What Web 3 Can Learn from Globalisation

The debate of which Layer 1 chain will dominate in the future is all over the place.

On one end, we have ETH or BTC maxis that claim that decentralisation is king, and that there can and should only be one settlement layer to coordinate it all.

Others are in favour of more accessible alternative Layer 1 chains, such as Solana or Avalanche, that currently compromise some degree of decentralisation for speed and affordability.

Finally, there are those that believe that the debate is not relevant, and that every chain will find their niche.

Having reflected upon this question, I believe in the multi-chain future: a world where multiple layer 1 blockchains exist, each with their own parameters and capabilities, that are interoperable with each other.

In order to illustrate my view, I find it useful to think back to the precedent of globalisation.

Background: Comparative Advantage & Globalisation

In an open and connected world, the neoclassical trade theory concept of Comparative Advantage becomes central to define each nation’s economic priorities.

Comparative advantage is defined as “one’s ability to produce a good or service more efficiently and inexpensively than another”. Factors that affect a nation’s comparative advantage include: geographical location, natural resources, trade relationships, economic policies, labour productivity, cost of capital, technology, infrastructure, and policies.

For example, Costa Rica has a comparative advantage over Greece for the production of bananas given its tropical climate and low cost of labour, and Greece has a comparative advantage over Costa Rica in olive oil production given its Mediterranean climate and heritage.

In the context of globalisation, and through the lens of efficient markets, each nation benefits from optimising their economic activity for their comparative advantage through trade. This results in resource and labour specialisation across nations, and each nation leveraging their specialisation as an asset for free market competition.

The Parallel: Layer 1 Comparative Advantage

Through the lens of globalisation, think of Layer 1s as “nations”.

Each has their own technology (resources) and community (culture).

Similar to nations with different native assets and specialties, Layer 1s have different technological architectures and community interests that differentiate them one from another.

The technology and community are at the foundation of their comparative advantage.

Each Layer 1’s technological architecture optimises for different variables, often at the cost of compromising others. These variables include security, scalability, decentralisation, cost, connectivity.

These variables often influence the community values of each protocol, which guide its development, roadmap, and use cases.

Different Layer 1s will optimise for different variables, and different applications will require different optimisation functions.

For example, a defi protocol for institutions can optimise for security and decentralisation at the cost of speed and affordability, while another for small transactions might optimise for speed and scalability at the cost of security and decentralisation.

The result of this is a broader spectrum of applications, optimised for different users and use cases, and therefore supporting more adoption.

The takeaway is therefore this: each Layer 1 owning their comparative advantage will create more abundance — not competition.

Note on Interoperability

That being said, globalisation was not possible before we had access to the infrastructure and technology that connected us together: mediums of transportation, roads and bridges, and the internet.

The same is true for Layer 1s: in order for us to get the benefits of each Layer 1’s comparative advantage, we need to have a solid and efficient way to connect them with one another.

I believe this is the fundamental missing piece that is causing this debate.

Although bridges exist, they introduce another layer of complexity and friction in the user experience (not to mention security concerns). This causes most to surrender their assets and limit their interactions to a select layer 1, tilting their incentives to favour a “single chain” view, in order to benefit from maximum liquidity and utility.

Should we be able to solve this problem without introducing additional intermediaries, liquidity would be shared, and the need for tribalism would go away.

The Layer 1s should compete on the basis of technology, not liquidity.

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In the end, the goal is to build a decentralised and connected internet, on which free market competition and comparative advantage will determine where programs and applications are built.

And collaboration, adoption, and abundance will follow.