Application-specific blockchains, or application chains, are specifically designed to support the creation and deployment of decentralized applications (DApps). In an app chain, each app runs on its own blockchain, linked to the main chain. This allows for greater scalability and flexibility, as each application can be customized and optimized for its specific use case.
Appchains are also an alternative solution for scalability to modular blockchains or layer 2 protocols. Appchains have similar characteristics to modular blockchains in that it is a type of blockchain architecture that separates the data, transaction processing, and consensus processing elements in separate modules that can be combined in various ways. These can be thought of as “pluggable modules” that can be interchanged or combined depending on the use case.
This separation of duties is the reason why there is greater flexibility and adaptability to application chains compared to traditional monolithic blockchain architectures, where all these functions are integrated into a single program. They enable the creation of customized, sovereign blockchains, designed to meet specific needs and use cases, where users can focus on specific tasks while offloading the rest to other layers. This can be beneficial with regard to resource management, as it allows different parties to specialize in different areas and share the workload.
The scalability of blockchain technology is a key factor for its future success. Due to scalability issues in Layer 1 blockchain architecture, there has been a shift towards the use of modular blockchains or Layer 2 protocols, which offer solutions to the limitations of monolithic systems.
As a result, the adoption of layer 2 networks is increasing, as they provide a way to address scalability and other issues in current blockchain networks, particularly for a layer 1 like Ethereum. Layer 2 protocols offer lower transaction fees, fewer capacity constraints, and faster transaction speeds which paved the way for their growing adoption, capturing the attention of 600,000 users.
Application Chains vs. Monolithic Chains
Application chains are not completely different from monolithic chains. Monolithic chains, such as appchains, follow the thesis of the fat protocol where a single chain handles most of the decentralized finance (DeFi) activity and put everything on one layer with a valuable token. However, Layer 1 blockchains are difficult to scale. Application chains currently do not have the same limited space issues as monolithic chains, but may use modular solutions in the future if necessary.
“The fundamental value proposition of application chains is sovereign interoperability,” explained Stevie Barker, a researcher at Osmosis Labs, a decentralized commercial protocol in the Cosmos ecosystem. She told Cointelegraph:
“Application chains are sovereign because they have fine control over their entire stack and any other areas of the blockchain structure and operations that they wish to customize. And they are interoperable because application chains can freely interact with each other.”
Application chains can optimize the user experience and make execution faster, easier, and more efficient. They can also secure their chain by recruiting validators to implement code, produce blocks, relay transactions, and more. Alternatively, they can borrow the value from another set of validators, interchain values, or combine both to share values across the entire interchain.
Osmosis has developed a new version of proof-of-stake called “superfluid staking” that aims to improve both security and user experience. This approach allows liquidity providers to stake the tokens in their liquidity pool (LP) shares to help secure the chain. In return, they will receive staking rewards in addition to their LP rewards, which can help increase the efficiency of their capital. This can be a more seamless and integrated approach to staking, as liquidity providers can simultaneously earn rewards for their LP and staking activities.
With current advancements, the entire inter-chain will be able to use their staked assets for DeFi activities without risking centralization or compromising on-chain security, as is often the case with traditional liquid staking derivatives. This will allow users to take advantage of DeFi opportunities while maintaining the security and decentralization of their assets at stake. Valentin Pletnev, CEO and co-founder of Quasar, a decentralized app chain designed for asset management, told Cointelegraph:
“Owning the entire stack from top to bottom allows for easy generation of value and purpose for the token; it also allows for greater efficiency, as chains can be designed around and optimized for a specific use case.”
Application chains can also effectively manage the Maximum Extractable Value (MEV), which refers to the profits obtained by those who have the power to decide the order and inclusion of transactions. MEV has been a problem for DeFi users in various ecosystems. However, app chains can more quickly implement on-chain solutions that significantly reduce malicious MEVs and redirect healthy arbitrage profits from third parties to the app chain itself. This can help improve the user experience and reduce the potential for exploitation in the DeFi ecosystem.
Application chains allow radical blockchain experiments to be carried out quickly. While Tendermint and the Cosmos SDK are notable technologies that allow applications to work communication between block chains (IBC) protocol-ready blockchains quickly, the full Cosmos stack is not required to become an IBC-connected application chain. Barney Mannerings, co-founder of Vega Protocol, an application-specific blockchain for derivatives trading, told Cointelegraph:
“As the space moves to a multi-chain, multi-tier world, where assets can be moved between specific chains and layers of scale, distributing an application across multiple hubs may make sense.”
Application chains offer a path for the new communication standard of blockchains. Cross-ecosystem native token transfer removes bridges and enables cross-chain native token transfer.
Application-specific blockchains also offer several valuable benefits that make them attractive to both developers and users. Their ability to improve application scalability, performance, security, and interoperability makes them a valuable tool for building the next generation of software. As technology continues to evolve, we are likely to see more and more developers adopting application-specific blockchains for their applications.
However, the use of multiple application chains can make them more complex and difficult to manage compared to other types of blockchain technology. Since each application runs on its own blockchain, managing and maintaining multiple blockchains can be resource-intensive and time-consuming. Integrating different application chains can be challenging due to potential compatibility issues.
In general, the advantages and disadvantages of app chains depend on the specific use case and the requirements of the DApps under development. In some cases, application chains may provide the ideal solution for building and deploying DApps, while other types of blockchain technology may be more suitable in others.