I’m very embarrassed to make this post.
I don’t understand how tokens built on top of other ecosystems work and i don’t understand how the parent system benefits from this.
For example Ethereum- on the Eth network there are many tokens and DApps. So if Matic runs a swap or defi app and all the fees are paid in Matic tokens how does this help or support eth? Does it effect eth at all? If not then why does eth have any value shouldn’t everyone be investing in the DApp tokens?
Something that seems similar to me is Terra system Luna and Anchor protocol. When I read about it, it days Luna is the engine everything runs on but Anchor protocol has its own fees and they are paid in their own tokens so what does Luna actually do here? Sure they made the code that Anchor runs on but do the Luna tokens do anything? Do any fees go back to Luna?
Idk how you guys learn this stuff, I’d like to find more educational sources.
You’re asking the right questions.
If you are stupid and i didn’t understand a word of what you said, what does that make me?
Here’s a quick and simple explanation of basically every L2 solution in genera at least of it’s main goal and why it benefits the underlying L1:
The problem with ETH and BTC is that they can process only a few transactions so higher demand = fees explode as a result.
An L2 uses the Blockchain and builds on top of it but “collects” much more transactions and then finishes all the collected transactions as one big transaction on the L1 Blockchain.
Thus splitting the cost of a single transaction between the users of the L2 and creating a very cheap alternative to “use” eth fir example.
Although you’re acting only on Matic for example. At the very end it’s a transaction on the underlying L1.
This is also the reason why L1 keep or raise in their valuation because demand keeps rising.
Hope this was understandable.
In short: tokens take advantage of Ethereum’s extensive network of nodes to guarantee security, and in exchange fees for trading said tokens are paid in ETH putting upward pressure on the price of ETH, which benefits Ethereum miners/stakers/node owners.
If those tokens are traded on a side chain, ETH still has to be paid whenever those tokens are moved to and from the side chain.
If they’re traded on a layer 2 then many transactions are bundled together so fees are split but the fees for each bundle of transactions still have to be paid in ETH.
You are not alone
1. **Ethereum** gave projects a way to raise funds
2. Each project minted a new ERC20 token on Ethereum
3. Then the project sold its ERC20 tokens for ETH
4. Buyers usually bought ETH from an exchange
5. Each time an ERC20 is now sent from A to B, ETH gas is required
6. So, a virtuous circle of growing demand for ETH was created
A network effect… of mutual benefit.
Others copied Ethereum’s model and added their own twist, or even (like Polygon/Matic) paid tribute to Ethereum. Every 256 blocks Polygon sends a summary batch of txn info onto Ethereum for safe keeping. Hope this helps.
great questions. i have a feeling ethereum could be the “books and records” for the world. public, private – all of our transactions. a layer 2 network would update their own accounts on ethereum, but their token holders only need to record opening transactions, everything else can be done on l2. i think the speed/cost advantages of l2 networks vs ethereum might be due in part to requiring less transactions/cpu/memory to process than ethereum. please correct anything that is worng, i am still learning and do not have a strong tech background.
Financial relation is that it’s likely that “parent” coin will be traded with it’s token.
Simplified: exchanges will trade this pair and will require liquidity for it. People will provide liquidity supplying the coin and the token. Price of both will be correlated as there are price movements, but the value of both coins in the pool must be equal. One will be sold, other will be bought.
The anchor protocol buys Luna for it’s main profit
Matic is a bridge to swap eth tokens at a much lower gas fee. It’s a Layer 2 solution to the scaling issue. However once eth 2 is ready layer 2 solutions will become obsolete. They’ll no longer be needed (in my opinion, happy to be corrected).
Luna and anchor is the same as Eth and <insert dapp here>. Eth being the blockchain that the dapp is built on (Luna is the blockchain that Anchor is built on).
Think of an app u use on ur pc..let’s say blizzard app for games..that runs on windows 10. So a dapp (blizzard app) is running on a blockchain (windows). I hope u get the point I’m making cause I’m confused reading it myself lol
Again correct me if I’m wrong community! I’m also still learning.
Check out Coin Beuro on YouTube..he’s pretty good..
I wish someone could give an eli5 for yield farming
You sort of dance around the main topic that a lot of coins / tokens are generally useless. Some may pump, when they do, take some profits.
I like the layer zero / one coins that are used for gas fees by the other tokens on their network.
Mixing in the good with bad results, sometimes I wish I just held BtC and ETH. But I can’t help myself from taking shots.
Your a smart on the contrary,we learn everyday
Learn to code. I’m not joking or beign coy. You can self teach yourself any programming laguage on YuoTube. Start with a beginner course and move your way up to itermediate then heavy then expert. Copy what the instructor does on your own paltform. Watch videos in your spare time. Buy books. Seriously this will help your career. I did it and I am benifitting already.
So you’re like that one in million asking real questions, imma gonna ignore this dude
[https://www.youtube.com/watch?v=S7Ru4HS5RyY&list=PL_HuGPTZn6Wv3r5Zs6eGDnw8sFR4In2_1&index=1](https://www.youtube.com/watch?v=S7Ru4HS5RyY&list=PL_HuGPTZn6Wv3r5Zs6eGDnw8sFR4In2_1&index=1)
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explains luna and anchor in detail easy to understand
I’m dumb too I buy meme coins
aren’t you like a crypto veteran who has been posting in r/cc for years and years
How does one collects 10k moons and still feels like a Noob? Serious question xD
>For example Ethereum- on the Eth network there are many tokens and DApps. So if Matic runs a swap or defi app and all the fees are paid in Matic tokens how does this help or support eth?
Everything isn’t built on top of Ethereum. Polygon is it’s own side chain with it’s own consensus mechanism and its own gas token ($MATIC). Tokens on a blockchain are like cars. You can buy them but in order to do anything with them, you need to fill them up with gas. Ethereum and Matic. You need them to do anything on the network. At the most basic level, with increasing network activity, people need more and more gas tokens so they have to buy more and more of them which increases the price as the purchasing demand is increasing.
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>but Anchor protocol has its own fees…
This is true kinda. If you want to do things on the Terra blockchain, you have to have gas. Luna and UST are the gas tokens. Anchor doesn’t have it’s own fees so much as it’s a thing on a blockchain so you have to pay fees to do anything with it.
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>… and they are paid in their own tokens
This is false. The $ANC isn’t used to pay any fees. You use $LUNA or $UST to pay fees on the Terra blockchain.
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>Idk how you guys learn this stuff, I’d like to find more educational sources.
Rather than jump straight into multiple chains and stuff, I think you’d be helped just understanding how blockchains work in general. You seem a little confused and imo you’re putting the cart before the horse. It’s like trying to jump into algebra when you don’t know multiplication, division, or subtraction.
It’s multiple parts and long but if you like this stuff it isn’t boring: [https://www.channelnewsasia.com/news/video-on-demand/inside-the-cryptokingdom](https://www.channelnewsasia.com/news/video-on-demand/inside-the-cryptokingdom). Also on YouTube if you search for “inside the crypto kingdom”. The first episode is the most important for breaking down the basics of how a block chain work but all of them are interesting imo.
Thanks for your bravery. Asking the questions many of us don’t understand ourselves…
Sorry for being harsh but the Terra-Luna question is just a product of you being lazy and not even attempting to research at all. Its not a product of you being stupid.
My suggestion is to learn some technical analysis and start with 50-100$ see what you can turn that into. As for youtubers go for ones that don’t hype or are 24/7 positive but are neutral ben cowen is a great one
Buy high sell low is the way to try not to go
I
Relax, it’s something that happens to all of us when starting out in the crypto ecosystem. I would recommend you to do some research, take courses on how blockchain and larger projects really work.
An anecdote: The first time I invested was difficult because I didn’t understand anything, but, after that investment, I was learning/investing and nowadays I understand the Blockchain, as well as the different Crypto terms.
I invested in projects like Axie / Solana / Luna / BSC / BBGM NFTs, and many other projects in the market.
Sir this is a casino, not a university.
Do you want to bet on ETH, MATIC or Terra… Place your bets please.