Compilation of the original text: Bai Ze Research Institute
Compilation of the original text: Bai Ze Research Institute
Web3 has grown rapidly in recent years, and the need for scalable solutions has become even more urgent.
The "dApp Chain" narrative is emerging: an interoperable blockchain network focused on specific use cases can provide a more scalable, efficient and flexible infrastructure for dApps.
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Why do you need an application chain?
The blockchain “trilemma” has long been a thorn in the side of developers. It turns out that it is impossible to create a blockchain that excels in all three properties of security, decentralization, and scalability.
Many have seen Lisk as a savior because it allows multiple chains to interoperate and achieves scalability by reducing the transaction load on each chain without compromising security and decentralization. However, the application chain is gradually overshadowed by another solution: Layer-2. Recently, there has been a lot of talk around L2, and rollups are expected to be the go-to solution for achieving scalability while maintaining security and decentralization.
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What are MEVs?
MEV stands for Maximum Extractable Value. In short, MEV allows miners and validators to extract more value from the blockchain by manipulating the position of transactions in a block. Historically, this has been associated with negative behaviors like front-running and sandwich attacks, but it also has some advantages. Good MEV, such as arbitrage and liquidation, is critical to making DeFi more efficient.
For dApp developers, having their own blockchain provides greater control over MEV and the ability to minimize bad behavior. This means that MEV internalization can generate revenue for the dApp itself, and as the crypto industry matures, sustainable profit-generating businesses will become increasingly important.
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Who can benefit from MEV?
While earning additional income through MEV sounds exciting, not every crypto project can benefit from it.
It is DeFi where liquidation and arbitrage reign supreme, such as lending agreements, AMMs, and perpetual DEXs, that can really take full advantage of MEV. If these projects were only launched on L1 or L2, they would lose a lot of revenue. So, for them, launching their own Lisk could be a smart business decision that sets them apart from the competition. Take dYdX as an example, it bid farewell to Ethereum and chose to build its own application chain on Cosmos.
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Other Reasons to Build Lisk
Besides MEV, there are other reasons why developers can launch their own Lisks.
For example, L1’s transaction fees may be a major barrier to attracting non-crypto-native users. Every transaction requires the user to pay in L1's native token, which can be confusing. With the application chain, developers can solve this problem by allowing users to use the dApp's native token to pay fees, or provide a completely gas-free transaction. Therefore, Lisk is also a solution to simplify the user experience.
Although L2 steals the limelight when it comes to scalability, Lisk can still provide a great solution for scalability. Some dApps, especially those in the gaming space, most require high transaction throughput and low latency. For example, a game like FIFA Ultimate Team generates thousands of transactions per second, which can be difficult for even L2 to handle. Therefore, such games have the potential to be major adopters of Lisk.
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Four major application chain networks
It can be said that there are currently four blockchain networks that are following the Lisk narrative and hope to create an ecosystem of independent and sovereign blockchains.
Polkadot is an interchain interoperability and shared security blockchain network launched in 2016 by Ethereum co-founder Gavin Wood. It enables developers to create their own dedicated blockchains, known as "parachains," that can interact with each other - this is achieved through the use of a relay chain (central chain), which acts as a Central hub for communication between parachains.
Each parachain can have its own consensus mechanism, virtual machine and governance structure, providing developers with a high degree of flexibility and customization. Polkadot also offers a shared security model, allowing smaller parachains to benefit from the security of the larger network.
To obtain parachain slots, developers and the community must stake Polkadot’s native token $DOT to win parachain auctions. This can require significant capital, with the average winning bid in the first five Polkadot parachain slot auctions in 2021 being around $100,000 per slot. This drives demand for $DOT in the short term, but may limit adoption in the long run, as developers and their communities must invest significant capital to gain a seat at the table.
Despite these challenges, Polkadot has garnered institutional support, a passionate community, and a large number of daily active developers.
Blockchain network Avalanche offers developers two options for launching dApps.
On the Avalanche C-Chain, which is a permissionless and Ethereum-like environment, developers can quickly deploy dApps. Alternatively, developers can customize dedicated blockchains for their dApps, known as “subnets,” which can operate independently or interact with other subnetworks.
The subnet is highly customizable, and developers can choose parameters such as consensus mechanism, virtual machine, and smart contract language according to their own needs and preferences.
One of Avalanche's key strengths is its consensus mechanism, called Avalanche Consensus, designed to achieve high throughput, low latency, and low transaction fees. This appeals to developers who value speed and efficiency.
Cosmos is a blockchain ecosystem known for its inter-blockchain communication protocol (IBC), which allows authentication and data transfer between two different blockchains. This means that users can send funds between different IBC-enabled blockchains without cross-chain bridges.
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Interchain Security (ICS)
Although IBC has created a lot of value for Cosmos, the main hub of the Cosmos ecosystem, the Cosmos Hub, has been struggling to find its own value. However, the introduction of Interchain Security (ICS) promises to change that.
Developing and maintaining IBC-enabled blockchains can be complex and expensive, as these chains cannot rely on the Cosmos Hub to keep them secure. Instead, they need to find their own set of validators and incentivize them to keep validating transactions.
With ICS, IBC-capable chains will be able to use Cosmos Hub validators to secure their chains after being approved by the Cosmos Hub governance vote, without having to build their own set of validators.
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Mesh Security
In the Cosmos ecosystem, Mesh Security is a novel approach to enhance the security of decentralized networks through a shared security model. Specifically, Osmosis and Juno are working on creating a two-way bridge between their respective blockchain networks, leveraging the security of each network’s native token. The bridge allows tokens from one network to be staked and used as collateral to secure transactions on another network, creating a feedback loop where the security of each network strengthens the security of the other.
However, implementing Mesh Security comes with some complexity and cost. For example, even after establishing a completely separate IBC blockchain, integrating Mesh Security would require passing governance proposals on each chain involved. Developers wishing to establish a Mesh Security relationship with multiple chains will need to submit governance proposals and implement code on each chain to make it work.
Despite these challenges, Mesh Security offers maximum independence and economic promise in a shared security model.
Celestia is a project that has attracted a lot of attention recently, introducing a new approach - "modularity" that promises to revolutionize the Lisk space. The project has raised a whopping $56.5 million in two rounds of private funding, making its launch even more highly anticipated.
What makes Celestia stand out is that it is a "tiny" blockchain that only publishes transactions, while the actual execution happens on separate rollups deployed by developers on the Celestia chain. By separating the consensus layer and the application execution layer, Celestia provides developers with similar benefits to the Lisk ecosystem without requiring them to build their own blockchain. Each dApp launched with Celestia has its own independent rollups, allowing developers to define their own virtual machines and get their own execution space, ensuring scalability while benefiting from the security of Celestia's consensus layer.
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Polkadot
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Avalanche
I believe that Avalanche is very suitable for the product market of blockchain games, and has achieved impressive development in this direction. And Avalanche provides two growth paths, developers can not only build their own application chain, but also choose to deploy dApp directly on C-Chain.
Despite its incredible technology, the Avalanche still faces other strong competitors. Ethereum and its L2s such as Arbitrum, Polygon, Optimism, and Immutable X dedicated to gaming, these L2s benefit from Ethereum's larger community and brand.
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Celestia
Despite Celestia's recent buzz, its narrative seems to be stuck on scalability. Ethereum L2 provides all the scalability most projects need, I'm not sure if Celestia has a clear niche. Nonetheless, we could see smaller dApp developers adopting Celestia as their Lisk solution as they may lack the resources to build a sovereign blockchain. Still, I'm not entirely convinced this is enough to make Celestia a winner in the Lisk space.
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Cosmos
Cosmos' Inter-Blockchain Communication Protocol (IBC) provides a fully open and independent application chain from the Cosmos Hub and its native token $ATOM, differentiating it from its competitors Polkadot and Ethereum. But this is both positive and negative for the Cosmos ecosystem. On the one hand, it facilitates the growth of the ecosystem, while on the other hand, it is detrimental to the value proposition of the Cosmos Hub.
“The flexibility that Cosmos provides for developers to create their own chains (custom inflation schedule, transaction fees, transaction types, security models, coding languages, etc.) and the value accumulation mechanism that IBC provides for application chains (MEV, transaction costs, etc.) Enabling the ecosystem to attract those with the technical skills to vertically integrate their dApps. Look at dYdX, arguably the largest app in crypto, which migrated from ZK-rollup to Lisk this year.”
– Messari encryption paper in 2023.
When evaluating the entire Cosmos ecosystem, the IBC protocol is expected to be a major player in interoperability by connecting application chains and different L2s. Its permissionless nature and free model make creating an IBC chain extremely attractive for developers looking to start a Lisk chain.
Also, when comparing ecosystems, Cosmos consistently leads in terms of innovation. Other competitors have only focused on Lisk as a solution for scalability, but Cosmos has moved beyond that stage, and skilled developers are now exploring how Lisk can improve the product and economic design of their dApps. The Cosmos ecosystem is expected to be at the forefront of innovation in DeFi, as evidenced by dYdX and SushiSwap's move to Cosmos.
However, the future of the main hub, the Cosmos Hub itself, is less certain. The largest and most successful dApps may design their economic models to leverage autonomy to the exclusion of Hubs while finding enough validators to secure their chains. While ICS aims to make launching Lisks easier and cheaper by eliminating the process of finding validators, projects still require professional blockchain developers. Therefore, even with ICS, major costs and complexities remain.
Also, even if smaller projects choose to go the ICS route, it's not clear that this would benefit the Cosmos Hub. Smaller chains generate limited transaction volume and have little value to the Hub and its validators and stakeholders. Therefore, the Hub may lose money securing such chains. Without dApps that bring significant value, ICS could be a disappointment.
in conclusion
in conclusion
Despite having a strong community, team, and large institutional support, I struggle to see how Polkadot will find a good product-market fit due to its expensive and complicated developer onboarding process.
As for Avalanche, I think it is very suitable for the blockchain game field and can provide the best solution in this field. However, I'm not sure it will be able to beat competitors that leverage the Ethereum brand.
At the same time, I foresee the Cosmos ecosystem becoming a major player in the Lisk space, especially in the DeFi space, thanks to its innovative revenue mechanism. While I predict the Cosmos ecosystem will thrive, I am concerned about the Cosmos Hub as ICS may struggle to find a product that fits the market.
For developers looking for Lisk but don't have the resources to develop their own blockchain, Celestia offers a cheaper and simpler solution.
While there is fierce competition in the Lisk space, it is not a winner-takes-all arena. Different architectures and missions allow them to serve different niches and even work together.
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.
risk warning:
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.
