There has been a lot of renewed interest in projects emerging on Polkadot, Binance Smart Chain, and other competitors of Ethereum. Well-established dApps such as Chainlink, Maker, Uni, or Aave are being forked - copied, adapted, pasted - by a team and then launched on another platform. The recent surge of PancakeSwap on the Binance Smart Chain showed that this method can be quite successful. And while it might eat into an established player’s market share, the overall outcome is mostly beneficial to the whole crypto ecosystem.

Forks are not malicious, rather necessary

It’s not uncommon in the crypto industry for forks to arise. Copy-pasting another project is an easy way to enter the space: as a developer, you already know that there is a market, you only need to concentrate on bringing users to your product. This can be done either by adding new features which your “predecessor” doesn’t have or incentivizing people by building rewarding mechanisms for active users. Almost every major decentralized finance (DeFi) protocol has been forked at one point - some more successful than others. The most prominent example would certainly be Uniswap’s fork SushiSwap launched in summer 2020. SushiSwap was the first major fork of a DeFi project. It was based entirely on Ethereum’s largest decentralized exchange (DEX) Uniswap but added a token and governance system that incentivized people to switch over to SushiSwap, draining liquidity off Uniswap. To retaliate, and win users back, Uniswap launched its own token and mining rewards. But despite both DEX fighting for market share, both protocols have eventually prospered and are now two of the largest DEX.

Although copy-pasting another one’s work might always have a connotation of bad faith, in a nascent industry such as DeFi it can be a very valuable source of development. It’s bringing competition to the market, forcing “incumbents” to innovate, improve their product and search for better ways to service and retain users. The crypto industry is fast-paced and community-driven. Innovation and user retention are key for any project.

Finding success elsewhere

While copy-pasting has occurred regularly with projects on Ethereum, how does it look on other blockchains? The rising gas fees on Ethereum have once again raised questions about its usability - in the short- and long-term. As this is undoubtedly a stain in users’ or investors’ eyes, decentralized application (dApp) providers find it hard to gain new clients and increase adoption of their product or service. Looking for more efficient ways to build a community of users, there has been a trend towards either connecting their application to other blockchains - SushiSwap has hinted at plans to open its platform on Polkadot - or entirely developing projects on protocols with lower barriers than Ethereum, such as:

All of these projects have been based or inspired by dApps that already exist on another protocol while promising a better value proposition than its counterpart.

One of the biggest success stories recently has been PancakeSwap on the Binance Smart Chain. In the midst of Ethereum’s congestion issues, PancakeSwap emerged as the rising star on Binance’s blockchain. The essential clone of Uniswap has seen liquidity grow more than 1,000% year-to-date. Exchange trade volumes have gone up more than 7,000% from $37 million on January 1st to $2.8 billion on February 23rd, outperforming Uniswap’s trade volume by $800 million.

Exchange Trade Volume (30d) on PancakeSwap

Source: Coingecko, 2021

Exchange Trade Volume (30d) on Uniswap

Source: Coingecko, 2021

This has also elevated Binance’s native coin BNB to new heights, at one point trading at a price of more than $300, making it the 3rd largest digital asset after Bitcoin (BTC) and Ethereum (ETH).

The example shows that the demand to use Ethereum and DeFi applications exceeds what Ethereum is capable of supplying for the moment, “forcing” projects and users to look elsewhere. Binance, Polkadot, and Cardano are only some of the protocols which offer new innovative ways for DeFi providers to develop their projects and reach new users.

The theme of using an established project or protocol to build on top of that, either through directly copy-pasting or using some elements and fuel their development is increasingly common.

Innovation through forking

Projects are directly copying and modifying other project’s code to fit the needs and desires of the community. While some forks started off as simple copy and paste forks, others have added real value to the original code, benefiting the entire ecosystem. As a young industry, innovation is key and projects are using this to their advantage. SushiSwap’s incentive and governance feature was the starting point for several other dApps applying this mechanism. Users in the crypto space are always looking for a new big trend or project. On the one side, a large part of the community is in it for the return and only cares about the profit they can make in a speculative environment. There is no attachment to the product, team, roadmap, or ideology. Therefore, it’s hard for any team to build a community out of these users, much less retain them. On the other side, there are users with a strong connection to a project. They exhibit some kind of brand loyalty already. But only a few projects and protocols can count on that. Ethereum has probably the most established community, however, that doesn’t mean it cannot fail. The need to innovate, develop and improve on the blockchain’s use will always be the metric to measure its success. The same holds for projects on Ethereum. They might have the edge over others now but this doesn’t mean they cannot be outperformed by projects running on other blockchains (e.g. PancakeSwap). Innovation will always be at the forefront of the crypto industry. And forks are just one way to advance. They bring along competition and force projects and protocols to progress their technological, product, and user development.


Sources:

DeFi Forks are moving beyond copy and paste - The Defiant ; September, 2020 [1]

SushiSwap co-founder hints at ambitions to launch on other chains like Polkadot - Cryptoslate ; December 16, 2020 [2]

DeFi could be coming to Cardano - Cointelegraph ; December 8, 2020 [?]

Coingecko ; February, 2021 [4]