The EVM is the Moat - The Daily Gwei #196

It all comes back to Ethereum.

In the crypto ecosystem people seem to always be asking one particular question: what is the moat for crypto protocols? Is it liquidity, users, integrations, community, code or something else? Well, as it turns out, the Ethereum Virtual Machine (EVM) might just be the moat that we’ve been searching for.

The EVM is the heart of the Ethereum network and is what makes it possible to execute smart contract code and logic and recently, we’ve seen EVM-compatible ecosystems like Binance Smart Chain (BSC) gain some traction. Now, BSC is just a centralized clone of Ethereum which means that any smart contract that runs on Ethereum can run on BSC without changing a line of code, without requiring a new wallet (it can just use MetaMask) and without requiring new developer tooling. Because of this, it’s pretty much 0 cost for developers to just redeploy their contracts/app to BSC and, at least currently, there is some upside in doing so (marketing, more users, maybe a Binance listing for their token etc).

The EVM-compatible network that most people in the Ethereum ecosystem are excited for is, of course, Optimistic Ethereum (OE) from Optimism (which has its own virtual machine called the Optimistic Virtual Machine (OVM)). OE is a layer 2 network that will sit on top of Ethereum and it promises to allow developers to port their apps over from layer 1 Ethereum with little to no code changes. As we’ve seen already play out on BSC and other EVM-compatible chains, this is a huge deal and a really easy way to bootstrap network effects on a new layer.

The Optimism team aren’t the only ones building an EVM-compatible layer 2 - The Matter Labs recently teased that they are building the feature into their zkSync technology and StarkWare have also been working on EVM-compatible zkRollups for quite a while. Offchain Labs are also building their layer 2 solution (Arbitrum) using optimistic rollups. Additionally, Polygon chains are EVM-compatible and so is a sidechain like xDai.

I’ve been saying for a while that I view Ethereum as an economic nexus in which all types of value will flow through it - whether that’s on Ethereum itself, other chains (decentralized and centralized), centralized exchanges/services, traditional finance and more. So viewing all of the above from this lens I can only conclude that EVM-compatible chains are a net positive for Ethereum but I also believe that they are simply a “stop-gap” until Ethereum has a more mature layer 2 ecosystem built out.

Have a great day everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.