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We study the competition between blockchains in a \emph{multi-chain}environment, where a dominant EVM-compatible blockchain (e.g., Ethereum)co-exists with an alternative EVM-compatible (e.g., Avalanche) and anEVM-incompatible (e.g., Algorand) blockchain. While EVM compatibility allowsexisting Ethereum users and developers to migrate more easily over to thealternative layer-1, EVM incompatibility might allow the firms to build moreloyal and ``sticky'' user base, and in turn a more robust ecosystem. As such,the choice to be EVM-compatible is not merely a technological decision, butalso an important strategic decision. In this paper, we develop a gametheoretic model to study this competitive dynamic, and find that atequilibrium, new entrants/developers tend to adopt the dominant blockchain. Toavoid adoption failure, the alternative blockchains have to either (1) directlysubsidize the new entrant firms or (2) offer better features, which in practicecan take form in lower transaction costs, faster finality, or larger networkeffects. We find that it is easier for EVM-compatible blockchains to attractusers through direct subsidy, while it is more efficient for EVM-incompatibleblockchains to attract users through offering better features/products.

To EVM or Not to EVM: Blockchain Compatibility and Network Effects