Are base layer blockchains establishing a new sector? Evidence from a connectedness approach

This study explores whether layer-1 blockchain platforms are evolving into an independent sector within the blockchain industry. We employ time-varying parameter and quantile vector autoregressive connectedness approaches to examine the return connectedness among the native tokens of layer-1 blockchain platforms and a comparison group. Our empirical results reveal a strengthening return connectedness among layer-1 native tokens, contrasting with observations from the comparison group. Layer-1 blockchain platforms are becoming more closely related over the sample period and may be progressing toward the establishment of an independent sector. Our findings highlight a growing need to investigate the connectedness of assets within the cryptocurrency market to better understand its structure and determine which cryptocurrencies can be grouped into sectors.