Ethereum, as the source platform of various Web3 ecological applications, has nurtured numerous applications, including DeFi, NFTs, games, etc. These applications leverage Ethereum's traffic pool and infrastructure to rapidly achieve business expansion and ecological growth, becoming an important pillar of the Ethereum ecosystem.
However, as projects mature and products grow, they face a key challenge: the pressure on Ethereum network resources. Projects like AAVE, Uniswap, and dYdX coexist on Ethereum, each facing significant pressure to homogenize. At the same time, there is also substantial competition for user resources in the EVM ecosystem, making it increasingly difficult for new ecosystems to get started.
Although Ethereum's transaction fees have decreased compared to a year ago, the cost of launching an L2 on the Ethereum ecosystem is still significantly higher than that of an independent chain. This is because these operators need to invest considerable funds in Ethereum itself, which inevitably reduces other investments in the ecosystem and indirectly affects the potential growth of the ecosystem.
However, the challenges go far beyond transaction fees. Although Ethereum's mainnet is revolutionary, it lacks the flexibility necessary for sustained innovation. One example is the EVM: it has some design flaws that are unsuitable for many use cases, yet applications must deal with it. In the past two years, Ethereum has underperformed in terms of narrative innovation, leading to a continuous decline in ecological value and severely impacting network consensus, which has also hindered its ecological development. The market performance of the four major L2s has been unsatisfactory, and the market's expectations for Ethereum are continuously decreasing. At this point, considering more advanced ecosystems like the Move platform is a more suitable choice.
Therefore, it can be seen that we should not limit ourselves to the Ethereum ecosystem and start building independent blockchains that serve the applications themselves, which is what we refer to as application chains.
Development trends of independent application chains
In 2023 and 2024, more and more dApps are announcing their transition to application chains, such as algorithmic stablecoin Fraxtal and decentralized exchange Uniswap. In response to this phenomenon, we have compiled statistics on the entire application chain track and found that these application chains are mainly concentrated in fields such as DeFi, gaming, social networking, and AI. The development of application chains has become an inevitable trend due to the maturity of modular technology, the improvement of independent chain platform frameworks, the increase in RaaS platforms and services, and the drive for dApps to compete for public chain space resources, optimize terminal user transaction costs, and customize token economies.
There are many forms of dApps transitioning from smart contracts to independent application chains, which can be L1, L2, or even L3, depending on the underlying setup and application design requirements. Many of these applications are built using foundational frameworks such as Cosmos SDK, OP Stack, Starcoin StarStack, providing unlimited possibilities for application chain construction. For instance, using OP Stack to build an L2 chain offers protection from Ethereum's security, but the base costs are relatively high, limiting ecological development due to Ethereum. Conversely, building with Starcoin's StarStack framework allows for the customization of a completely independent blockchain, with full freedom in aspects such as gas, consensus algorithms, data availability layers, VM, and on-chain governance, making it a good choice.
Application chains can also bring additional revenue sources for projects. Instead of having users pay fees to Ethereum, it is better to have them pay directly to the application chain, creating more revenue sources for the application chain ecosystem. The large-scale transition of dApps to application chains means further development of flexibility and scalability, allowing applications to have more space to design relevant frameworks for their business logic and user growth, no longer limited by public chain network resources and basic modules.
Two main directions of application chains
With the maturity of modular technology and the diversification of market demands, the development of application chains mainly diverges into two directions. One direction is represented by Layer1 such as Cosmos and Starcoin, which focuses on chain-oriented applications, emphasizing sovereign design, flexibility, and independence of the chain. The demand for customization of the chain is more evident, with more design sovereignty from the underlying framework to business logic. The other direction is represented by Layer2 such as OP Superchain, which is mainly application-oriented and heavily relies on the development of Ethereum, focusing on its own application growth. Its rise is primarily due to the popularization of modular blockchain concepts, the maturity and widespread validation of general-purpose Rollup Layer2, the development of interoperability and liquidity aggregation layers, and the emergence and improvement of RaaS platforms.
Layer1 direction
The development of independent application chains must start with an innovative project called Cosmos. Cosmos is known for its modular and pluggable design philosophy, separating virtual machines and consensus engines, allowing developers to freely choose the framework for building virtual machines and customize key parameters of the consensus engine, such as the number of validators and TPS.
This design allows various applications to exist in the form of independent chains, demonstrating unique advantages in flexibility and sovereignty. These innovative concepts have made significant contributions to the exploration and practice of application chains, laying a solid foundation for this field. Subsequently, many new frameworks, such as Avalanche SDK and Starcoin StarStack, have developed in the direction of independent L1 chains.
The advantages of independent Layer1 are:
Plug-and-play and customizable consensus layers: You can use Rollkit and Celestia as your consensus and data availability layers, offering great flexibility and customization.
Multifunctional and customizable modules: Provide numerous flexible modules to simplify development and enhance functionality, or developers can customize modules.
Highly customizable: Few development framework restrictions allow developers to achieve high levels of customization, such as gas mechanisms, on-chain governance, VM, data storage, consensus engines, governance tokens, etc.
Powerful tools and support: Enjoy a mature toolkit designed for smooth development, deployment, monitoring, and debugging.
Network performance is not limited: Due to the high flexibility and scalability of the design, network performance can reach very high levels, for example, StarStack can achieve 130k TPS.
Exclusive network computing and storage resources: Being an independent chain allows applications to exclusively enjoy Layer1's computing and storage resources.
Taking StarStack as an example, it is a one-click intelligent deployment solution for high-performance, customizable Layer1 blockchain based on the Move language. Unlike other blockchain platforms, StarStack stands out in customization, flexibility, and independence, making it the only blockchain issuance platform that developers can fully customize.
The advantages of the StarStack technology framework are:
1) Built on the Move language and virtual machine. The underlying framework and smart contracts of StarStack are written in Move language, and the virtual machine also uses Move, making it the only issuance platform that adopts Move.
2) Based on DAG structure. After introducing the DAG structure in StarStack, combined with its own innovations, it launched FlexiDAG, which can dynamically adjust block time, difficulty, and block rewards, shorten transaction confirmation time, and significantly improve network performance and system efficiency.
3) Parallel high-performance network. In StarStack, a high-performance multi-threaded memory computing engine called TurboSTM has been introduced, significantly reducing execution bottlenecks and increasing transaction throughput, with a maximum TPS of up to 130,000, a throughput that other platforms currently do not possess.
4) Compatibility with mainstream applications in the Move ecosystem. Recently, it has been observed that Starcoin has achieved full compatibility with Move ecosystem applications through the upgrade to Move V7, allowing developers to easily migrate and deploy their dApps without rewriting code. In simple terms, Layer1 issued by Starcoin can be compatible with most applications within the Move ecosystem, enabling applications developed on Aptos to be easily migrated to the new Layer1 without modifying the original code. Of course, this also applies to blockchains developed using StarStack, providing great convenience for developers looking to enter the Move ecosystem.
5) Supporting stablecoin frameworks. This point can be achieved by many platforms, but others lack a complete framework. It can be observed that many DeFi applications are actively promoting their own stablecoins, including AAVE's GHO, MakerDAO's DAI, Curve's crvUSD, etc. Therefore, having an independent application chain for stablecoins helps stabilize prices, transaction fees, and time, avoiding embarrassing situations like spending $50 in gas fees to transact $10 USDT on Ethereum.
L2 direction
As the first Rollup Layer 2 to go live on the mainnet, Optimism's successful launch in 2022 marked the practical implementation of modular blockchain theory. Optimism inherits the security of Ethereum and fully supports the development tech stack of the Ethereum ecosystem. It borrows from the concepts and frameworks of Cosmos and proposed the OP Stack concept. This concept has been widely applied in well-known projects like Worldcoin and Base, further drawing extensive attention in the industry.
Subsequently, other Rollup solutions have also launched similar concepts, such as Arbitrum Orbits, Polygon CDK, StarkWare Appchain, and zkSync Hyperchains. As a result, for dApps, application chains have become a new avenue for implementing business logic, and upgrading existing dApps is no longer a challenge, with the main challenges shifting to technology selection, business design, and operation maintenance.
The research and development process of application chains generally follows these steps:
Technology selection: Assess the functions and characteristics of different frameworks and choose the most suitable one.
Requirement design: Design an application chain that meets the needs based on the customization capabilities of the corresponding framework.
Operation and maintenance: Complete deployment, testing, launch, and subsequent maintenance.
The rapid development of application chains in the L2 direction is not without its flaws, but its advantages include:
Modular design: Application chains typically adopt a modular design, allowing developers to customize infrastructure components such as settlement mechanisms and data availability to meet specific needs.
Performance optimization: Many new application chains can reduce costs and improve throughput by introducing other data availability layer solutions.
Enhanced value capture: Features such as custom gas tokens and account abstraction can support more flexible application development and enable more complex business models and token models.
The disadvantages include:
Liquidity fragmentation: New application chains may face liquidity fragmentation issues.
Severe dependence on the Ethereum ecosystem: The value of Ethereum will determine the development direction of these L2 projects. From the secondary market, it can also be seen that when Ethereum shows weak performance, the market value of these L2 projects continuously hits new lows.
Interoperability and composability issues: Application chains cannot easily achieve composability and interoperability like the dApps of public chains in the past.
Too many L2 chains lead to intensified competition: There are already over 100 known L2 chains, and with the support of platforms like OP, Polygon, and Arbitrum, L2 will grow rapidly. Given that Ethereum resources are limited, the competition for Ethereum ecosystem users and resources will gradually become severe.
Increased complexity: Compared with traditional dApps, the complexity of new application chains has increased, especially during design and implementation, which may require more technical resources and support.
Summary
Currently, innovative applications are facing bottlenecks in their development, while the rapid growth of application chains will attract the attention of many future projects. One conceivable future is that each application has its customized chain to meet the product design and business development of the application itself. This includes L2 ecosystems, interconnection between applications, sharing ecological resources for development and liquidity, while independent L1 chains will also become a mainstream trend. High customization, flexibility, and independence help applications unlock performance bottlenecks and achieve exponential growth in product business.
