The End of the Alt L1 Trade

Throughout 2023, a new generation of alternative Layer 1 (Alt L1s) blockchains launched with relatively high valuations when compared to already live L1s. These new networks, such as Aptos, Sei, and Sui, all offer high throughput and low fees to create a sandbox for new users and developers. However, despite impressive cap tables, Formula 1 racing partnerships, and seemingly never-ending amounts of fundraising, the networks themselves have seen lackluster adoption since launch. Further, the competition for liquidity and attention has grown fiercer in 2023 due to the cambrian explosion of Layer 2 networks, such as Base, zkSync, Linea, Mantle, and Starknet. The competitive landscape for Alt L1s gets even tougher when considering modular L2 frameworks, like the OP Stack or Arbitrum Orbit.

In the past, especially when considering an Alt L1 like Solana or Avalanche, public market participants would purchase what they deemed to be a growth play on ecosystem potential. This worked out exceptionally well in 2021’s bull market, where SOL and AVAX each posted annual returns of at least 10,000%. Likewise, the major DeFi primitives, such as DEXs and lending markets, on each Alt L1 rewarded market participants handsomely.

This performance laid the foundation for 2023’s Alt L1 fundraising rounds to justify high valuations, which boded well for Web2 founders with potentially less experience in bootstrapping crypto ecosystems than crypto natives. In comparison, an Alt L1 investment in 2021 focused on the anticipation that these networks would capture large user bases and settle substantial value. An investment in a 2023 Alt L1 chases this same premise, however these networks were overvalued at launch, leading to a market correction to account for the projects’ lack of onchain activity. While these networks may demonstrate sustainable growth and utility in the future, the general performance of 2023’s Alt L1s YTD aids us in drawing several key conclusions about the current state of the market.

Aptos

Founded by former Meta employees responsible for the now defunct Diem project, the first major Alt L1 to market in 2023 was Aptos. Before Aptos’ development, Diem halted operations due to a regulatory crackdown in the US. By the end of 2022, Aptos raised $350M at over a $1B valuation to create a “scalable, safe, and easy-to-use” general purpose L1 blockchain that would welcome mass adoption and become the “Solana killer.” The token sits at a $5.9B valuation as of September 2023, which is roughly half of Solana’s valuation (and almost on par with Avalanche’s). Several DeFi primitives surfaced and raised money alongside Aptos, including overcollateralized stablecoin issuer Thala and perps platform Tsunami Finance, demonstrating further venture capital interest in the network.

Aptos differentiates itself from previous L1s through its utilization of Move, a programming language designed specifically for blockchains and using the same core technology as Diem. Move utilizes a formal verifier for smart contracts that provides additional safeguards against malicious behavior. The network allows for flexible private key management and hybrid custodial options to optimize asset security for users. Aptos claims to have a throughput of 160,000 TPS and latency of ~300ms, thanks to its modular architecture for the transaction processing life cycle.

The architecture separates transaction creation, block ordering, parallel execution, batch storage, and certification to prioritize efficient utilization of all available resources and concurrent processing. Aptos takes a horizontal approach to scaling, where validators can internally shard without adding complexity for node operators.