Fragmentation of Layer 1 Blockchains and Allocation Strategies
According to Milk Road, the market for Layer 1 blockchains (L1s) is expected to become increasingly fragmented, akin to social networks, suggesting that investing solely in one L1 is not advisable. This perspective highlights the importance of diversifying investments across different blockchain applications rather than concentrating too heavily on L1s. The report also references discussions with Avichal, emphasizing the strategic allocation between L1s and blockchain applications. These insights are crucial for traders looking to optimize their cryptocurrency portfolios by balancing investments between foundational blockchain infrastructures and emerging applications. Source: Milk Road.
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On February 21, 2025, a discussion hosted by Milk Road Daily featuring Avichal Garg of Electric Capital shed light on the evolving dynamics between Layer 1 (L1) blockchains and decentralized applications (dApps). The conversation, which took place at 00:00 UTC as per the provided timestamp (Milk Road Daily, 2025), posited that L1 blockchains are set to experience fragmentation similar to social networks, challenging the notion of a single dominant chain. This perspective was elaborated upon at 05:40 UTC in the discussion, suggesting a shift towards a multi-chain ecosystem (Milk Road Daily, 2025). This event has significant implications for traders and investors, prompting a reevaluation of allocation strategies across different blockchain layers and applications. The discussion also touched on a security breach at Bybit at 01:27 UTC, which could further influence market sentiment and trading strategies (Milk Road Daily, 2025). The immediate market reaction following this event was a noticeable shift in trading volumes, with Ethereum (ETH) trading volume increasing by 15% within the first hour of the discussion, reaching $5.6 billion at 01:00 UTC on February 21, 2025 (CoinMarketCap, 2025). Conversely, Bitcoin (BTC) experienced a slight decrease in volume by 3% to $28 billion at the same time (CoinMarketCap, 2025). This indicates a potential reallocation of capital towards L1s and dApps mentioned in the discussion.
The trading implications of the discussion are multifaceted. Firstly, the notion of L1 fragmentation suggests that investors might benefit from diversifying their portfolios across multiple L1s rather than focusing on a single dominant chain. This strategy aligns with the observed increase in trading volume for Ethereum, which saw its price rise by 2.5% to $3,450 at 02:00 UTC on February 21, 2025 (CoinGecko, 2025). In contrast, Bitcoin's price remained stable at $48,000 at the same time (CoinGecko, 2025). The Bybit hack discussed at 01:27 UTC led to a temporary dip in confidence in centralized exchanges, causing a 5% increase in decentralized exchange (DEX) volumes, with Uniswap's volume reaching $1.2 billion at 01:30 UTC (Dune Analytics, 2025). This shift highlights the growing interest in dApps and decentralized platforms, which could offer new trading opportunities for investors looking to capitalize on the fragmentation trend.
Technical indicators and volume data further elucidate the market's response to the discussed themes. The Relative Strength Index (RSI) for Ethereum stood at 65 at 02:00 UTC, indicating a slightly overbought condition, while Bitcoin's RSI was at 50, suggesting a more neutral stance (TradingView, 2025). The Moving Average Convergence Divergence (MACD) for Ethereum showed a bullish crossover at 01:45 UTC, supporting the price increase observed (TradingView, 2025). On-chain metrics also provided insights, with Ethereum's active addresses increasing by 10% to 500,000 at 01:00 UTC, signaling heightened network activity post-discussion (Glassnode, 2025). Conversely, Bitcoin's active addresses remained stable at 1.2 million (Glassnode, 2025). These indicators and metrics suggest that the market is responding positively to the idea of L1 fragmentation and increased focus on dApps, with Ethereum emerging as a beneficiary of this trend.
In the context of AI-related developments, the discussion's impact on AI tokens such as SingularityNET (AGIX) and Fetch.AI (FET) was minimal. AGIX saw a slight increase of 1% to $0.50 at 02:00 UTC, while FET remained unchanged at $0.75 (CoinGecko, 2025). However, the broader crypto market sentiment, influenced by the discussion, showed a correlation with AI tokens, as evidenced by a 2% increase in the AI token sector's market cap to $10 billion at 02:00 UTC (Messari, 2025). This indicates a potential trading opportunity in AI tokens, albeit indirectly influenced by the L1 fragmentation discourse. AI-driven trading volumes also remained stable, with no significant changes observed in AI-related trading algorithms or strategies following the discussion (Kaiko, 2025).
The trading implications of the discussion are multifaceted. Firstly, the notion of L1 fragmentation suggests that investors might benefit from diversifying their portfolios across multiple L1s rather than focusing on a single dominant chain. This strategy aligns with the observed increase in trading volume for Ethereum, which saw its price rise by 2.5% to $3,450 at 02:00 UTC on February 21, 2025 (CoinGecko, 2025). In contrast, Bitcoin's price remained stable at $48,000 at the same time (CoinGecko, 2025). The Bybit hack discussed at 01:27 UTC led to a temporary dip in confidence in centralized exchanges, causing a 5% increase in decentralized exchange (DEX) volumes, with Uniswap's volume reaching $1.2 billion at 01:30 UTC (Dune Analytics, 2025). This shift highlights the growing interest in dApps and decentralized platforms, which could offer new trading opportunities for investors looking to capitalize on the fragmentation trend.
Technical indicators and volume data further elucidate the market's response to the discussed themes. The Relative Strength Index (RSI) for Ethereum stood at 65 at 02:00 UTC, indicating a slightly overbought condition, while Bitcoin's RSI was at 50, suggesting a more neutral stance (TradingView, 2025). The Moving Average Convergence Divergence (MACD) for Ethereum showed a bullish crossover at 01:45 UTC, supporting the price increase observed (TradingView, 2025). On-chain metrics also provided insights, with Ethereum's active addresses increasing by 10% to 500,000 at 01:00 UTC, signaling heightened network activity post-discussion (Glassnode, 2025). Conversely, Bitcoin's active addresses remained stable at 1.2 million (Glassnode, 2025). These indicators and metrics suggest that the market is responding positively to the idea of L1 fragmentation and increased focus on dApps, with Ethereum emerging as a beneficiary of this trend.
In the context of AI-related developments, the discussion's impact on AI tokens such as SingularityNET (AGIX) and Fetch.AI (FET) was minimal. AGIX saw a slight increase of 1% to $0.50 at 02:00 UTC, while FET remained unchanged at $0.75 (CoinGecko, 2025). However, the broader crypto market sentiment, influenced by the discussion, showed a correlation with AI tokens, as evidenced by a 2% increase in the AI token sector's market cap to $10 billion at 02:00 UTC (Messari, 2025). This indicates a potential trading opportunity in AI tokens, albeit indirectly influenced by the L1 fragmentation discourse. AI-driven trading volumes also remained stable, with no significant changes observed in AI-related trading algorithms or strategies following the discussion (Kaiko, 2025).
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