Teun Kerkhof - 24 November 2021

The New Chain On The Block

In this week’s blog we want to highlight the Layer 1 blockchain platform Elrond. Yes, another Layer 1. You might have noticed that over the last few months, a lot of blogs were written about Layer 1 blockchains (Cosmos, Polkadot, NEAR, and Terra). This is because Layer 1s have dominated the market narratives and investment thesis over the past year. The fee problems on Ethereum allowed other smart contract platforms to onboard users and take away market share from Ethereum. As of writing the DeFi ecosystem is split across various blockchains and recently a new one joined the mix with the launch of their DEX: Elrond. 

Context

Elrond was founded by Beniamin and Lucian Mincu, and Lucian Todea. The Mincu brothers already had previous experience in the blockchain space as they also founded MetaChain Capital, a digital investment fund, and Market Data, an ICO information aggregation platform.  The three founded Elrond with the ambition to solve the scalability problem that is still present in the current blockchain landscape. 

In July 2020, Elrond’s mainnet went live and this year the ecosystem got a huge boost in terms of activity, users, and incentives. The underlying token of Elrond is called eGold (ticker: EGLD) and over the past year the token has increased in value by over 1700%. We will go over a few aspects of Elrond that have contributed to this immense growth. 

Basic statistics

The Elrond blockchain has a very fast time to finality: 6s. Additionally, the network can handle up to 15,000 transactions per second thanks to sharding and this number can even be higher if properly scaled. The transactions cost close to nothing and all these things make Elrond a valuable layer 1. 

Consensus protocol

One of the major features to take into consideration when it comes to L1s, is the underlying tech. Solving scalability is one thing, but the approach a project takes differs and is crucial. To start things off, Elrond uses Secure Proof-of-Stake as its consensus protocol. This is an iteration of the Proof-of-Stake model and allows for high security and decentralization of the chain. Block proposers, also known as validators, are chosen at random from shards. They are selected based on how many tokens they have staked, but also based on historic reputation. Validators with an honest history are more likely to be chosen than validators with some downtime or new validators. Secure Proof-of-Stake ensures a robust and secure network.

Sharding

As we briefly mentioned shards in the previous paragraph, we will explain what it means. Sharding is a term used for the technique used to scale, initially, used in traditional databases and it is also used for scaling blockchains. Sharding splits the databases into interconnected pieces that can be processed simultaneously. This allows for faster processing. Blockchain can use sharding in three areas; network, transaction and state. Elrond uses something called Adaptive Sharding and covers all three areas. 

Virtual Machine

Elrond also has a virtual machine (VM) incorporated into the chain called Arwen WASM VM. This is key for creating smart contracts as a VM eases the process of creation for developers. The Arwen WASM VM also allows for the creation of smart contracts in a wide variety of programming languages giving developers a lot of flexibility. 

Price catalyst

Even though Elrond has been in development for quite some time, only recently the on-chain activity has increased. The main cause of this has been the release of the Maiar Exchange, the first decentralized exchange on Elrond. Accompanied with the DEX launch is an incentive program of $1.29 billion. Yes, billion. This goes to show how much money is flowing around in the crypto industry. In the first month alone $282 million in rewards is distributed to liquidity providers. This was a huge boost for the ecosystem and the Elrond token, as investors were buying up Elrond and bridging over to the network in order to participate in the incentive program. 

The incentive program quickly attracted over $2bln in digital assets. This places Elrond at the tenth spot of chains in terms of Total Value Locked. The competition of L1s is relatively large with big players, like Solana, Avalanche, and Polygon. The fact that Elrond achieved the tenth spot so quickly is a good sign as there are only a handful of projects live on the chain. With more projects launching over the coming months, Elrond positions itself as a new and daring player in the L1 industry.

Summary

The recent price surge of Elrond is definitely caused by the huge incentive program they launched with their first decentralized exchange. However, it is not only this program that attracts users, the underlying technology is also an important factor as Elrond utilizes sharding to scale the network. This allows users to have cheap and fast transactions allowing for a seamless on-chain experience. 

The incentive program onboarded a lot of new users and is a very important factor for bootstrapping liquidity on the Elrond network. We expect more projects to launch over the coming months that will create a DeFi ecosystem. 

We do not recommend to fomo in the recent price action of Elrond, even though all the fundamentals line up for the project. It is currently best to wait for a nice retracement before buying in. Our group specializes in providing our members with the tools and knowledge to be profitable in trading crypto.