Alibaba subsidiary is building an Ethereum L2: What this tells us about institutional adoption

The future is on-chain, everybody paying attention knows this.

Even when Bitcoin's BTC price crashes, Ethereum's ETH underperforms, Monero gets attacked and Hive runs around a pretty obvious price circle that it's almost insane that many Hivers don't just long the shit out of it, these networks just keep adding blocks and operations continue as always.

As funny as that sounds, one of the greatest phrases ever dropped in this ecosystem is “still adding blocks,” where blockchains are referenced to be fully operational in the midst of market turmoil.

It is the single best illustration of how the ecosystem will keep moving forward no matter what happens with the markets or regulations.

So to circle back, the future is on-chain and institutional players know this.

Speaking of institutional players, over the years, we've sometimes led the notion that institutions will prefer private blockchains to public and permissionless chains but recent trends proves this false and one word can pretty much sum up why, and that word is “money.”

Money makes the world go round right? Before I get into details there, let's first look at what's up with Alibaba’s subsidiary.

Ant Digital Technologies Ethereum L2 Launch

Ant Digital Technologies, a subsidiary of Alibaba’s fintech arm Ant Group, unveiled a new Ethereum layer-2 network called Jovay on April 30 to compete in the growing race to tokenize real-world assets (RWAs).

Ant Digital said its new layer-2 network is capable of handling 100,000 transactions per second with a 100-millisecond response time. It forms part of Ant’s broader “Dual Chains and One Bridge” strategy, alongside its AntChain asset layer and crosschain bridge infrastructure.

“Jovay is currently operating as a layer-2 solution on Ethereum, emphasizing performance and security as core pillars of our platform,” Cobe Zhang, head of Jovay, told Magazine.

“Looking toward the future, we are excited about broadening our horizons through integrations with different layer-1 networks to elevate our scalability even further.” — Cointelegraph Magazine

Some things to note here:

— 100,000 TPS
— Real world assets (RWAs)
— Interoperability Intended
— Ethereum for performance

First off, institutions are clearly moving on-chain because it's clearly the single best solution to TradeFi slow systems.

Higher TPS = Higher economic value generation.

That said, it's no surprise that the focus is real world assets, RWAs happens to be what every institution is after and rightly so, as it is currently the one market with limited integration on-chain and that's a market with several $ trillions in value.

Now, when it comes to the idea of choosing Ethereum for performance, it's really about what chain has the most developer activities and liquidity right now.

More developers means better security and that is a protected future for what TradeFi firms want to build and that also happens to mean less cost of integration.

Now, liquidity also plays a role in this choice because it's not just about the money, but the significance of it being there. Controlling most of the liquidity indicates high user penetration and that means it's the better ecosystem to market to because users are not just conversant with the tech, they are actively risking their wealth across its ecosystem apps.

Notwithstanding, these firms have deep understanding that the game isn't going to end with being compatible with one blockchain, so interoperability with other L1s is intended. In all honesty, choosing Ethereum already makes this easy because other L1s are already built(or actively building) to be EVM-compatible, meaning that less is expected from those building on Ethereum when it comes to interoperability solutions.

What Institutional adoption of L2s over private chains mean

A report by Paradigm, in collaboration with Allium titled “TradFi Tomorrow: DeFi and the Rise of Extensible Finance” shows that institutional players are well into capitalizing on public and permissionless chains with the understanding that DeFi will eventually be critical to most core businesses.

About 66.67% of over 300 surveyed TradeFi professionals according to the report are exploring DeFi, embracing its own disruption.

That said, TradeFi also rejects the notion that private blockchains are as valuable as public, permissionless blockchains.

But why is this?

Recently, I've noticed that people have likened institutional embrace of L2s as an equivalent of sticking to private blockchains simply because centralization is expected.

The reality is that although institutional players will always want control over everything, the choice to create an L2 is quite different from what setting up a private chain would look like.

First off, it costs less to spin up and maintain an L2 compared to a private blockchain and this cost is expected to grow smaller overtime too. And in addition to this, running an L2 allows these companies to do things they can't do on a private chain and that is attracting instant liquidity and also being able to basically raise funds with token launches.

The rewards are an over compensation that anything contrary would be digital suicide for any modern business.

We are going to be seeing a lot more L2s, appchains, and the list goes on from institutional players and all of it will be targeted at attracting as much monetarily value as possible, even though not directly from the product or services they are offering.

Is this a good or bad thing?

The exposure this creates is what makes it worth it. At the end of the day, people will learn the patterns, identify what's exploitative and what's rewarding and move accordingly.

The future is on-chain!