The rise of sector-specific blockchains

The rise of sector-specific blockchains 

Crypto

As the market focuses its attention on Bitcoin’s new all-time highs, another subtle yet significant trend is gaining momentum – the rise of sector-specific blockchains. These specialised chains are designed to address some of the industry’s biggest bottlenecks, offering high-performance and usability benefits to targeted users. 

The rise of sector-specific blockchains

For this article, we want to briefly outline their relevance, advantages and how they’ve captured significant market share in their respective crypto sectors.  

Why does the crypto industry need sector-specific chains? 

As crypto adoption grows, the demand for high-performance blockchains with low-cost requirements are becoming essential for applications managing high traffic and growing users. 

General-purpose blockchains like Ethereum and Bitcoin do have the advantage of strong network security, but they often struggle to meet the high throughput demand of many applications. Their limited interoperability and customisation also make it difficult for developers to implement solutions that effectively solve problems like scalability, data availability and cross-chain interoperability – all of which are necessary to scale and improve user experiences.   

For instance, Ethereum-based Layer 2s (L2) emerged to reduce congestion issues on the Ethereum network. But as network activity increases, even these innovative Layer 2 solutions face their own challenges in managing transaction volumes and on-chain data. Plans to address Ethereum’s scalability challenges, such as through Sharding, are underway but may take years to fully realize, given the inherent complexities of Ethereum’s monolithic blockchain infrastructure. As a result, the Ethereum ecosystem now faces issues of fragmented activity, liquidity, and a lack of cohesion among the Layer 2 solutions themselves. 

This is where sector-specific chains come into play, as they are designed to complement existing blockchains or address a particular challenge within a specific sector or use case. 

Advantages of sector-specific blockchains 

Although Ethereum remains the most popular smart contract platform, its decentralised applications frequently struggle with scalability and interoperability issues. These constraints have led many popular projects like decentralised exchange (DEX) dYdX to migrate away from the network and seek alternatives that better align with their need for faster throughput.  

But it is not just applications, as there is a growing demand for high-performance solutions among DeFi users who prioritise simplicity, lower transaction fees and cross-chain capabilities for an overall better user experience. As high gas fees and complex user-functionalities continue to plague Ethereum and its L2 ecosystem, this has significantly benefited the sector-specific trend over the last several months. 

Source: Sygnum Bank, CoinGecko 

Here are a few examples of sector-specific blockchains and why they have become relevant in their respective crypto niches.  

Decentralised trading requires sufficient liquidity in order to reduce slippage costs and improve trading execution. Low liquidity severely impacts the average user, who will need to pay exorbitant costs for smaller transactions, especially during periods of high network activity. However, sustaining liquidity over the long-term remains a constant challenge for many decentralised exchanges (DEXs). More so, as the market introduces additional tokens from various blockchains, the compatibility between tokens across different DEXs, each built on its own blockchain, becomes increasingly complex if you want to trade assets between them. THORChain is a sector-specific chain that attempts to solve this issue. Operating as a cross-chain liquidity network, it is designed to enable multi-currency exchanges across different unique blockchains compared to a single-chain solution like Uniswap. Its DEX is supported by incentivised continuous liquidity pools (CLPs) with a slip-based fee model to ensure enough liquidity is available for users. 

As the DeFi ecosystem grows, Injective is another sector-specific blockchain designed specifically for cross-chain DeFi applications, including decentralised spot and derivatives exchanges, prediction markets and lending protocols. Its exchange also integrates AI in its operations to optimise its trading capabilities, and is interoperable with Ethereum, Cosmos, Solana and Avalanche, among other blockchain networks. 

Similarly, Sei network is another sector-specific chain designed for high-performance DeFi trading applications. It features a unique parallelised network allowing for simultaneous transaction processing, offering very high (300ms finality) transaction speeds, cross-chain bridging and a scalable order-matching engine.  

The inherent design of monolithic blockchains, such as Bitcoin and Ethereum, which bundle functionalities like execution, consensus, data availability, and settlement into a single layer, significantly limits their performance during periods of high demand and flexibility as they scale. Celestia addresses these issues by adopting a modular blockchain architecture by separating these core functionalities into a modular stack, allowing rollups and other modular chains to utilise the Celestia network as a data availability and consensus layer.  

Concluding remarks 

Understanding the complex features of sector-specific chains might be challenging for the average user, but their potential benefits are too significant to ignore. After all, a user doesn’t need to understand the technical intricacies behind how a DeFi application operates, as long as they can trust it to function properly. 

The importance of these chains lies in their ability to offer tangible solutions to many fast-growing crypto sectors with long-standing inefficiencies tied to some of the most well-established blockchain networks. And, until chains like Ethereum can address their challenges – which rely heavily on the success of a multi-year scalability roadmap – sector-specific chains are likely to further increase their market share by offering a more immediate solution.  

Disclaimer: The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorisation or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

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The information in this publication pertaining to Sygnum Bank AG (“Sygnum”) is for general information purposes only, as per date of publication, and should not be considered exhaustive. This publication does not consider the financial situation of any natural or legal person, nor does it provide any tax, legal or investment advice. This publication does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum to purchase or sell any assets. No elements of precontractual or contractual relationship are intended. While the information is believed to be from accurate and reliable sources, Sygnum makes no representation or warranties, expressed or implied, as to the accuracy of the information. Sygnum expressly disclaims any and all liability that may be based on such information, omissions, or errors thereof. Any statements contained in this publication attributed to a third party represent Sygnum‘s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Sygnum reserves the right to amend or replace the information, in part or entirely, at any time, and without any obligation to notify the recipient of such amendment / replacement or to provide the recipient with access to the information. Simultaneously, there is no obligation of Sygnum to inform recipients of information, if before provided information later becomes outdated, inaccurate or obsolete, unless otherwise provided by applicable law. The information provided is not intended for use by or distributed to any individual or legal entity in any jurisdiction or country where such distribution, publication or use would be contrary to the law or regulatory provisions or in which Sygnum does not hold the necessary registration, approval authorization or license. Except as otherwise provided by Sygnum, it is not allowed to modify, copy, distribute or reproduce, display, license, or otherwise use any content for commercial purposes.

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