Howdy and Good Morning, Afternoon, Evening and Night to whoever is reading this right now! This article is going to hopefully consolidate my thoughts from the video that we recently posted on our Youtube Channel titled: “How Hedera is Going to Explode Over the Coming Years!”. The video I posted spoke about a variety of things but something I touched on specifically at the end of the video was this idea of Hedera, or smart contract platforms in general, going through three stages of growth on their journey to TVL acquisition, and this is something I’ll further expound upon in this article.
Three Phase Overview
The specific phasing that I touched upon at the end of the video was this concept of Phase 0, Phase 1, and Phase 2, and I’ll explain these right now and point to where Hedera is likely at. As a disclaimer these phases specifically apply to smart contract platforms, $ETH/LUNA/FTM/MATIC etc., not coins like $BTC or $PAXG.
Phase 0 coincides with the beginning stages of a chain pursuing smart contracts, in this phase the platform has unfinished or just recently finished smart contracts. The platform either has no dApps or very few dApps. These functional dApps operate by working around the deficiencies present on the chain in its current state, and can best be understood as alpha/beta versions that will be modified once they are able to utilize the platform’s smart contract functionality. Phase 0 is very much an incomplete state of the smart contract platform and any dApps that are deployed on top of the chain in this state are very much in a jerry-rigged state and likely have significant risks to using them. Hedera fits into this phase as the only major dApp deployed on the network is Stader’s staking platform and then some NFT marketplace’s which operate rather robustly.
Phase 1 precludes a smart contract platform having a functional VM or system where everything pertaining to the deployment of dApps is finished and the onus of work is now on the backs of retail/institutional builders. This aligns with the notion of DeFi1.0, dApps being deployed in this stage are foundational and industry standard in nature, DEXs (like Tangent Finance), lending protocols, launchpads (like HederaStarter(!) 😉 ), and other basic financial primitives begin to go live at this phase. These aren’t the overly complex ones that we’ve seen populating Ethereum, but they’re robust dApps that accomplish basic use cases and, more importantly, facilitate the flood of outside liquidity into the ecosystem.
Phase 2 begins once basic financial primitive dApps and other standard utilities have been built up, projects have been audited and there is an assurance of security and stability within the financial foundation of the platform. At that point new projects will begin building on top of these secure base primitives and introducing more abstracted levels of financial risk and reward, more unique systems which may not be present on other chains are likely to be developed in this phase. Furthermore, we’ll begin to see non-finance dApps being deployed on chain as excess liquidity begins to permeate the chain, we’d expect to see GameFi being developed in full force, NFT Metaverses being deployed. All of these tertiary developments need excess liquidity to be present which is only going to happen once the platform is safely out of Phase 1 and onto Phase 2.
We can expect Phase 2 to last towards the end of the chains life, though to be completely honest I don’t think we’ve ever seen any chain reach the end of this stage. The only exception to this Phase system being Ethereum which has now seen an ecosystem of chains competing with it (Hedera included) and bridging to it, so maybe that would constitute a third and final phase, an elevation of the chain to centrality and dominance that has rivals and peers begin to crop up trying to replace or improve it.
Hedera: A Phase 0 Case Study
Now that I have explained the Phasing idea that I thought of during the filming of the video, we can discuss a few live ongoing examples of these phases in action. The easiest, and most local, Phase 1 platform is Hedera in it’s current state. It is taking major steps towards having a fully working EVM that is going to reach parity with its EVM-peers but for all intents and purposes it is not fully functional as of yet. Hedera has some dApps deployed on top of it, namely Stader, which allows staking of $HBAR into liquid $HBARx. There are also a few NFT marketplaces but other than that the ecosystem is rather sparse. As a side note I am not implying that with these Phase 0s there is no community because with nearly every platform in Phase 0 they have a vibrant community, I am simply stating that there isn’t a dApp ecosystem.
Another well-known example of a Phase 0 project that recently progressed to Phase 1 would be Cardano ($ADA) because, for the longest while, they were merely a token that could be traded back and forth. Then they developed capabilities to produce NFTs, known as CNFTs, and only very recently in January began to have DEXs and DeFi primitives popping up on chain. Cardano is no very comfortably in the initial stages of Phase 1 and they are deploying those aforementioned DeFi1.0 primitives, eventually Hedera will be here as well.
Avalanche: A Phase 1 Case Study
In the original video I utilized Avalanche ($AVAX) as an example chain that was towards the end of Phase 1 and getting ready to move into Phase 2, if it wasn’t there already. Avalanche flew under the radar for quite a few years and only back in 2021 did it really begin to accumulate TVL obviously starting at $0 (like Hedera) and then moving onto greater things. Native DeFi1.0 primitives began to deploy on Avalanche and brought it firmly into the Phase 1 stage where its been at for the past few months.
The chain has seen an explosion of dApps across it’s ecosystem, beginning with DEXs like Pangolin and TraderJoe, lending protocols and launchpads. Avalanche’s ecosystem became a perfect example of the transition from $1M to $1B TVL and what it looked like in real-time. Moreover, Avalanche was very proactive in its own growth and allocated nearly $1B in funds to be disbursed to protocols deploying on the chain under the title Avalanche Rush, this campaign attracted a smorgasbord of investors, developers and dApps and helped firmly cement the chain in people’s minds.
Now Avalanche has a fully mature DeFi1.0 ecosystem and many folks onchain have shifted development and investment focus to the rising tide of GameFi, NFT and DeFi2.0 projects that are gradually appearing on the chain. The Avalanche investors are becoming more seasoned and mature as well and this is reflected in the projects and dApps that are receiving funding and attention from the community. Avalanche has done a great job of being illustrative of a smart contract platform that has made it through Phase 1 and onto Phase 2.
Ethereum: A Phase 2 Case Study
Obviously we’re all aware of Ethereum and its continued dominance of DeFi, and for the most part, the Crypto-Smart Contract game. With reference to Phase 2 we’ll be looking at specifically how Ethereum’s mature DeFi ecosystem gave rise to DeFi2.0, GameFi and NFTs as we know them today.
Ethereum is the genesis chain for all of DeFi and as its major players, the AAVEs, Uniswaps, Balancers, etc., dominated the entire platform way back during the DeFi Summer of ’20. These initial innovations eventually paved the way for the current iteration of DeFi known as DeFi2.0 where Liquidity-As-A-Service dominates, the Curve Wars rage on and people are experimenting with stablecoins and their own reserve currencies. These are effectively meta-innovations as these enhancements to protocol liquidity, and stable transfers of value are all significant improvements to the zero to one improvements borne out of dApps like DEXs and Lending Protocols. They are no gradually migrating to other chains, or being forked, and building up the DeFi2.0 industries on other chains, not just Ethereum. All of this to say for Ethereum and Phase 2 it is all about even more abstracted levels of value transfer, and value creation.
Moving on from the inception of DeFi2.0, the sheer wealth present on chain allowed investors to begin funneling money into projects marketing around the concept of GameFi within built in DeFi mechanics for games that are being developed giving rise to the concept of Play-To-Earn. While Ethereum being cost-prohibitive has stopped some from utilizing the chain this didn’t halt the boom of Axie Infinity, Gala Games and the rest of the GameFi lot.
For Ethereum users and investors, people are no longer worried or even care about swapping tokens, slippage and lending, they’re much more focused on concepts and protocols that operate on many levels above these simple primitives that aren’t even present on Hedera. This very fact is why Ethereum is definitely in Phase 2 and likely in this ethereal Phase 3 that may or may not exist.
What Does This Mean For Hedera and HederaStarter?
With all of that being said, Hedera is firmly in the Phase 0 camp and progressing along quite nicely! Here at HederaStarter we’re focused on scouting out projects already, whether in the Hedera discord or across social media and getting all of these prospective projects and teams in our incubation pipeline so that as we move from Phase 0 to Phase 1 and have EVM parity, we can begin deploying all of these amazing dApps and teams. We’re very focused on intaking as many awesome projects as possible and getting them the knowledge and funding to ensure they have a successful launch. HederaStarter will play an integral role in Hedera’s Phase One development and can’t wait to see it evolve to Phase 2 and beyond over the coming months and years!
Thank you everyone for taking the time out of your busy schedules to read this article, I love all of you dearly, WAGMI. – Co-Founder Conor
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