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Libra Starts the End of Public Chains

In my previous article (So Many Public Chains, So Few Dapps), I pointed it out that too many public chains was one of the reasons that there were so few Dapps. App developers really do not want to develop their apps for so many blockchains. The over supply of blockchains is actually hindering the adoption of blockchain technology. The Libra blockchain provides an opportunity to solve this problem. 

Libra is composed of three parts, Libra stablecoin, Libra blockchain, and Libra Association. Currently, most attentions have been focused on Libra stablecoin. But, in my opinion, Libra stablecoin is just a Troy horse. The real threat hidden in Libra is Libra blockchain. According Libra whitepaper, Libra provides a simple financial market infrastructure. But Libra blockchain does not only support Libra stablecoin, the most simple financial product. Smart contracts on this blockchain can be used to customize more complicated financial products such as stock and account receivable. Financial products exchanged and traded on this chain are by no means limited to the banking industry (Commercial Bank, Victim of Blockchain Era). Such financial products will also be used in the securities industry (See my article in Chinese, Libra, a Side Attack on the Securities Industry). Libra blockchain will therefore fundamentally change the banking and securities industry. Such a change will be more profound than a stablecoin can bring. 

When Facebook announced the Libra project, I pointed it out (A Business Analysis of the Libra Project) that they made a big mistake in project management. There are usually two ways to manage a project. One is evolutionary approach, another is the big bang approach. Facebook in fact adopted the big bang approach. The major disadvantage of this approach is that it is highly risky. Projects using this approach have higher failure rates. Since its announcement on June 18th, all the issues and challenges Libra has experienced and is experiencing already demonstrate how risky this approach is. Because of its scope, Libra will run into many risks. Many of these risks are already very obvious and difficult to deal with. Libra actually should have adopted the evolutionary project management method, so it can have enough flexibility to deal with these risks. In fact, the growing up process of Facebook company itself is an evolutionary one. Let us imagine what would have happened if Facebook set out to build a global social network at its very beginning. 

If Libra adopts the evolutionary project management approach, it actually can bring the Libra blockchain to the market first. Libra Association as well as other vendors can issue stablecoins on this chain later. Such an approach would have avoided the regulatory scrutiny Libra is facing now. In Libra’s actual project process, the main net of Libra blockchain is expected to be on line next year. There is a good chance that this chain will be well received in the market since the market has been looking forward to a much better chain after Ethereum. Of course, this is on condition that the Libra Association makes it very open to developers and users. 

After Libra blockchain is on line, many applications will be developed for this chain. This is because that developers expect that there will be many users on this chain. In turn, there will be many potential users for their products. For Dapp developers, the current public blockchain market situation is not what they like. No developer wants to build one Dapp for many public chains. Their top choice would be the chain with most users. Since Libra blockchain can have many users, it naturally becomes their best choice. There are just too many problems with Ethereum. Developers have been looking forward to a technically much better blockchain, and which also has lots of users. Libra blockchain may well be such a chain. Developers’ this choice logic is just the same as developers selected mobile operating systems and computer operating systems before. 

Among different types of apps on public chain, DeFi apps will be adopted first. Although there are only a few tradable digital financial products and the corresponding trading volume is also very small, the advantages of DeFi over traditional centralized financial apps is already very obvious. DeFi is better than the centralized one in terms of efficiency, cost and flexibility. As more digital financial products and more trading volume appear, the application of DeFi will be widely adopted. Even now, ethers collateralized on MakerDAO are increasing. One factor that limits the wide adoption of DeFi is the lack of solid infrastructure. This includes both the blockchain and the stablecoin used on the chain. After Libra blockchain is on line, even though Libra stablecoin is not brought to the market, it may still be the top choice of DeFi developers. One possible scenario is that other stablecoins minted by more mainstream methods will first appear on Libra blockchain. For example, stablecoin based on collateralized fiat currency and which is also pegged to one fiat currency will be more likely to appear before Libra stablecoin. If there is stablecoin being used on Libra blockchain, the financial infrastructure for DeFi is then in place, a financial ecosystem thus can be built up. 

When this financial ecosystem is built up, the early adoption will not be conventional financial applications such as currency remittance or daily payments. The early adoption will be in crypto currency trading. 

The current situation of so many public chains is also a pain for cryptocurrency exchanges. The exchanges need to support all kinds of public chains so as to provide trading service for financial products issued on these chains. The maintenance cost is therefore is very high. It is like a railway station that has to support trains coming in on many sizes of rails. Also embarrassingly, there are only a few customers on each train. Exchanges therefore hope for much less numbers of public chains. Some exchanges even start to develop their public chains. But, I really doubt that this strategy can work. 

The global nature of cryptocurrency trading and the fact that there are only a few tradable digital financial products lead to fierce competition among cryptocurrency exchanges. The application of DeFi can help them provide better service to their customers. More importantly, these exchanges do not have all kinds of legacies mainstream exchanges have. These exchanges therefore will be at the forefront of adopting DeFi applications. Libra blockchain and its forth coming stablecoin, particularly its potential huge customer base are all attractive to DeFi application developers and cryptocurrency exchanges. These exchanges’ adoption of DeFi on Libra blockchain will attract more users at the global level to Libra. A positive ecosystem based Libra is thus built up. And this will lead to the demise of many public blockchains in the market.

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