EVM App Chains

App Chains are not new. The difference in 2023 is that they are coming to EVM, where the majority of users + integrations (wallet, validator, bridge, node) support. Optimism’s OP Stack is open-source and allows any project/team to launch their own roll-up chain. In 2023 alone, adopters include:

> Coinbase Base
> ZORA Network
> Worldcoin ID

If you ask a project the reason behind a roll-up strategy, they will give you some flavor of the following:

> Scaling: “ETH L1 is too slow”
> Flexibility: “Contracts are not optimized” or “I want to support an EIP that hasn’t hit mainnet yet”
> Value Capture: “Token launch does not make sense but I want to monetize on-chain”

The first two are pretty familiar arguments. The last is the most pertinent. The holy grail for a crypto project is able to monetize on-chain — you get global access at basically zero marginal cost (all forms of “traditional” marginal cost is outsourced to the chain). The headwinds are unknown regulatory risk on a case-by-case basis.

Today’s versions of these are:

> NFTs (OpenSea) — secondary fees of on-chain NFTs
> DeFi (0x) — routing fees of on-chain swaps
> Staking (Blockdaemon) — validator income of inflation + chain fees

The conversation of roll-ups have mostly been around tech optimization, but the goal is really value capture optimization in the absence of a token launch. Factors like:

> Sequencer PnL — company can monetize like a validator on block activity.
> Flexibility — company can loss-lead on a contract-level (zero cost for NFT minting) to optimize for user growth but still capture downstream sequencer fees
> BD — company gives a % of fees to partners that come to chain

The long-term payoff will come down to the project’s ability to lean on their user network effects. It’s not purely a tech game, it’s a BD/Strategy game. 2023 App Chains are about value capture as much as it is about tech.


Disclaimer: The views and opinions expressed here are solely my own and do not reflect the views of my employer. The content provided is for informational purposes only and should not be construed as financial advice. I am not a financial advisor, and it is important to do your own research and consult with a qualified financial advisor before making any investment decisions. The information I share is based on my personal experience and knowledge and may not be suitable for all individuals or situations.

Collect this post to permanently own it.
Ryan Y Yi logo
Subscribe to Ryan Y Yi and never miss a post.