By Mason Nystrom
Compiled by: TechFlow
Over the past 30 days, Ethereum has seen over $25 billion in order flow, with nearly half coming from proprietary applications.
As the value of block space commodities increases, privatization of order flows will increase and pave the way for “fat applications”. (Translator’s Note: “Fat Apps” is a metaphorical term derived from the observation of the accumulation of value at the application layer in the blockchain and cryptocurrency ecosystem. It refers to those applications that are at the blockchain application level. Dominant applications that not only control a large number of users and transactions, but also significantly increase their value and competitiveness by vertically integrating key components and functions).
Source: Orderflow.art
But how did we get here, and where is the future heading?
The short answer is foodcoins. A slightly more detailed explanation is that the DeFi summer spawned a large number of consumer and retail transactions, and then trading aggregators like 1inch came into being, providing users with better price execution through private order routing. Wallets (such as MetaMask) also quickly followed suit, realizing that they could monetize the convenience needs of users by adding exchange functions within the application, which proved that any application that can control user attention and orders has a valuable business model.
Over the past two years, we have seen two new players enter the private order flow space - Telegram bots and solver networks. Telegram bots are similar to MetaMask's "convenience fee" model, providing users with a way to easily trade long-tail assets in group chats. As of June, Telegram bots accounted for approximately 21% of trading volume and 11% of trading value, most of which were conducted through private memory pools.
Source: Dune
On the other side of the market, solver networks (such as Cowswap, UniswapX) have become the core trading venues for large liquid trading pairs (such as stablecoins and ETH/BTC). Solver networks have changed the order flow market structure by outsourcing the task of finding the best trade route to a highly competitive group of solvers (market makers).
As a result, an initial bifurcation of trading venues has occurred, with convenient frontends (such as TG Bots, wallet-integrated swaps, and Uniswap’s frontend) primarily used for longer-tail, lower-value (less than $100,000) trades, while aggregators and solution networks are the go-to platforms for larger trades (usually involving stablecoins and major cryptocurrencies ETH/BTC).
By filtering more carefully, you will find that most of the private order flow comes from the front end (such as TG robots, wallets, and front ends).
The privatization of order flow is even more pronounced considering that only 15-30% of Ethereum transactions go through private mempools, meaning that a small number of exchanges contribute a large amount of private order flow.
Source: Dune
In other words, valuable order flow is more important than order volume. The power law of users and order flow suggests that applications will accumulate the largest proportion of overall value. In other words, the "fat app" argument is still alive and well.
Approaching "Fat Apps"
Uniswap’s protocol is undoubtedly valuable, but the more interesting story happens at the application level. Uniswap is working hard to become a consumer-facing application by vertically integrating key components of its stack to expand the capabilities of its interface, mobile wallet, and aggregation layer. For example, Uniswap Labs’ applications, including Uniswap’s front-end, wallet, and aggregator UniswapX, generated about 25% of the $13 billion in private order flow and nearly 40% of total order flow (both private and public) in the past 30 days.
Elsewhere in crypto, apps like Worldcoin account for nearly 50% of Optimism mainnet activity, which has pushed them to launch their own app chain, further proving the / “fat app” argument and the power of controlling demand (e.g. users and transactions).
Even top NFT projects with strong brands like Pudgy Penguins are building their own chains. Pengu CEO Luca explained that controlling the block space built on top of its distribution is beneficial to the value accumulation of Pudgy’s brand and IP.
Going forward, applications should look to create new types of order flow, whether by creating new assets (such as Pump and memecoins), building applications that bring new user utility (such as Worldcoin and ENS), or by building better consumer experiences that are vertically integrated and support valuable transactions, such as Farcaster and frames, Solana Blinks, Telegram and TG applications, or on-chain games.
Final Thoughts on “Fat Apps”
It is worth noting that the “fat app” argument has been a focus for many in the cryptocurrency space since the end of the last cycle, as the app chain argument has become part of the consensus.
My current take on the “fat app” thesis is that most value will accrue at the application level of the stack, where control of users and order flow puts applications in a strong position. These applications will likely be combined with on-chain protocols and primitives, similar to today’s UniswapX and Uniswap Protocol, Warpcast and Farcaster, Worldcoin and Worldchain. Ultimately, these protocols, especially those that are fully on-chain (like MakerDAO), can still accrue a lot of value, but applications will likely capture more of it because they are closer to users and the off-chain component gives applications a stronger defensive moat.
Finally, I still believe that Layer 1 blockchains (such as Bitcoin, Ethereum, Solana) as non-sovereign reserve assets still have the potential to capture a lot of value, and the underlying assets (such as ETH) will accumulate huge value. Over time, applications may try to build their own L1s, just as they build their own L2s. But launching a commoditized L2 is completely different from launching an L1 and turning governance tokens into commodities and collateral assets, which may be a question for the future.
The core conclusion is that as more applications are created and have valuable order flows, people will inevitably conclude that “fat applications” are inevitable and the crypto world will re-evaluate the value of applications.
