Comparing the top 5 chains by economic activity

In crypto, you’ll often find absurd “metrics” to chest thump about how one chain is better than other. I’d argue economic activity is the most important metric to judge the economic value of a blockchain. And yes, economic activity correlates far more to the value of the chain’s underlying asset. To be clear, you can have a chain focused on free applications which does negligible economic activity that is still very valuable to its hundreds of millions of users doing a gazillion TPS. That doesn’t mean its token should have any value. Here, I’m focusing on economic activity.

It’s certainly possible to look at multiple economic activity metrics and come up with a score, but I have just been forming a subjective opinion based on these metrics. It’d be cool to see someone like DefiLlama come up with an economic activity score!

The above lists have been about smart contract chains, but let’s include app-specific chains as well.

The top two contenders are, of course, Bitcoin and Ethereum.

First, let’s introduce the concept of “passive economic activity” and “active economic activity”. Yes, I know “passive economic activity” is an oxymoron, but let me explain. The Bitcoin network is primarily used for storing Bitcoin and only occasionally transferring. Today, it stores over $400B - even after accounting for lost coins. While this does not show up on traditional economic activity metrics - where Ethereum is at least an order of magnitude ahead - storing >$400B still makes for an immense “passive economic activity”.

Ethereum secures $420B across ETH, ERC-20s and NFTs - so the passive activity is roughly on par with Bitcoin, though there’s a bit more nuance as Ethereum has multiple other venues for passive TVL - DeFi yields, liquidity pools etc. On the active metrics, though, like I said, Ethereum is in a different league altogether. So, at the top, the pecking order is clear:

  1. Ethereum

  2. Bitcoin

Speaking of different leagues, the next 3 contenders are fascinating because they are barely comparable. By an aggregate of economic activity numbers, Tron comes out on top. The triumvirate of Binance, USDT and Tron offer the top product-market fit for crypto by number of users (but not value - that’s still BTC as an alternative/speculative store-of-value). In countries like Argentina or Turkey suffering from an unstable native currency, people find utility in holding and exchanging USDT on Binance. USDT-Tron is also the stablecoin of choice for transfering between CEXs, and over the years it has grown significant network effects. However, the problem with Tron is it’s basically just USDT and some DeFi for Justin Sun and his friends.

Arbitrum One, on the other hand, has a vibrant and diverse ecosystem with many different applications. If we look at DEX volumes, for example, Arbitrum One does 100x more than Tron. Arbitrum One doesn’t score very highly on the “passive” side, though, which is understandable as Ethereum L1 caters to that need well already.

BNB Smart Chain finds a balance - while it doesn’t have as much active economic activity as Arbitrum One, it does better on the passive side. Unfortunately, BSC is trending downwards. Once the dominant #2 player for active economic activity after Ethereum L1, it has been cleanly dethroned by both Arbitrum One and Tron this bear market. As an aside, I should note that in bull markets when the degens run rampant, I actually expect Arbitrum One to exceed Ethereum L1 to have greater active economic activity, even though the baseline and passive is much lower. This is why it’s important to form a holistic and subjective view.

So, how do I rank these three? It’s really difficult, but I’d tiebreak going by trends and future outlook, I’d say:

  1. Arbitrum One

  2. Tron

  3. BSC

Should read 3, 4 and 5, of course, I don’t know how to start a list from 3 on Mirror.

Of the hundreds of other chains, I’d say Polygon PoS deserves an honourable mention, though even it is quite a long ways behind the top 5. The rest barely register in the grand scheme. This is not to say they aren’t useful, just that there’s not much economic activity happening relatively. It’s possible to break through, but you need an ace up your sleeve. For Tron, it’s USDT; for BSC it’s being promoted heavily by world’s largest CEX; for Arbitrum One being first to getting immediate access to $420B in liquidity on Ethereum, plus being welcoming to the extended Ethereum community and inheriting its network effects. To make it into the top 5, I feel like it’s going to require a new trick, whatever that may be. I suppose Base might be a contender because it gets the best of both BSC and Arbitrum One - but it’s a very late entrant.

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