Thanks for brunch Lincoln, our conversation inspired some of these research questions.
There are a variety of options that builders have when launching an application. Each of these exist on a cross-sectional spectrum of Ecosystem Alignment & Composability, and Value Capture & Performance. While the debate around which set of solutions will win out is nuanced, a more logical conclusion is that there will exist an increasingly competitive nature for the infrastructure available to builders.
Before the dominant rise of Solana as a chain-maximalist ecosystem (especially after performance increases with Frakendancer/Firedancer implementations), we noticed an industry-shift from chain maximalism around Ethereum mainnet to a more modular environment. This is a natural economic progression since specialization lends itself to efficiency per layer and increased flexibility for builders. Now, we have options at both ends of the spectrum - modularity with Ethereum and a monolithic approach with Solana.
However, we’re seeing a reversion now, where folks are either working to further modularize and become application-focused, or push for a future that is more intertwined with Ethereum. I think it's a fair conclusion that this is inevitable with any monolithic chain, so long as the market demands a certain level of decentralization at the base layer.
On one end, we have self-sequenced applications (or ASS s/o Tarun), which prioritize feeding extracted value back to the application. This creates a strong competitive environment for startup applications as they compete on the quality of order flow and how much returned value they redistribute to their users. An issue I see here though is a chicken-and-egg problem: new applications need strong activity and order flow to compete, but can’t garner a strong user base without some of these redistributed incentives. A default solution is token incentives and/or points, but this is unsustainable given how difficult customer lock-in is for protocols (s/o Maanav). It may be interesting to explore other sustainable vectors of overcoming this cold-start problem.
On the other hand, we have based rollups, which are an optimistic outlook for utilizing Ethereum to sequence transactions, and as ancillary benefits, rollups gain atomic cross-rollup composability. While this is a great solution for direct value accrual to Ethereum, based rollups lose out extracted value to the base layer transaction supply chain actors. This can be analogized as a “tax” that builders have to pay to Ethereum. With modular solutions on the rise, forcing builders to pay an additional “tax” to the Ethereum base layer to effectively be Ethereum aligned seems like an uncompetitive feature. I welcome some counterarguments here.
Lastly, we have our traditional appchains and rollups, which will continue to serve applications that have enough of a network effect and initial funds to support launching their own ecosystem. I think these will continue to dominate the landscape as builders with enough leverage demand customizability, flexibility, and expressibility.
The implementation of these solutions not only raises interesting questions about which will win out and what competitive landscape will exist, but also how these solutions impact the value accrual to certain assets? How does $ETH get impacted in the face of modular architecture? What about the interoperability of app-based tokens? These are all interesting questions to think about going forward, and I welcome any and all debate, comments, and thoughts about it.
The views and opinions expressed on this article are solely those of the original author and mentioned contributors. These views and opinions do not necessarily represent those of Placeholder Management LLC or its team.
