referring to the table above, our research eventually identified 19 building blocks that all five share (as summarized as follows):

Key Operational Components in Each Category

In the following discussion, we will focus on the 19 operational components and discuss how each of them contributes to the ecosystem.

1. Infrastructure

1-1. Validators & Node Operators

Validators and node operators are operational bodies indispensable for creation and validation of a decentralized ledger. They are quintessentially what makes a network a blockchain, allowing the blockchain to obtain data integrity and trustless nature. Variables, such as consensus and verification mechanisms, block time, and TPS significantly differ, depending on the architecture of the blockchain.

1-2. Oracle

Since blockchains are unable to bring external data, they need a highly-trustworthy party that can connect the network to the data, or provide random numbers like random functions—and an oracle does just that. Although there are blockchains that provide oracles on their own, third-party oracles, such as Chainlink, have become the industry-standard due to the risk of manipulating blockchain’s definitive nature.

1-3. Wallet

A wallet is an infrastructure-level application that allows users to manage digital assets. Users can customize to suit their convenience, using various wallets, including MetaMask and Fantom. The functions of the wallets are key to managing assets, allowing users to transfer and receive funds within the network and execute transactions. They are also divided into hot and cold wallets, depending on whether they are online or offline.

1-4. Block Explorer

Because all transactions on the blockchain are recorded in a block in a retrievable manner, the history of simple transactions can be browsed on the block explorer. There are explorers dedicated to each network, i.e., Ethereum’s Etherscan and Polygon’s Polygonscan.

1-5. Infrastructure and Development Tools

Developers are a prerequisite to maintenance and constant enhancement of a blockchain. This is why projects look for tools that can facilitate onboarding of developers. These are infrastructure-level services, such as SDK (Software Developer Kit), development documentation, API, IDE, and development language.

2. Utility

2-1. Query Engine

When blockchains came into being upholding transparency as its foundation, query engine is a service that allows users to have an in-depth look inside their blockchain network. It provides users with on-chain data and supports query language like SQL, making it easier to analyze data even without much understanding of on-chain infrastructure.

2-2. Launchpad

Launchpad is a utility dapp/service that allows users to launch dapps, services, or tokens on a network without the help of a developer. With a DAO launchpad, for instance, users can designate a DAO they wish to join and issue tokens of the DAO, while with an NFT launchpad, users can launch NFTs without the help of a developer.

3. DeFi

3-1. Stablecoin

While cryptocurrencies are highly volatile assets, the relative value of stablecoins is quite easily traceable—which is why they are broadly adopted by many networks. Largely, they are split into algorithmic and custodial stablecoins, depending on the way they are issued and managed, and can also be categorized as non-, partially-, and over-collateralized stablecoins, depending on the type of collateralization.

3-2. CDP

A CDP is a dapp or service that lets users to lock, borrow, and lend assets on protocols like MakerDAO and Compound. Users can leverage the assets locked as collateral to borrow other assets at a specific ratio corresponding to the locked amount. CDPs are now positioned as a service/platform key to providing liquidity to DeFi.

3-3. Staking Derivatives

For a Proof-of-Stake (PoS) blockchain, native token staking can help stabilize the network while stakers earn rewards in return. Dapps and platforms that provide various derivatives based on staking are in this category. Liquid staking services, such as Lido and Anker, are the most known examples.

3-4. Decentralized Exchange (DEX)

DEXs allow users to swap their assets for other assets at a specific ratio. Unlike Centralized Exchanges (CEXs), such swaps can be executed without third party approval. Most typical examples include Uniswap and SushiSwap, and stablecoin-focused DEX Curve.

3-5. Bridge

While blockchains are unable to incorporate other blockchains’ cryptocurrencies, bridges offer many ways to turn external assets liquid, including lock-and-mint and liquidity pool.

3-6. Banking & Lending Platform

Banking and lending platforms in a blockchain network serve a similar role to a bank. Users can deposit their assets and earn interest, leverage the assets to borrow various cryptocurrencies, or use a flash loan to profit from arbitrage trading. AAVE is one of the most widely-used lending platforms.

3-7. Yield Farming

DeFi yield farming dapps and serves allow users to earn yields from deposits or optimize yield streams. Across the DeFi space, yield services are various, from yield optimization dapps like yearn.finance to yield aggregators that trace the optimal routes for higher yields.

3-8. Payment Service

Payment services, such as Binance Card or Kado’s off-ramp service, provide users with an infrastructure that allows them to pay for real-world assets or everyday expenses with cryptocurrencies.

4. NFT

4-1. NFT Marketplace

NFT marketplaces allow NFTs to be launched and traded. OpenSea is one of the most-known among them. Users can buy and sell NFT projects on various OpenSea-supported chains.

5. X2E & Games

5-1. X-to-Earn & Games

These networks have gaming services that store data on the blockchain. The difference with the existing Web 2.0 games is the use of tokens built atop the blockchain in the games or X2E services. Most popular blockchain games include DeFi Kingdoms and Axie Infinity while the leading example of X2E is M2E dapp Stepn.

6. Others

6-1. Custody Service

Crypto custodians safekeep cryptocurrencies, allowing the first-tier financial institutions and other businesses to invest in digital assets.

6-2. Introduction of CEX

As a centralized exchange (CEX) is the connection to the existing financial system, cashing in assets on a blockchain inevitably involves a transfer of assets to a CEX. Such transfer requires CEX’s support for the blockchain network. Apart from this, CEXs have services that offer monetary rewards to those who contribute to the ecosystem of a blockchain, i.e., stakers.

Now the discussion so far has been about the six over-arching pillars that prop up the sustainability of a mainnet. As such, the focus may have been more focused on the building blocks of a mainnet, rather than the drivers that boost activities on the mainnet—which requires constant onboarding of numerous applications and services to build on the foundation laid by the building blocks. This is why the role of Business Development (BD) is projected to grow further as getting a wide array of applications onboarded is increasingly vital once operational components necessary for a sustainable ecosystem are all set.

The Increasingly Important Role of Application BD in the Context of Mainnet

1. Fat Protocol vs. Fat Application

In the age of the Internet, most of the value capture has taken place in the application layer. Most prominently, Google, Facebook, and Amazon have been the leading applications. In contrast, protocol layers, such as TCP/IP, HTTP, and SMTP, have been less influential in terms of value capture despite their significant contribution to the spread of the Internet.

In the Web 3.0 arena, the fat protocol thesis was proposed early on by Joel Monegro of Union Square Ventures. Initially, many supported the thesis on grounds that stability and security are paramount to a protocol particularly when the decentralized nature of Web 3.0 is considered. Recently though, applications are increasingly gaining importance as a facilitator of real yields, the returns exclusive of token emission. This explains the growing discussion about the fat application thesis.

2. Protocols Gaining Popularity Along With the Growing Importance of Real Yields

Certainly, real yield applications are drawing much attention these days. Investors are now more focused on the actuals, such as revenue, than narratives, taking a closer look into the revenue-generating capacity of a protocol. According to the top 20 by revenue released by Token Terminal, dapps represent a substantial proportion, except for Ethereum, BSC, and Avalanche.

Indeed, for the year to date period, the prices of Synthetix, Uniswap, Lido Finance, and GMX have climbed significantly. Still, it is premature to judge the magnitude of importance between protocols and applications. Yet, in terms of market cap, the value of the tokens of mainnet platforms remains higher than that of applications. Moreover, pushing the strategy of differentiation can be easier said than done for apps, particularly when it comes to the world of open source. That being said, it is undeniable that the importance of applications is on the rise as numbers like revenue increasingly speak volumes and applications have network effect.

3. Sidechains' Growing Needs to Capture Demand from Enterprises

At the same time, the growing importance of an app has raised the importance of a sidechain due to its role in securing the demand from enterprises. Unlike the case of simply getting apps onboarded, the demand grows further when enterprises or service providers want to secure native tokens as network fees.

Of the five mainnets we selected, Ethereum and Avalanche (Subnets) and Polygon (Supernets) illustrate their support for various app-specific chains. One of the most known examples that obviously came into the spotlight in South Korea is Klaytn’s onboarding of WEMIX in the form of Substrate.

4. App BD’s Growing Role in Sustainability

In the wake of such changes, networks’ ability to onboard enterprises and applications has increasingly become an important factor. Typical examples include financial support like ecosystem funds to onboard an app or permission to make the ecosystem partially available to facilitate the growth of an app.

In a nutshell, steady onboarding of various high-flying apps is deemed necessary for mainnets/protocols to capture more value and remain sustainable.

Conclusion: A Sustainable Ecosystem Is a Prerequisite to Building a Mainnet

As explained earlier, a sustainable mainnet ecosystem requires groundworks. Yet, many blockchains tend to focus on a swift launch of a mainnet and a broad adoption of cryptocurrencies issued as the key currency as well as platform coins, instead of laying the building blocks of foundation one by one.

Of all the various reasons to launch a mainnet, the expansion of business model and token utility is considered the primary reason. The risk arises though when a project hastens such launch without a well-functioning ecosystem, causing a series of sustainability issues.

In the coming years, constant onboarding of popular applications and services on mainnets will be key to higher sustainability. The chances of sustainability increase as the business development capacity of a mainnet progresses to be able to onboard various applications and services after all necessary components required for the operation of a mainnet are put in place.

Lastly, enterprises and service providers may entertain the thought of building and using their own mainnets and native tokens, but there are various other options given the concerns about cost and time required to handle all matters from A to Z to set up a mainnet. Avalanche subnets, Polkadot parachains, Cosmos appchains, and Polygon supernets.

Service developers and providers need to first figure out whether their applications and services require a mainnet—and if so, they need to secure necessary components that can drive sustainability before launching a mainnet.

Appendix

Five mainnets Deemed to Have Relatively Higher Sustainability

1. Ethereum

In 2015, Vitalik Buterin created this smart contract platform. Ethereum was first to introduce functionality to a blockchain and is a network where the most economic and development activities are taking place. The Merge, Ethereum’s migration to PoS, will soon be launched, and lack of scalability is being shored up by layer 2 platforms, such as Polygon and Arbitrum.

2. Solana

Launched in 2017, Solana came into the spotlight with high scalability and TPS. NFT markets are as robust as on the Ethereum network. Solana is famously the network that launched STEPN, the key driver behind the M2E boom. Although Solana has notoriously suffered frequent network outage (or halt), many perceive its development tools and resources as on par with, or better than, Ethereum—explaining the market’s high anticipation for the network.

3. Avalanche

Avalanche is a smart contract platform made up of three primary interoperable blockchains: the X-Chain, C-Chain, and P-Chain. The network is highly interoperable with Ethereum, backed by the EVM-compatible C-Chain, and projects can build subnets to scale. The best-known dapps on the network include first-generation P2E DeFi Kingdom and DEX Trader Joe.

4. Polygon

Polygon is a layer 2 solution network often referred to as “Ethereum’s Internet of blockchains.” Polygon launched Polygon PoS combining sidechain and Plasma. It is a smart contract platform that seeks to improve Ethereum’s scalability by offering various ZK-based solutions.

5. Binance Smart Chain

The only successful fork of Ethereum (ETH). Built after the fork, Binance Smart Chain (BSC) runs on PoS and has created its own thriving ecosystem. Well-knwon DEXs, such as PancakeSwap, are running on the BSC network, and the launch of STEPN’s second realm was particularly sensational. It is a smart contract platform that has a full suite of services, including NFT, P2E to M2E.

Mainnet Projects Specializing in Apps & Services

1. Blockchain Specializing in NFT: Flow

Flow is an NFT and content network. Part of the projects on the network are DeFi projects, but Flow is predominantly NFT and collectible marketplace. Regardless of relatively less sufficient DeFi infrastructure, its services, including support for NFT profile picture on Meta’s Instagram, are highly profitable, and NFT activities are robust.

2. Ronin Network: An Ethereum Sidechain That Houses Axie Infinity

Originally built on the Ethereum network, Axie Infinity saw an exponential growth in 2021, since when Ethereum’s low scalability has transpired into the launch of Ethereum subchain Ronin. Despite low utilization except for Axie Infinity and DEXs supporting the game, the numbers of transactions and users remain sizable thanks to the game’s once-phenomenal popularity.