The Power of AppChains & RollApps

The Blockchain Sector 2023-01-26

App chains are becoming popular following the migration of DYDX exchange to a Cosmos based dedicated blockchain specific to that application. Users can deposit funds into the blockchain and use them for trading on the DYDX platform.

When they want to withdraw, they simply bridge the funds back out of the appchain onto their native blockchain of choice.

“Trades are settled in an L2 (layer-2) system, which publishes ZK (zero-knowledge) proofs periodically to an Ethereum smart contract in order to prove that state transitions within L2 are valid. Funds must be deposited to the Ethereum smart contract before they can be used to trade on dYdX”
https://dydxprotocol.github.io/v3-teacher/#general

This system is powerful for protocols that need high speed transactions and a lot of throughput, as they have the entire utility of the chain and can scale it up to meet the demands of the market. However, currently app chains lack the composability of smart contracts deployed on the chain.

ZK rollups have the potential to change this. One of their “superpowers” is the composability potential between them, which allows them to share liquidity. This requires an authorization procedure where each roll-up authorizes the alternative chain to have access to a shared liquidity pool. In the future, this could make it possible to build ZK rollapps that have the same benefits of increased capacity, higher speeds, and more control over the network, without sacrificing composability.

Developers need to be able to build on the Lego bricks of DeFi

In the blockchain sector, we have seen the majority of DeFi and NFT value accrued on the Ethereum network, with some segmentation to alternative layer ones and more recently layer two's. For the most part, transactions don't utilize cross-chain transfers, as we tend to operate on one chain or another. This lack of communication between chains leads to a less than ideal user experience.

What we need is an infinitely scalable system that provides seamless interaction for the user. A user doesn't want to worry about which blockchain they're on. They just want to carry out a transaction and have their funds, data, and other information work seamlessly across multiple chains to provide the scale needed to interact with complex decentralized applications.

I hope that we see another Ethereum killer blockchain that offers an alternative development environment that is compelling for blockchain developers. I think there's a strong chance that the future will be built on layer two ZK rollups and ZK rollapps.

For developers, it will simply be a choice of whether they need a dedicated blockchain, and there may be a case for starting on a layer two and then scaling up to their own chain once demand requires it.

For users, there will likely be some kind of auto management facility in their digital wallet that can navigate this omni-chain world. Users will connect to a decentralized application through MetaMask, which will automatically detect the chain and switch if necessary. If they need to send assets, it will automatically bridge the assets for them in the most efficient way. A lot of the routing will be done at the contract level and the digital wallet level, but for the user, it will just work seamlessly.