The race to become EVM compatible is heating up. Today, many defi dapps migrate from one chain onto another chain using the Ethereum Virtual Machine also known as EVM for short. What exactly is EVM? Now, I wish this is easier to explain but it’s not. Truth is that EVM is hard to describe. EVM can be thought of as a decentralized computer made up of millions of codes and can be utilize for storing millions of smart contracts and projects.
When a chain becomes EVM compatible, it means that all the codes that are stored in smart contracts from the Ethereum network can now be used on that chain. So instead of having the project team migrate over to a new chain and having to rebuild their smart contracts from ground up with new code, they can instead utilize the EVM and use their code from the Ethereum network. EVM made it easier to migrate codes from one chain onto another.
I believe that understanding the market state of EVM Compatibility can help you find the location of the next pot of gold in 2022.
To understand this, let’s first look at the growth of defi dapps in Ethereum. In 2020, the first wave or generation of defi dapps became available to the public for use. This introduced banking capabilities built onto smart contracts such as money markets and high yield interest rates. The market had a positive response as many investors were farming the newly introduced high yield farming. Soon after, other project teams started to clone the first wave of defi dapps and built them into other products by giving new parameters and sometimes providing new defi features. Soon after, Ethereum became very congested and transaction fees known as gas started increasing.
While all of this was happening on Ethereum, other Layer 1 and Layer 2 smart contract blockchains was building for EVM compatibility. Having EVM compatibility allows code to migrate from Ethereum onto another blockchain. Once Layer 1 and Layer 2 smart contract blockchains completed their EVM, the defi dapps started migrating over for cross chain capabilities and to take advantage of other blockchain’s transaction speed and low transaction fee.
Cross chain bridges were some of the first wave of dapps to move over and build. This allowed for the movement of assets to move from one chain to another. There are different approaches to bridges, but the common solution is by locking the token asset on one chain and wrapping and minting the asset known as wrapped token on the other chain.
Once cross chain bridges completed implementation then waves of other defi dapps rushed over to the new ecosystem. Being in a new ecosystem means new technology capabilities, new users and new pool of assets to capture. This creates usage and demand for the new chain’s native token therefore increasing the value of the native token.
2021 was just the start of the competition between smart contract blockchains. 2022 will further increase this competition.
Therefore, newly launch EVM compatible chains are the next pot of gold waiting for the rush of development and volume.
A great example of explaining all that happened can be watched in this video as I spoke and try to illustrate this process through a draw pad.
